International Labour Market Regulation and Economic Growth with Creative Destruction

A multi-country Schumpeterian growth model is constructed when there is world-wide externality in technological knowledge. Households can enter the labour force as workers or become engineers at some cost. Production employs both workers and engineers while R&D uses only engineers. Workers are unionized and labour market regulation supports union power in wage bargaining. It is shown that international coordination of labour market policy increases the growth rate and the level of welfare. When the interest-rate elasticity of consumption in the world is low (high), the simultaneous regulation (deregulation) of the labour market in all countries increases welfare.international technology transfers, labour market regulation, endogenous growth

Integration, Wage Bargaining, and Growth with Creative Destruction

We construct a Schumpeterian growth model of a common market with following properties. Households can stay as workers or become researchers at some cost. Workers are employed in production and researchers in R&D. Workers are unionized. A larger common market means a wider variety of products and more intensive goods market competition. The main findings are as follows. If the common market is able to carry out extensive labour market reforms, then it should accept new members as long as this increases consumption per capita. If no extensive reforms are feasible, then the common market should respond to excessive union power by accepting new members, which increases competition in the product market.integration, wage bargaining, creative destruction

Optimal Technology Policy with Imitation and Risk-Averting Households

A Schumpeterian growth model is constructed where R&D firms innovate to produce better versions of the products or imitate to copy existing innovations. Because firms cannot use their innovations or imitations as collateral, they finance their investment by issuing shares. Households save by purchasing these shares. The government affects the level of profits through competition policy. The main findings are the following. A small imitation subsidy slows down growth. In the first-best optimum collusion is socially optimal, but when the government cannot discriminate between innovation and imitation, it should promote product market competition.Innovation, Imitation, Endogenous growth, Technology policy

Competition, Imitation and Growth with Non-Diversifiable Risk

This paper analyzes the growth and welfare effects of competition in an endogenously-growing economy with imitation and non-diversifiable risk. The main findings are as follows. There is no imitation without positive profits during innovation races. A larger proportion of competing industries leads to slower economic growth. When competitive profits are high or low, the economy grows faster than when they are of medium size. If the government subsidizes innovation and imitation optimally, then competitive profits are positively associated with welfare. With an optimal uniform subsidy to all R&D, there is an “inverted-U” relationship between competitive profits and welfare.Imitation, competition, Schumpeterian growth

Capital Accumulation and Employment Cycles in a Model of Creative Destruction

A Schumpeterian growth model is constructed for an economy with wage bargaining. It is shown that the economy is subject to cycles in which capital, output and employment vary in fixed proportion. These increase through saving and capital accumulation until a new technology is introduced, at which moment they fall sharply due to obsolescence of capital. When the labour market is deregulated to weaken workers’ position in bargaining, the labour-capital ratio increases but the average growth rate of the economy decreases. The growth cycle can be socially optimal. An elasticity rule is given for when the labour market should be regulated and when deregulated.growth, cycles, labour unions, creative destruction

Economic Growth with Political Lobbying and Wage Bargaining

This paper examines an economy with a large number of industries, each producing a different good. Technological change follows a Poisson process where firms improve their productivity through investment in R&D. The less there are firms in the economy or the more they can coordinate their actions, the higher their profits. Labor is used in production or R&D. All workers are unionized and their wages depend on relative union bargaining power. If this power is high enough, then there is involuntary unemployment. Both workers and firms lobby the central planner of the economy which affects firms' and unions' market power. The main findings of the paper can be summarized the follows. The central planner can increase its welfare either (a) by increasing the level of income or (b) by speeding up economic growth. If (a) is more effective than (b), then the central planner eliminates union power altogether to have full employment. On the other hand, if (b) is more effective than (a), then the central planner supports labor unions to promote cost-escaping R&D.economic integration, labor unions, market power, endogenous technological change