Growth, Unemployment and Tax/Benefit system in European Countries
AbstractThis paper analyzes how the frictions in the labor market simultaneously affect the economic growth and the long run unemployment. To this goal, we develop a Schumpeterian model of endogenous growth: agents have the choice of being employed or being doing R&D activities. Unemployment is caused by the wage-setting behavior of unions. We show that: (i) High labor costs or powerful trade unions lead to higher unemployment and lower economic growth. (ii) Efficient bargain allows to increase employment, at the price of a lower growth rate. These theoretical predictions are consistent with our empirical analysis based on 183 European Regions, between 1980-2003. Finally, in a welfare exercise, we show that the optimal growth rate can be reached by compensating the distortions on the goods-sector due to the growth process with the distortions induced by the labor market rigidities.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7909.
Date of creation: 14 Mar 2008
Date of revision:
Endogenous growth; unemployment; labor market institutions; welfare;
Find related papers by JEL classification:
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-DGE-2008-03-25 (Dynamic General Equilibrium)
- NEP-LAB-2008-03-25 (Labour Economics)
- NEP-MAC-2008-03-25 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alberto Alonso & Cristina Echevarria & Kien C. Tran, 2004. "Long-Run Economic Performance and the Labor Market," Southern Economic Journal, Southern Economic Association, vol. 70(4), pages 905-919, April.
- Francesco Daveri & Guido Tabellini, .
"Unemployment, Growth and Taxation in Industrial Countries,"
122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
- Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1681, C.E.P.R. Discussion Papers.
- Nickell, S. & Layard, R., 1997.
"Labour Market Institutions and Economic Performance,"
Papers, Centre for Economic Performance & Institute of Economics
23, Centre for Economic Performance & Institute of Economics.
- Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
- Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
- Aghion, Philippe & Howitt, Peter, 1991.
"Growth and Unemployment,"
CEPR Discussion Papers, C.E.P.R. Discussion Papers
577, C.E.P.R. Discussion Papers.
- Blanchard, Olivier & Wolfers, Justin, 2000.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
Economic Journal, Royal Economic Society,
Royal Economic Society, vol. 110(462), pages C1-33, March.
- Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.