Dual labor markets, unemployment and endogenous growth

This paper presents a general-equilibrium model of Innovation, endogenous growth, and unemployment in a disaggregated economy. Unemployment is analyzed w ithin a dual labor market setting, where the labor market is consisting of a primary high-wage and a secondary low-wage sector. The non-competitive wage differential between these sectors is explained either by union wage bargaining or by efficiency wages. Consumer goods production and innovative activities take place in the competitive secondary sector, while intermediate goods are produced in the non-competitive markets of the primary sector. We endogenize both the economy's growth rate and the equilibrium unemployment rate. It can be shown in comparative static analyses, that the relationship between unemployment and growth can be positive or negative, depending on the explanatory factors under consideration.