Title	Flexibility, investment, and growth / Giuseppe Bertola.
Creator 1	Bertola, Giuseppe.
Corporate Author	Federal Reserve Bank of Minneapolis. Research Department.
Subject 1	Employment (Economic theory).
Subject 2	Endogenous growth (Economics).
Subject 1 (JEL)	E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
Subject 2 (JEL)	E25 - Aggregate Factor Income Distribution
Subject 3 (JEL)	O41 - One, Two, and Multisector Growth Models
Abstract	This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Date-Created	1991-01
Date-Digital	2011-03-28
Identifier	19910100fedmegad1991gb
Conference	Economic growth and development
Format	PDF