Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Endogenous Growth, Efficency Wages, and Persistent Unemployment
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.
Keywords: Endogenous Growth; Product Innovation; Equilibrium Unemployment; Efficiency Wages.; (follow links to similar papers)
JEL-Codes: O40; (follow links to similar papers)
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