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Contracting Productivity Growth

Author

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  • Francois, P.

    (Tilburg University, Center For Economic Research)

  • Roberts, J.

Abstract

In this paper, we analyze the interactions between growth and the contracting environment in the production sector.Allowing incompleteness in contracting implies that viable production relationships for firms and workers, and therefore the profitability of industries, depend on the rates of innovation and growth.The speed at which new innovations arrive in turn depends on the profitability of production, for the usual reasons examined in the endogenous growth literature.We show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment.In particular, we demonstrate that a technological shock (increasing productivity of research) can, through this interaction, lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter-term "contractor" type arrangements.We show the consistency of an increase in the proportion of the labor force under short term employment, increased relative returns of workers in high productivity sectors, and increased income inequality, with a productivity slowdown of finite duration.

Suggested Citation

  • Francois, P. & Roberts, J., 2001. "Contracting Productivity Growth," Discussion Paper 2001-35, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:7c9a1efd-33c0-4355-a101-4bd8f06c684e
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    References listed on IDEAS

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    Cited by:

    1. Shingo Ishiguro, 2011. "Relationships and Growth," Discussion Papers in Economics and Business 11-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    2. David Martimort & Thierry Verdier, 2004. "The Agency Cost of Internal Collusion and Schumpeterian Growth," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1119-1141.
    3. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2007. "Contracts and Technology Adoption," American Economic Review, American Economic Association, vol. 97(3), pages 916-943, June.
    4. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2003. "Vertical Integration and Distance to Frontier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 630-638, 04/05.
    5. Alessandra Bonfiglioli & Gino Gancia, 2014. "Growth, Selection and Appropriate Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 21-38, January.
    6. Olaf, POSCH & Klaus, WAELDE, 2005. "Natural volatility, welfare and taxation," Discussion Papers (ECON - Département des Sciences Economiques) 2005009, Université catholique de Louvain, Département des Sciences Economiques.
    7. Mathias Thoenig & Thierry Verdier, 2010. "A macroeconomic perspective on Knowledge Management," Journal of Economic Growth, Springer, vol. 15(1), pages 33-63, March.
    8. Pfann Gerard A. & Hamermesh Daniel S., 2008. "Two-Sided Learning with Applications to Labor Turnover and Worker Displacement," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(5-6), pages 423-445, October.
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    11. Francois, P. & Lloyd-Ellis, H., 2003. "Co-movement, Capital and Contracts : 'Normal' Cycles Through Creative Destruction," Discussion Paper 2003-62, Tilburg University, Center for Economic Research.
    12. Plehn-Dujowich, Jose M., 2009. "Endogenous growth and adverse selection in entrepreneurship," Journal of Economic Dynamics and Control, Elsevier, vol. 33(7), pages 1419-1436, July.
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    15. Lars Jonung, 2005. "Proceedings of the 2004 first annual DG ECFIN research conference on “Business Cycles and Growth in Europeâ€," European Economy - Economic Papers 2008 - 2015 227, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    16. Uwe Jirjahn, 2009. "The Introduction of Works Councils in German Establishments - Rent Seeking or Rent Protection?," British Journal of Industrial Relations, London School of Economics, vol. 47(3), pages 521-545, September.

    More about this item

    Keywords

    economic growth; contracts; productivity;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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