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Contracting Productivity Growth

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Author Info
Patrick Francois
Joanne Roberts

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Abstract

In this paper, we analyze the interactions between growth and the contracting environment in the production sector. Allowing incompleteness in contracting implies that viable production relationships for firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth. The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature. We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment. In particular, we demonstrate how this interaction can lead to a productivity slowdown and a shift in labour market contracts toward more short term arrangements. We show the consistency of an increase in the proportion of the labour force under short term employment, unchanged turnover, increased relative returns of workers in high productivity sectors, and increased income inequality, with a productivity slowdown of finite duration.

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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number jorob-99-02.

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Length: 34 pages
Date of creation: 11 Jun 2000
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Handle: RePEc:tor:tecipa:jorob-99-02

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Related research
Keywords: Endogenous Growth; Incomplete Contracting;

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Find related papers by JEL classification:
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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References listed on IDEAS
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Cited by:
(explanations, 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.)

  1. Ottaviano, Gianmarco Ireo Paolo, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Vertical Integration and Distance to Frontier," CEPR Discussion Papers 3565, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Martimort, David & Verdier, Thierry, 2003. "The Agency Cost of Internal Collusion and Schumpeterian Growth," IDEI Working Papers 170, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  4. Patrick Francois & Huw Lloyd-Ellis, 2004. "Investment Cycles," Macroeconomics 0405005, EconWPA, revised 05 May 2004. [Downloadable!]
  5. Olaf Posch & Klaus Wälde, 2006. "Natural volatility, welfare and taxation," Working Papers 2007_33, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  6. Francois, P. & Lloyd-Ellis, H., 2003. "Co-movement, capital and contracts: 'normal' cycles through creative destruction," Discussion Paper 62, Tilburg University, Center for Economic Research. [Downloadable!]
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