Working Paper: CEPR ID: DP422
Authors: Giuseppe Bertola
Abstract: This paper proposes a model of endogenous growth with diversifiable uncertainty, irreversible investment decisions and imperfect labour mobility. Obstacles to labour reallocation lower the operating profits earned by existing firms and increase the cost of creating new ones, thus reducing investment, growth and welfare in decentralized equilibrium. The model's macroeconomic framework is appropriate for a study of labour contracts, of capital- and labour-market imperfections, and of industrial policy.
Keywords: flexibility; efficient allocation; growth; idiosyncratic shocks; job security; labour mobility; wage determination
JEL Codes: O23; J11; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Obstacles to labor reallocation (J69) | Decreased operating profits for existing firms (L21) |
| Obstacles to labor reallocation (J69) | Increased costs for creating new firms (L26) |
| Decreased operating profits for existing firms (L21) | Reduced investment and growth (O16) |
| Increased costs for creating new firms (L26) | Reduced investment and growth (O16) |
| Lower flexibility in labor mobility (J69) | Lower overall productivity and welfare (D69) |
| Higher turnover costs on the firing side (J63) | Lower average marginal revenue product of labor (J49) |
| More flexible production systems (L23) | Higher productivity and faster productivity growth (O49) |