Technological Progress, Downsizing and Unemployment

Jan Boone

Economic Journal, 2000, vol. 110, issue 465, 581-600

Abstract: This paper presents a model where the form of innovations is endogenous. It is shown that with labour market imperfections, which raise the wage above the shadow price of labour, firms over-invest in innovations cutting labour costs and under-invest in increasing quality. As a result, the market outcome features lower long run growth, higher unemployment and lower welfare than the social optimum. It is further shown that a firm's incentives to cut labour costs are increased as wages rise and as the firm declines. Finally, a rise in competition increases incentives to downsize for firms with below average quality performance.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:110:y:2000:i:465:p:581-600

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