Eurasian Business Review

, Volume 6, Issue 1, pp 79–99 | Cite as

Can labour market rigidity foster economic efficiency? A model with non-general purpose technical change

Original Paper

Abstract

The contrasting effects of labour market rigidity on efficiency are investigated in a model where technological change is non-general purpose and different types of skills are available to workers. Ex ante efficiency calls for high labour market rigidity, as this favours workers’ acquisition of specific skills which have higher productivity in equilibrium. Ex post efficiency calls for low market rigidity, as this allows more workers to transfer to the innovating sector of the economy. The trade-off between these two mechanisms results in an inverse-U shaped relationship between output and labour market rigidity, which implies that a positive level of labour market rigidity is in general beneficial for the economy.

Keywords

Non-general purpose technology Labour market rigidity Specific and general human capital 

JEL Classification

J24 J31 O30 

Supplementary material

40821_2015_24_MOESM1_ESM.docx (218 kb)
Supplementary material 1 (DOCX 217 kb)

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Copyright information

© Eurasia Business and Economics Society 2015

Authors and Affiliations

  1. 1.Universitat Jaume ICastelló de la PlanaEspanya
  2. 2.Kiel Institute for the World EconomyChristian Albrecht University of KielKielGermany
  3. 3.Centre for Global Cooperation ResearchUniversity of Duisburg EssenEssenGermany

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