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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://econwpa.repec.org/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://econwpa.repec.org

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    1. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
    2. Andreas Irmen & Berthold U. Wigger, 2002. "Trade Union Objectives and Economic Growth," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 49-, February.
    3. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
    4. Palokangas, Tapio, 1989. " Union Power in the Long Run Reconsidered," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(3), pages 625-35.
    5. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
    6. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
    7. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
    8. 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.
    9. 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.
    10. Michael Bräuninger, 2000. "Wage Bargaining, Unemployment, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(4), pages 646-, December.
    11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    12. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
    13. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
    14. 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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