Growth, Training Leave and Unemployment

Minna Selene Svane

No 98-14, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper analyzes the effects of a training leave benefit in a two sector model of endogenous growth, where unemployment is created by the existence of monopoly labor unions. There is a final goods sector and an education sector that provides the facilities to up-grade the skills of the labor force. The main result is that it is optimal to charge a tuition fee instead of giving a benefit in an economy with involuntary unemployment caused by monopoly labor unions. Furthermore, it is only welfare improving to undertake growth enhancing measures as long as the tuition fee is bigger than its optimal level. Moreover, an increase in the training leave benefit leads to a higher rate of balanced growth and at the same time to a lower rate of unemployment. Finally, an increase in the training leave benefit leads to the same transitional dynamics in the consumption-capital and the capital-labor ratio as an increase in the labor income tax, but the latter has a negative growth rate effect.

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