Growth, Unemployment and Tax/Benefit system in European Countries
Stéphane Adjemian () and
Francois Langot ()
Authors registered in the RePEc Author Service: Coralia Quintero Rojas ()
MPRA Paper from University Library of Munich, Germany
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 of being employed or being doing R&D activities. Unemployment is caused by the wage-setting behavior of unions. We show that: (i) High labor costs or powerful 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 our empirical analysis based on 183 European Regions, between 1980-2003. Finally, in a welfare exercise, we show that the optimal growth rate can be reached by compensating the distortions on the goods-sector due to the growth process with the distortions induced by the labor market rigidities.
Keywords: Endogenous growth; unemployment; labor market institutions; welfare (search for similar items in EconPapers)
JEL-codes: J51 E24 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Persistent link: /RePEc:pra:mprapa:7909
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