How do Labor Market Institutions affect the Link between Growth and Unemployment: the case of the European countries

Stéphane Adjemian, Francois Langot and Coralia Quintero-Rojas
Authors registered in the RePEc Author Service: Coralia Azucena Quintero Rojas

European Journal of Comparative Economics, 2010, vol. 7, issue 2, 347-371

Abstract: This paper analyzes how the frictions in the labor market simultaneously affect the economic growth and the long run unemployment. To this goal, we develop a schumpeterian model of endogenous growth: agents have the choice between employment and R and D activities. Unemployment is caused by the wage-setting behavior of unions. We show that: (i) Increases in the labor costs or in the power of trade unions lead to higher unemployment and lower economic growth. (ii) Efficient bargain allows to increase employment, at the price of a lower growth rate. These theoretical predictions are consistent with the insights from our empirical analysis based on 183 European Regions, between 1980-2003

Keywords: endogenous growth; unemployment; labor market institutions (search for similar items in EconPapers)
JEL-codes: E24 J51 O33 O4 O52 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:liu:liucej:v:7:y:2010:i:2:p:347-371

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