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A Policy Conundrum: Schumpeterian Growth or Job Creation?

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  • Dinopoulos, Elias
  • Grieben, Wolf-Heimo
  • Şener, Fuat

Abstract

This paper formally and quantitatively analyzes the impact of economic policies on long-run growth and equilibrium unemployment. We construct a dynamic general equilibrium model featuring innovation contests through creative destruction, fully-endogenous Schumpeterian growth, rent-protection activities by incumbent firms, and search-based unemployment. We find that industrial policies in the form of production subsidies/taxes to small young firms or large adult firms and R&D subsidies/taxes to entrepreneurs suffer from the policy conundrum: they lead to either faster growth with fewer jobs or slower growth with more jobs. In contrast, labor market policies reducing job vacancy costs avoid the policy conundrum by generating higher growth and lower unemployment.

Suggested Citation

  • Dinopoulos, Elias & Grieben, Wolf-Heimo & Şener, Fuat, 2023. "A Policy Conundrum: Schumpeterian Growth or Job Creation?," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001906
    DOI: 10.1016/j.econmod.2023.106378
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    More about this item

    Keywords

    Economic growth; Equilibrium unemployment; Industrial policies; Vacancy creation; Rent protection;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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