Capital Accumulation and Employment Cycles in a Model of Creative Destruction

Tapio Palokangas

No 855, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: growth; cycles; labour unions; creative destruction (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-dev
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