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The Impact of a Unionised Labour Market in a Schumpeterian Growth Model

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  • Jörg Lingens

    (University of Kassel)

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    Abstract

    This 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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    File URL: http://128.118.178.162/eps/lab/papers/0207/0207003.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Labor and Demography with number 0207003.

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    Length: 17 pages
    Date of creation: 15 Jul 2002
    Date of revision:
    Handle: RePEc:wpa:wuwpla:0207003

    Note: Type of Document - PDF; pages: 17
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    Web page: http://128.118.178.162

    Related research

    Keywords: Labour Unions; Unemployment; Growth; R&D;

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    1. Henri L. F. De Groot, 2001. "Unemployment, Growth, and Trade Unions," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 32(1), pages 69-91.
    2. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
    3. Andreas Irmen & Berthold U. Wigger, 2000. "Trade Union Objectives and Economic Growth," CSEF Working Papers 34, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
    6. Palokangas, Tapio, 1989. " Union Power in the Long Run Reconsidered," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(3), pages 625-35.
    7. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    8. Kemp, Murray C & Long, Ngo Van, 1987. " Union Power in the Long Run," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(1), pages 103-13.
    9. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
    10. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
    11. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
    12. Michael Bräuninger, 2000. "Wage Bargaining, Unemployment, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 646-, December.
    13. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, vol. 37(4), pages 837-854, May.
    14. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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