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Innovation, Growth, and Labor Market Policy


  • Dale T. Mortensen


The purpose of the paper is to study the effects of labor market policies on the equilibrium rate of growth in the Grossman-Helpman model. For that purpose, the version of the their model developed by Klette and Kortum to explain the distribution of firm size is extended to allow for both capital and labor inputs in the production process. The effects of minimum wages, payroll taxes, hiring subsidies, and employment protections are derived. For the sake of comparison, both the case of a competitive labor market and another in which rents are shared as a consequence of search friction are considered. Reference: Klette, T.J., and S. Kortum (2002) “Innovating Firms and Aggregate Innovation,” NBER Working Paper 8819.

Suggested Citation

  • Dale T. Mortensen, 2004. "Innovation, Growth, and Labor Market Policy," 2004 Meeting Papers 77, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:77

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    More about this item


    innovation; growth; search; labor policy;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity


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