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Labour Market Rigidity and Economic Efficiency with Non-General Purpose Technical Change


  • Grimalda, Gianluca


The contrasting effects of labour market rigidity on efficiency are investigated in a model where technological change is non-general purpose and different types of skills are available to workers. Ex ante efficiency calls for high labour market rigidity, as this favours workers’ acquisition of specific skills which have higher productivity in equilibrium. Ex post efficiency calls for low market rigidity, as this allows more workers to transfer to the innovating sector of the economy. The trade-off between these two mechanisms results in an inverse-U shaped relationship between output and labour market rigidity, which implies that a positive level of labour market rigidity is in general beneficial for the economy.

Suggested Citation

  • Grimalda, Gianluca, 1971. "Labour Market Rigidity and Economic Efficiency with Non-General Purpose Technical Change," MPRA Paper 7722, University Library of Munich, Germany, revised 12 Mar 2008.
  • Handle: RePEc:pra:mprapa:7722

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    References listed on IDEAS

    1. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    2. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
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    Cited by:

    1. Davide Castellani & Mariacristina Piva & Torben Schubert & Marco Vivarelli, 2016. "R&D and Productivity in the US and the EU: Sectoral Specificities and Differences in the Crisis," John H Dunning Centre for International Business Discussion Papers jhd-dp2016-03, Henley Business School, Reading University.
    2. Gianluca Grimalda, 2016. "Can labour market rigidity foster economic efficiency? A model with non-general purpose technical change," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(1), pages 79-99, April.
    3. Castellani, Davide & Piva, Mariacristina & Schubert, Torben & Vivarelli, Marco, 2016. "The Productivity Impact of R&D Investment: A Comparison between the EU and the US," IZA Discussion Papers 9937, Institute for the Study of Labor (IZA).

    More about this item


    Non-general purpose technology; labour market rigidity; specific and general human capital;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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