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The Impact of a Unionised Labour Market in a Schumpeterian Growth Model

  • Jörg Lingens

    (University of Kassel)

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    This paper extends the seminal creative destruction growth model of Aghion/Howitt (1992) to investigate the relationship between unemployment and growth. We distinguish low-skilled and high-skilled labour and assume that a union bargains over the low-skilled labour wage. This causes unemployment, but the growth e ect is ambiguous. On the one hand the higher wage will squeeze expected pro ts of innovators, which is bad for growth. On the other hand the union a ects the marginal product of high-skilled labour and hence the high-skilled wage in the manufacturing sector declines. This causes a "migration" of high-skilled labour from the manufacturing into the research sector. This e ect is growth enhancing. We show that the overall e ect depends crucially on the elasticity of substitution between high-skilled and low-skilled labour. With an elasticity less than one the "good" growth e ect dominates the bad, and vice versa. In the Cobb Douglas case the two e ects cancel out.

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    File URL: http://128.118.178.162/eps/lab/papers/0207/0207003.pdf
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    Paper provided by EconWPA in its series Labor and Demography with number 0207003.

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    Length: 17 pages
    Date of creation: 15 Jul 2002
    Date of revision:
    Handle: RePEc:wpa:wuwpla:0207003
    Note: Type of Document - PDF; pages: 17
    Contact details of provider: Web page: http://128.118.178.162

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    1. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
    2. Henri L. F. De Groot, 2001. "Unemployment, Growth, and Trade Unions," Growth and Change, Wiley Blackwell, vol. 32(1), pages 69-91.
    3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    4. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
    5. Andreas Irmen & Berthold U. Wigger, 2001. "Trade Union Objectives and Economic Growth," CESifo Working Paper Series 551, CESifo Group Munich.
    6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    7. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
    8. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    9. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
    10. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
    11. Palokangas, Tapio, 1989. " Union Power in the Long Run Reconsidered," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(3), pages 625-35.
    12. Kemp, Murray C & Long, Ngo Van, 1987. " Union Power in the Long Run," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(1), pages 103-13.
    13. Michael Bräuninger, 2000. "Wage Bargaining, Unemployment, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 646-, December.
    14. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
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