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Endogenous Growth, Efficency Wages, and Persistent Unemployment

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  • Martin Zagler

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

This paper establishes theoretical relations between the level of unemployment and the economic growth rate. In a model with a monopolistically competitive manufacturing sector and a competitive innovation sector, which both pay efficiency wages, we find that the unemployment rate exhibits an unambiguously negative impact on the long-run growth performance, as it reduces the innovative capacity of the economy. Only if efficiency levels are different across sectors, we can also establish a causal relation from the growth rate to the rate of unemployment, since less innovation shifts the burden to induce efficiency towards the manufacturing sector, thus fostering unemployment.

Suggested Citation

  • Martin Zagler, 1999. "Endogenous Growth, Efficency Wages, and Persistent Unemployment," Department of Economics Working Papers wuwp066, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp066
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    References listed on IDEAS

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    Cited by:

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    6. Harald Badinger & Ingrid Kubin, 2007. "Vom kurzfristigen zum mittelfristigen Gleichgewicht in einer offenen Volkswirtschaft unter fixen und flexiblen Wechselkursen," Department of Economics Working Papers wuwp101, Vienna University of Economics and Business, Department of Economics.
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    10. Alberto Bucci & Fabio Fiorillo & Stefano Staffolani, 2003. "Can Market Power Influence Employment, Wage Inequality and Growth?," Metroeconomica, Wiley Blackwell, vol. 54(2‐3), pages 129-160, May.
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    More about this item

    Keywords

    Endogenous Growth; Product Innovation; Equilibrium Unemployment; Efficiency Wages.;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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