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Labour Market Regulation, Productivity-Improving R&D and Endogenous Growth

  • Palokangas, Tapio K.

    ()

    (University of Helsinki)

We present a growth model in which R&D increases productivity, union-firm bargaining determines the distribution of rents and the government can support unions by labour market regulation. We show that if unions are initially very strong, regulation increases only the workers’ profit share and has no impact on employment and growth. Otherwise, regulation increases wages. Because firms try to escape this cost increase through the improvement of productivity by R&D, the economy grows faster. Regulation (deregulation) is desirable when the growth rate is below (above) some critical level.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 720.

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Length: 21 pages
Date of creation: Feb 2003
Date of revision:
Publication status: published as "Union-Firm Bargaining, Productivity Improvement and Endogenous Growth" in: Labour, 2004, 18 (2), 191-205
Handle: RePEc:iza:izadps:dp720
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  1. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Summers, Lawrence H, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 383-88, May.
  3. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  4. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  5. Peretto, Pietro F., 2000. "Market power, Growth and Unemployment," Working Papers 00-21, Duke University, Department of Economics.
  6. Garino, Gaia & Martin, Christopher, 2000. "Efficiency wages and union-firm bargaining," Economics Letters, Elsevier, vol. 69(2), pages 181-185, November.
  7. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
  8. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  9. 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.
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