Endogenous Growth and the Labor Market

Abstract

We present a multisectoral model of qualitative endogenous growth with imperfect matching on the labor market. Under these conditions, growth induces unemployment through the Schumpeterian process of creative destruction. We study the long-run link between growth and unemployment. We show that this link structurally depends on the relative importance of the degree of competition in the economy, and that of intertemporal substitutability. Moreover, although the relationship between growth and labor market variables is generally ambiguous, we show that the creative destruction effects are very likely to dominate in this kind of models, thus suggesting that a increase in the growth rate should be accompanied by a rise in long-term unemployment.

We are very much indebted to A. d’Autume, F. Langot, M. Pucci and an anonymous referee for their crucial influence on this paper’s late evolution. We also thank J.-F. Jacques and M. Roger for useful comments on earlier versions, as well as Ph. Aghion who was our discussant at the 10th ADRES international conference on the economics of innovation. None of them can be held responsible for any error or shortcoming that would remain herein.