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Endogenous Growth, Efficency Wages, and Persistent Unemployment

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  • Martin Zagler

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

This paper establishes theoretical relations between the level of unemployment and the economic growth rate. In a model with a monopolistically competitive manufacturing sector and a competitive innovation sector, which both pay efficiency wages, we find that the unemployment rate exhibits an unambiguously negative impact on the long-run growth performance, as it reduces the innovative capacity of the economy. Only if efficiency levels are different across sectors, we can also establish a causal relation from the growth rate to the rate of unemployment, since less innovation shifts the burden to induce efficiency towards the manufacturing sector, thus fostering unemployment.

Suggested Citation

  • Martin Zagler, 1999. "Endogenous Growth, Efficency Wages, and Persistent Unemployment," Department of Economics Working Papers wuwp066, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp066
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    Cited by:

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    10. Alberto Bucci & Fabio Fiorillo & Stefano Staffolani, 2003. "Can Market Power Influence Employment, Wage Inequality and Growth?," Metroeconomica, Wiley Blackwell, vol. 54(2‐3), pages 129-160, May.
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    More about this item

    Keywords

    Endogenous Growth; Product Innovation; Equilibrium Unemployment; Efficiency Wages.;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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