The European Journal of Comparative Economics

ISSN: 1824-2979

EJCE Year: 2010, December. Volume: 7 - Issue: 2

How do Labor Market Institutions affect the Link between Growth and Unemployment: the case of the European countries

by Stéphane Adjemian ; François Langot ; Coralia Quintero-Rojas

Start page: 347 - End page: 371

Keywords: endogenous growth, unemployment, labor market institutions

Jel code: E24; O33; O4; O52; J51

Abstract:

This paper analyzes how the frictions in the labor market simultaneously affect the economic growth and the long run unemployment. To this goal, we develop a schumpeterian model of endogenous growth: agents have the choice between employment and R and D activities. Unemployment is caused by the wage-setting behavior of unions. We show that: (i) Increases in the labor costs or in the power of trade unions lead to higher unemployment and lower economic growth. (ii) Efficient bargain allows to increase employment, at the price of a lower growth rate. These theoretical predictions are consistent with the insights from our empirical analysis based on 183 European Regions, between 1980-2003

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