The Impact of a Unionised Labour Market in a Schumpeterian Growth Model
AbstractThis paper extends the seminal creative destruction growth model of Aghion/Howitt (1992) to investigate the relationship between unemployment and growth. We distinguish low-skilled and high-skilled labour and assume that a union bargains over the low-skilled labour wage. This causes unemployment, but the growth e ect is ambiguous. On the one hand the higher wage will squeeze expected pro ts of innovators, which is bad for growth. On the other hand the union a ects the marginal product of high-skilled labour and hence the high-skilled wage in the manufacturing sector declines. This causes a "migration" of high-skilled labour from the manufacturing into the research sector. This e ect is growth enhancing. We show that the overall e ect depends crucially on the elasticity of substitution between high-skilled and low-skilled labour. With an elasticity less than one the "good" growth e ect dominates the bad, and vice versa. In the Cobb Douglas case the two e ects cancel out.
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Bibliographic InfoPaper provided by EconWPA in its series Labor and Demography with number 0207003.
Length: 17 pages
Date of creation: 15 Jul 2002
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Labour Unions; Unemployment; Growth; R&D;
Find related papers by JEL classification:
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-31 (All new papers)
- NEP-LAB-2002-07-31 (Labour Economics)
- NEP-MAC-2002-07-31 (Macroeconomics)
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