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Endogenous Technical Change, Employment and Distribution in the Goodwin Model

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  • Daniele Tavani
  • Luca Zamparelli

Abstract

The Goodwin (1967) model of the growth cycle assigns distributional conflict a central role in the dynamics of capital accumulation, but is silent on the determinants of technical change. Following Shah and Desai (1981), previous studies focused on the effects of the direction, or bias of technical change on the growth cycle (van der Ploeg, 1987; Foley, 2003; Julius, 2005). Either implicitly or explicitly, these contributions adopted the induced innovation hypothesis by Kennedy (1964): there exists an innovation possibility frontier out of which profit-maximizing firms freely choose the optimal combination of capital- and labor-augmenting technical change, without having to allocate resources to R&D. Our focus is instead on the choice of intensity of technical change, that is the share of R&D expenditure in output. In our framework, innovation is a costly, forward-looking process financed out of profits, and pursued by owners of capital stock (capitalists) in order to foster labor productivity and save on labor requirements. Our main findings are: (i) similarly to the literature on the direction of technical change, an endogenous intensity of R&D ultimately dampens the distributive cycle; however, (ii) steady state per capita growth, income distribution and employment rate are endogenous, and depend on the capitalists' discount rate, the institutional variables regulating the labor market, and the size of subsidies to R&D activity. Implementing the model numerically, we show that: (iii) a reduction in the capitalists' discount rate lowers per-capita growth, the employment rate and the labor share; (iv) an increase in workers' bargaining power raises the labor share, while reducing employment and per-capita growth; (v) a balanced budget increase in the R&D subsidy also fosters per-capita growth, at the expenses of the labor share. The variations corresponding to (iv) and (v), however, can be small.

Suggested Citation

  • Daniele Tavani & Luca Zamparelli, 2013. "Endogenous Technical Change, Employment and Distribution in the Goodwin Model," IMK Working Paper 127-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  • Handle: RePEc:imk:wpaper:127-2013
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    File URL: http://www.boeckler.de/pdf/imk_wp_127_2013
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. A. J. Julius, 2005. "Steady-State Growth And Distribution With An Endogenous Direction Of Technical Change," Metroeconomica, Wiley Blackwell, vol. 56(1), pages 101-125, February.
    3. Carlo V. FIORIO & Simon MOHUN & Roberto VENEZIANI, 2013. "Social Democracy and Distributive Conflict in the UK, 1950-2010," Departmental Working Papers 2013-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 16 May 2013.
    4. Giammario Impullitti, 2010. "International Competition And U.S. R&D Subsidies: A Quantitative Welfare Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1127-1158, November.
    5. Smulders, Sjak & van de Klundert, Theo, 1995. "Imperfect competition, concentration and growth with firm-specific R & D," European Economic Review, Elsevier, vol. 39(1), pages 139-160, January.
    6. Foley, Duncan K., 2003. "Endogenous technical change with externalities in a classical growth model," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 167-189, October.
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    Cited by:

    1. repec:nea:journl:y:2017i:35:p:53-69 is not listed on IDEAS
    2. Roberto Veneziani & Luca Zamparelli & Daniele Tavani & Luca Zamparelli, 2017. "Endogenous Technical Change In Alternative Theories Of Growth And Distribution," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1272-1303, December.

    More about this item

    Keywords

    Endogenous Technical Change; Goodwin Model; Income Shares; Employment;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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