Endogenous Growth, Efficiency Wages, and Persistent Unemployment

Publication: Scientific journalJournal articlepeer-review

Abstract

This paper establishes a theoretical relation between the level of unemployment and the economic rate of growth. In a model with a monopolistically competitive manufacturing sector and a competitive innovation sector, which both pay efficiency wages, the equilibrium unemployment rate - the Nawru - 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, a causal relation from the growth rate to the level of unemployment can be established, since less innovation shifts the burden to induce efficiency towards the manufacturing sector, thus fostering unemployment.
Original languageEnglish
Pages (from-to)34 - 42
JournalReview of Economics and Finance
Volume11
Issue number2
Publication statusPublished - 1 Oct 2011

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