Innovation, Growth, and Labor Market Policy
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.
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