Journal of Economics

, Volume 86, Supplement 1, pp 77–118 | Cite as

Schumpeterian growth and the political economy of employment protection

  • Wolf-Heimo Grieben


This paper analyzes the differing attitudes concerning political support for employment protection between skilled and unskilled workers in a quality-ladder growth model. Creative destruction through innovation results in “Schumpeterian unemployment” of unskilled workers. By voting on firing costs, unskilled workers consider a trade-off between the benefit of fewer unemployment spells and the cost of lower quality growth of consumer goods. Skilled workers, although not threatened by unemployment, may vote for even larger firing costs. Alleviating one labor market rigidity by increasing the matching efficiency between firms and unskilled workers aggravates another rigidity by creating political support for additional firing costs.


Non-Scale Growth Schumpeterian Unemployment Firing Costs 

JEL classification

J63 O33 E24 D72 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aghion, P., Harris, C., Howitt, P., and Vickers, J. (2001): “Competition, Imitation and Growth with Step-by-Step Innovation.”Review of Economic Studies 68: 467–492.CrossRefGoogle Scholar
  2. Aghion, P., and Howitt, P. (1992): “A Model of Growth through Creative Destruction.”Econometrica 60: 323–351.CrossRefGoogle Scholar
  3. Aghion, P., and Howitt, P. (1994): “Growth and Unemployment.”Review of Economic Studies 61: 477–494.CrossRefGoogle Scholar
  4. Aghion, P., and Howitt, P. (1998):Endogenous Growth Theory. Cambridge, Mass.: MIT Press.Google Scholar
  5. Arnold, L. G. (2002): “On the Growth Effects of North-South Trade: the Role of Labor Market Flexibility.”Journal of International Economics 58: 451–466.CrossRefGoogle Scholar
  6. Dinopoulos, E., and Segerstrom, P. S. (1999): “A Schumpeterian Model of Protection and Relative Wages.”American Economic Review 89: 450–472.CrossRefGoogle Scholar
  7. Dinopoulos, E., and Thompson, P. (1996): “A Contribution to the Empirics of Endogenous Growth.”Eastern Economic Journal 22: 389–400.Google Scholar
  8. Etro, F. (2004): “Innovation by Leaders.”Economic Journal 114: 281–303.CrossRefGoogle Scholar
  9. Grossman, G. M., and Helpman, E. (1991): “Quality Ladders in the Theory of Growth.”Review of Economic Studies 58: 43–61.CrossRefGoogle Scholar
  10. Hassler, J., Rodriguez Mora, J. V., Storesletten, K., and Zilibotti, F. (2003): “The Survival of the Welfare State.”American Economic Review 93: 87–112.CrossRefGoogle Scholar
  11. Jones, C. I. (1995): “R&D-Based Models of Economic Growth.”Journal of Political Economy 103: 759–784.CrossRefGoogle Scholar
  12. Jones, C. I. (1999): “Growth: With or Without Scale Effects?”American Economic Review, Papers and Proceedings 89: 139–144.CrossRefGoogle Scholar
  13. Joseph, G., and Weitzenblum, T. (2003): “Optimal Unemployment Insurance: Transitional Dynamics vs. Steady State.”Review of Economic Dynamics 6: 869–884.CrossRefGoogle Scholar
  14. OECD (1999):Employment Outlook. Paris.Google Scholar
  15. OECD (2003):Education at a Glance. Paris.Google Scholar
  16. Reinberg, A., and Hummel, M. (2003): “Geringqualifizierte: In der Krise verdrängt, sogar im Boom vergessen.”IAB Kurzbericht Nr. 19, Institut für Arbeits- und Berufsforschung der Bundesanstalt für Arbeit, Germany.Google Scholar
  17. Saint-Paul, G. (1996): “Exploring the Political Economy of Labor Market Institutions.”Economic Policy: A European Forum 23: 263–315.CrossRefGoogle Scholar
  18. Saint-Paul, G. (2002): “The Political Economy of Employment Protection.”Journal of Political Economy 110: 672–704.CrossRefGoogle Scholar
  19. Segerstrom, P. S. (1998): “Endogenous Growth Without Scale Effects.”American Economic Review 88: 1290–1310.Google Scholar
  20. Segerstrom, P. S. (2004):Intel Economics. Mimeo, Stockholm School of Economics.Google Scholar
  21. Segerstrom, P. S., Anant, T. C. A., and Dinopoulos, E. (1990): “A Schumpeterian Model of the Product Life Cycle.”American Economic Review 80: 1077–1092.Google Scholar
  22. Segerstrom, P. S., and Zolnierek, J. (1999): “The R&D Incentives of Industry Leaders.”International Economic Review 40: 745–766.CrossRefGoogle Scholar
  23. Şener, M. F. (2000): “A Schumpeterian Model of Equilibrium Unemployment and Labor Turnover.”Journal of Evolutionary Economics 10: 557–583.CrossRefGoogle Scholar
  24. Şener, M. F. (2001): “Schumpeterian Unemployment, Trade and Wages.”Journal of International Economics 54: 119–148.CrossRefGoogle Scholar
  25. Siebert, H. (1997): “Labor Market Rigidities: At the Root of Unemployment in Europe.”Journal of Economic Perspectives 11: 37–54.CrossRefGoogle Scholar
  26. Steger, Thomas M. (2003): “The Segerstrom Model: Stability, Speed of Convergence and Policy Implications.”Economics Bulletin 15: 1–8.Google Scholar
  27. Wolfinger, R. E., and Rosenstone, S. (1980):Who Votes? New Haven: Yale University Press.Google Scholar

Copyright information

© Springer-Verlag 2005

Authors and Affiliations

  • Wolf-Heimo Grieben
    • 1
  1. 1.Department of EconomicsUniversity of DortmundDortmundGermany

Personalised recommendations