Carmelo Pierpaolo Parello
An Innovation-Based Endogenous Growth Model with Efficinecy-Wages

Abstract: This paper studies the impact of labor market reforms on growth and unemployment. To do this, a no-shirking model of innovation-based growth is constructed, where labor market reforms are mainly aimed at improv- ing job finding rate and increasing unemployment benefit. On a positive standpoint, we find that there always exists a positive relationship between growth and unemployment. Instead, from a normative standpoint, we find that the effectiveness of all labor market interventions crucially depend on how individuals discount future income. When consumers are impatient, we find that improving either labor market performance or unemployment benefit turns out to induce a permanent fall in both the BGP innovation rate and the equilibrium unemployment rate. When consumers are patient, results turn ambiguous with cases in which both growth and unemployment rates might increase.

JEL: O33, O34, J6.
Keywords: R&D-based growth, wage rigidities, unemployment.



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