A SCHUMPETERIAN GROWTH MODEL WITH EQUILIBRIUM UNEMPLOYMENT

We introduce efficiency-wage unemployment in a model of growth with endogenous technical change. Our research aim is twofold. First, we try to provide an analytically tractable model of growth with efficiency-wage unemployment that can be viewed as alternative to the standard models of growth and search unemployment. Second, we try to analyze the steady-state effects of some labor market policies on unemployment and growth. We find that a positive relationship between growth and unemployment exists and that the effectiveness of any labor market policy aimed at improving the performance of the labor market crucially depends on how individuals discount future income.