Endogenous Technical Change, Employment and Distribution in the Goodwin Model of the Growth Cycle

21 Pages Posted: 26 Dec 2017

See all articles by Daniele Tavani

Daniele Tavani

Colorado State University, Fort Collins - Department of Economics

Luca Zamparelli

Sapienza University of Rome

Date Written: June 3, 2014

Abstract

In this paper, we introduce endogenous technological change through R&D expenditure on labor- augmenting innovation in the cyclical growth model by Goodwin (Goodwin, R. 1967. “A Growth Cycle.” In Socialism, Capitalism, and Economic Growth, edited by Carl Feinstein, Cambridge, UK: Cambridge University Press.). Innovation is a costly, forward-looking process financed out of profits, and pursued by owners of capital stock (capitalists) in order to foster labor productivity and save on labor requirements. Our main findings are: (i) Goodwin-type distributive cycles arise even with dynamic optimization, but (ii) endogenous technical change has a dampening effect on economic fluctuations; (iii) steady-state per capita growth, income distribution and employment rate are endogenous, and depend on the capitalists’ discount rate, the institutional variables regulating the labor market, and policy variables such as subsidies to R&D activity. Implementing the model numerically to match long run data for the US, we show that: (iv) an increase in the capitalists’ discount rate lowers per-capita growth, the employment rate and the labor share; (v) an increase in workers’ bargaining strength moderately raises the labor share and moderately decreases per-capita growth, while sharply reducing employment: quarterly US fluctuations (1948–2006) in employment and the labor share seem to support this result; (vi) a balanced budget increase in the R&D subsidy also fosters per-capita growth at the expenses of the labor share, even though the corresponding variations might be small.

Keywords: Endogenous Technical Change, Goodwin Model, Income Shares, Employment

JEL Classification: E32, O33

Suggested Citation

Tavani, Daniele and Zamparelli, Luca, Endogenous Technical Change, Employment and Distribution in the Goodwin Model of the Growth Cycle (June 3, 2014). Studies in Nonlinear Dynamics and Econometrics, Vol. 19, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=3091116

Daniele Tavani (Contact Author)

Colorado State University, Fort Collins - Department of Economics ( email )

Fort Collins, CO 80523-1771
United States

HOME PAGE: http://https://economics.colostate.edu/author/dtavani/

Luca Zamparelli

Sapienza University of Rome ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
58
Abstract Views
499
Rank
653,722
PlumX Metrics