The Impact of a Unionised Labour Market in a Schumpeterian Growth Model

Jörg Lingens
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Jörg Lingens: University of Kassel

Labor and Demography from University Library of Munich, Germany

Abstract: This paper extends the seminal creative destruction growth model of Aghion/Howitt (1992) to investigate the relationship between unemployment and growth. We distinguish low-skilled and high-skilled labour and assume that a union bargains over the low-skilled labour wage. This causes unemployment, but the growth e ect is ambiguous. On the one hand the higher wage will squeeze expected pro ts of innovators, which is bad for growth. On the other hand the union a ects the marginal product of high-skilled labour and hence the high-skilled wage in the manufacturing sector declines. This causes a "migration" of high-skilled labour from the manufacturing into the research sector. This e ect is growth enhancing. We show that the overall e ect depends crucially on the elasticity of substitution between high-skilled and low-skilled labour. With an elasticity less than one the "good" growth e ect dominates the bad, and vice versa. In the Cobb Douglas case the two e ects cancel out.

Keywords: Labour Unions; Unemployment; Growth; R&D (search for similar items in EconPapers)
JEL-codes: J5 O4 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2002-07-15
New Economics Papers: this item is included in nep-lab and nep-mac
Note: Type of Document - PDF; pages: 17
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpla:0207003

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