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


  • Jörg Lingens

    (University of Kassel)


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, EconWPA.
  • Handle: RePEc:wpa:wuwpla:0207003
    Note: Type of Document - PDF; pages: 17

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    References listed on IDEAS

    1. Palokangas, Tapio, 1989. " Union Power in the Long Run Reconsidered," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(3), pages 625-635.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    3. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    4. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-193.
    5. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
    6. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    7. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, vol. 37(4), pages 837-854, May.
    8. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
    9. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
    10. Andreas Irmen & Berthold U. Wigger, 2002. "Trade Union Objectives and Economic Growth," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 1-49, February.
    11. Kemp, Murray C & Long, Ngo Van, 1987. " Union Power in the Long Run," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(1), pages 103-113.
    12. Michael Bräuninger, 2000. "Wage Bargaining, Unemployment, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 646-646, December.
    13. Henri L. F. De Groot, 2001. "Unemployment, Growth, and Trade Unions," Growth and Change, Wiley Blackwell, vol. 32(1), pages 69-91.
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    More about this item


    Labour Unions; Unemployment; Growth; R&D;

    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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