Working Paper: CEPR ID: DP1856
Authors: Josef Falkinger; Josef Zweimuller
Abstract: We present a model in which workers have to be educated to get employed and firms have to innovate in order to increase productivity. Education as well as innovation and production require skilled labour as inputs. This and the fact that learning opportunities differ across workers determine simultaneously the long-run level of employment and the long-run rate of growth. We study the impact of changes in the education of workers and the incentives to innovate. Lower profits imply lower growth rates but not necessarily less employment. The effects of redistributive policy measures among workers depend on the form of redistribution. Subsidization of education increases employment and growth. Redistribution through the tax and benefit system or social net has the opposite effect.
Keywords: employment; endogenous growth; innovation; education
JEL Codes: J21; J24; O31; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| education (I29) | employment (J68) |
| innovation (O35) | economic growth (O49) |
| lower profits (D33) | lower growth rates (O49) |
| subsidization of education (H52) | employment (J68) |
| subsidization of education (H52) | growth (O40) |
| redistribution through tax and benefit system (H23) | employment (J68) |
| redistribution through tax and benefit system (H23) | growth (O40) |