Schumpeterian growth and the political economy of

Authors: WolfHeimo Grieben

Publish Date: 2014/02/05

Volume: 86, Issue: 1, Pages: 77-118

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Abstract

This paper analyzes the differing attitudes concerning political support for employment protection between skilled and unskilled workers in a qualityladder growth model Creative destruction through innovation results in “Schumpeterian unemployment” of unskilled workers By voting on firing costs unskilled workers consider a tradeoff 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

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