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

Author

Listed:
  • Jörg Lingens

    (University of Kassel)

Abstract

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.

Suggested Citation

  • Jörg Lingens, 2002. "The Impact of a Unionised Labour Market in a Schumpeterian Growth Model," Labor and Demography 0207003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpla:0207003
    Note: Type of Document - PDF; pages: 17
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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