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Technical Change is Induced: Implications for Growth, Distribution, and Employment

By Daniele Tavani


In a simple one-sector economy operating at full capacity, workers and firms bargain à la [Nash (1950)] over wages and productivity gains taking into account the trade-offs faced by firms in choosing factor-augmenting technologies. The aggregate environment that arises from self-interested behavior by economic agents, thus producing decision rules on wages, productivity gains, savings and investment, is described by a two-dimensional dynamical system in the employment rate and output/capital ratio. The economy converges cyclically to a long-run equilibrium involving a Harrod-neutral profile of technical change, a constant rate of employment of labor, and constant input shares. The type of oscillations predicted by the model is qualitatively consistent with the available data on the United States (1963-2003), replicates the dynamics found in earlier models of growth cycles such as [Goodwin (1967)] [Shah and Desai (1981)], [van der Ploeg (1987)], and is verified numerically in simulations. Institutional change, as captured by variations in workers ’ bargainin

Topics: Goodwin Growth Cycle, Bargaining, Induced Technical Change, Factor Shares, Employment
Year: 2011
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