Peter Howitt

Growth and Unemployment

This paper analyses the effects of growth on long-run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation. The analysis uncovers and compares between two competing effects of growth on unemployment. The first is a capitalisation effect, whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment. The second is a creative destruction effect whereby an increase in growth reduces the duration of a job match, thereby raising the equilibrium level of unemployment both directly, by raising the job separation rate, and indirectly, by discouraging the creation of job vacancies.

Steady Endogenous Growth with Population and R & D Inputs Growing

This paper presents a Schumpeterian endogenous growth model in which a steady state exists with a constant growth rate even though population and the inputs to R. & D. are growing. The scale effect of rising population is nullified by product proliferation that fragments the growing demand for intermediate prodcuts, thus preventing the reward to any specific innovation from rising with population. All the ususal comparitive statics results of Schumpeterian growth theory are valid, including the positive effect of R. & D. subsidies on growth.

R/D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs

We use Schumpeterian growth theory to account for the divergence in per capita income that has taken place between countries since the mid-19th Century, as well as for the convergence that took place amongst the richest countries during the second half of the 20th Century. The argument is based on the premise that technological change underwent a fundamental transformation in the 19th Century, associated with new scientific ideas and the increasingly scientific content of new technologies. Countries then sorted themselves into three convergence groups (R/D,Implementation, and Stagnation). A countrys group membership depends on initial conditions as well as on fundamentals.

Entry and Productivity Growth: Evidence From Microlevel Panel Data

How does entry affect productivity growth of incumbents? In this paper we exploit policy reforms in the United Kingdom that changed entry conditions by opening up the U.K. economy during the 1980s and panel data on British establishments to shed light on this question. We show that more entry, measured by a higher share of industry employment in foreign firms, has led to faster total factor productivity growth of domestic incumbent firms and thus to faster aggregate productivity growth. (JEL: L5, L10, O31, O4)

Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth

We study capital accumulation and innovation as determinants of long-run growth by adding capital to our earlier model of creative destruction. No special functional forms are imposed on the aggregate production function. The equations describing perfect foresight equilibrium are identical to those of the augmented Ramsey-Cass-Koopmans model, except that the rate of technological change is a function of the stock of capital per effective worker. Contrary to previous models, a subsidy to capital accumulation will raise the long-run growth rate. The key assumption is that capital is used in R and D. Some evidence is presented on the capital intensity of R and D.

Credit Rationing and Implicit Contract Theory

THE RECENT SURVEY by Baltensperger [S] shows that the question of why bankers undertake nonprice rationing of credit is still very much unanswered. Previous attempts to address the question have ended up merely assuming the answer. For example, the attempts prior to the 1960s all involved the assumption that interest rates could not adjust so as always to clear the market for credit, the attempt by Hodgman [9] did not really address the issue of interest rate determination, and the later attempt by Jaffee and Modigliani [10] involved the assumption that banks cannot charge different rates to all of their customers. The only analysis in the literature that is free from this criticism is that of Jaffee and Russell [11], which focuses on adverse selection concerning default by dishonest customers. Meanwhile, recent developments in the theory of labor contracts (e.g., [1, 2, 3, 4, 7]) have made progress in answering the closely analogous question of why firms lay workers off rather than adjust wages. The purpose of the present paper is to show how these developments can be used and extended so as to provide a tentative answer to the question of why bankers ration credit. 1

Research and development in the growth process

This paper introduces into Schumpeterian growth theory an important element of heterogeneity in the structure of innovative activity—namely, the distinction between research and development. We construct a simple model of growth to investigate how the (steady-state) rate of growth affects and is affected by the relative mix between research and development. Although we assume for simplicity that the total supply of innovative activity is given it turns out that, with one important exception, the growth rate responds to most parameter changes in the same way as in previous models where growth was determined by the total amount of innovative activity. In particular, the level of research tends to covary positively with the rate of growth, even in the extreme case where the general knowledge that underlies long-run growth is created only by secondary innovations arising from the development process. The exception concerns the effects of competition on growth. Although simpler Schumpeterian growth models implied that increased competition would reduce growth by reducing the incentive to innovate, introducing the distinction between research and development implies that this effect is likely to be reversed.

General Purpose Technology and Wage Inequality

The recent changes in the US wage structure are often linked to the new wave of capital-embodied information technologies. The existing literature has emphasized either the accelerated pace or the skill-bias of embodied technical progress as the driving force behind the rise in wage inequality. A key, neglected, aspect is the “general purpose” nature of the new information technologies. This paper formalizes the idea of generality of technology in two ways, one related to human capital (skill transferability) and one to physical capital (vintage compatibility) and studies the impact of an increase in these two dimensions of technological generality on equilibrium wage inequality.

The Emergence of Economic Organization

A model of decentralized markets is studied, in which transactors follow simple adaptive rules. Transactions are coordinated by specialist trading firms that bear the costs of market disequilibrium. Starting from an initially autarkic situation in which none of the institutions that support exchange exist, computer simulation shows that for a wide range of parameter values a fully developed market economy will emerge spontaneously. Moreover, in virtually every case where a market economy develops, one of the commodities traded will emerge as a universal medium of exchange, being traded by every firm and changing hands in every act of exchange.

Costly Search and Recruiting

A labor market model with costly search and recruiting is constructed. It incorporates many features found in other models and provides new insights into the effects of externalities and transaction costs. The model possesses a continuum of equilibria, some of which may be Pareto-ranked, with different rates of unemployment. Despite the multiplicity of equilibria, comparative-statics results are obtained. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.