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Endogenous growth, efficiency wages and persistent unemployment

By Martin Zagler

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. (author's abstract)Series: Department of Economics Working Paper Serie

Topics: JEL O40, endogenous growth / product innovation / equilibrium unemployment / efficiency wages
Publisher: Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business
Year: 1999
OAI identifier: oai:epub.wu-wien.ac.at:epub-wu-01_15d

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