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Technological Progress, Downsizing and Unemployment

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  • Boone, Jan

Abstract

This paper presents a model where the form of innovations is endogenous. It is shown that with labour market imperfections, which raise the wage above the shadow price of labour, firms over-invest in innovations cutting labour costs and under-invest in increasing quality. As a result, the market outcome features lower long run growth, higher unemployment and lower welfare than the social optimum. It is further shown that a firm's incentives to cut labour costs are increased as wages rise and as the firm declines. Finally, a rise in competition increases incentives to downsize for firms with below average quality performance.

Suggested Citation

  • Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
  • Handle: RePEc:ecj:econjl:v:110:y:2000:i:465:p:581-600
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    Citations

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    Cited by:

    1. Ziesemer, Thomas, 2002. "Monopolistic Competition, Search Unemployment, and Macroeconomics," Research Memorandum 021, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    2. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2016. "Unions, innovation and cross-country wage inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 104-118.
    3. repec:eee:jeborg:v:137:y:2017:i:c:p:90-104 is not listed on IDEAS
    4. Dong, Xiao-yuan & Xu, Lixin Colin, 2009. "Labor restructuring in China: Toward a functioning labor market," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 287-305, June.
    5. Saint-Paul, Gilles, 2002. "Employment protection, international specialization, and innovation," European Economic Review, Elsevier, vol. 46(2), pages 375-395, February.
    6. Gersbach, Hans & Schniewind, Achim, 2001. "Awareness of General Equilibrium Effects and Unemployment," IZA Discussion Papers 394, Institute for the Study of Labor (IZA).
    7. Jörg Lingens, 2002. "The Impact of a Unionised Labour Market in a Schumpeterian Growth Model," Labor and Demography 0207003, EconWPA.
    8. Horst Feldmann, 2013. "Technological unemployment in industrial countries," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1099-1126, November.
    9. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2006. "Chapter 3: Economic Growth in the European Union," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 68-88, March.
    10. Chu, Angus C. & Kou, Zonglai & Liu, Xueyue, 2017. "Labor Union and the Wealth-Income Ratio," MPRA Paper 84710, University Library of Munich, Germany.
    11. Lingens, Jorg, 2003. "The impact of a unionised labour market in a Schumpeterian growth model," Labour Economics, Elsevier, vol. 10(1), pages 91-104, February.

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