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Schumpeterian Restructuring

  • Patrick Francois

    ()

    (University of British Columbia)

  • Huw Lloyd-Ellis

    ()

    (Queen's University)

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 pro-cyclical. Endogenous fluctuations in job creation on the intensive margin are the dominant source of changes in employment growth. Our framework also highlights the counter-cyclical forces on wages due to restructuring, and illustrates the relationship between the cyclicality of wages and long-run productivity growth. 052

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1039.pdf
File Function: First version 2005
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1039.

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Length: 46 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:qed:wpaper:1039
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  27. Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  28. Burgess, Simon & Lane, Julia & Stevens, David, 2001. "Churning dynamics: an analysis of hires and separations at the employer level," Labour Economics, Elsevier, vol. 8(1), pages 1-14, January.
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