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Schumpeterian Restructuring

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  • Francois, Patrick
  • Lloyd-Ellis, Huw

Abstract

We develop a Shumpeterian theory of business cycles that relates job creation, job destruction and wages over the cycle to the processes of firm restructuring, innovation and implementation that drive long—run growth. Due to incentive problems, production workers are employed via relational contracts and experience involuntary unemployment. Job destruction and firm turnover are counter—cyclical, but labour productivity growth and job creation are procyclical. Endogenous fluctuations in job creation on the intensive margin are the dominant source of changes in employment growth. Our framework also highlights the countercyclical forces on wages due to restructuring, and illustrates the relationship between the cyclicality of wages and long—run productivity growth.

Suggested Citation

  • Francois, Patrick & Lloyd-Ellis, Huw, 2005. "Schumpeterian Restructuring," Queen's Economics Department Working Papers 273509, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273509
    DOI: 10.22004/ag.econ.273509
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