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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. 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.
    2. repec:dgr:umamer:2002021 is not listed on IDEAS
    3. Horst Feldmann, 2013. "Technological unemployment in industrial countries," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1099-1126, November.
    4. Thomas Ziesemer, 2005. "Monopolistic Competition And Search Unemployment," Metroeconomica, Wiley Blackwell, vol. 56(3), pages 334-359, July.
    5. Saint-Paul, Gilles, 2002. "Employment protection, international specialization, and innovation," European Economic Review, Elsevier, vol. 46(2), pages 375-395, February.
    6. Chu, Angus C. & Kou, Zonglai & Liu, Xueyue, 2018. "Labor union and the wealth-income ratio," Economics Letters, Elsevier, vol. 167(C), pages 29-35.
    7. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2022. "Wage bargaining and product innovation: The role of market expansion effect," Manchester School, University of Manchester, vol. 90(3), pages 319-340, June.
    8. 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.
    9. Manuel Rico & Naresh R. Pandit & Francisco Puig, 2021. "SME insolvency, bankruptcy, and survival: an examination of retrenchment strategies," Small Business Economics, Springer, vol. 57(1), pages 111-126, June.
    10. Ziesemer, Thomas, 2002. "Monopolistic Competition, Search Unemployment, and Macroeconomics," Research Memorandum 021, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    11. Beladi, Hamid & Mukherjee, Arijit, 2017. "Union bargaining power, subcontracting and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 90-104.
    12. 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.
    13. Chung-Hui Lai & Chen-Sheng Yang, 2018. "The Effects of Unionization in an R&D Growth Model with (In)determinate Equilibrium," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(2), pages 107-132, August.
    14. Gersbach, Hans & Schniewind, Achim, 2001. "Awareness of General Equilibrium Effects and Unemployment," IZA Discussion Papers 394, Institute of Labor Economics (IZA).
    15. Jörg Lingens, 2002. "The Impact of a Unionised Labour Market in a Schumpeterian Growth Model," Labor and Demography 0207003, University Library of Munich, Germany.
    16. 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, vol. 0, pages 68-88, March.
    17. Lai, Chung-Hui & Wang, Vey, 2010. "The effects of unionization in an R&D growth model with (In)determinate equilibrium," MPRA Paper 27748, University Library of Munich, Germany.
    18. Sinha, Avik & Adhikari, Arnab & Jha, Ashish Kumar, 2021. "Innovational Duality and Sustainable Development: Finding Optima amidst Socio-Ecological Policy Trade-off in post-COVID-19 Era," MPRA Paper 110946, University Library of Munich, Germany, revised 2021.
    19. Haoming Liu & Jinli Zeng, 2008. "Determinants of Long‐Run Unemployment," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 775-793, January.

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