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Induced Technical Change and Income Distribution: the Role of Public R&D and Labor Market Institutions

Zamparelli, Luca (2021): Induced Technical Change and Income Distribution: the Role of Public R&D and Labor Market Institutions.

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Abstract

This paper investigates the role of public R&D and labor market institutions in a labor constrained Classical growth model with induced technical change. It assumes that the innovation possibility frontier is a positive function of public R&D investment and a negative function of a measure of conflict in the labor market. It shows that while a larger size of the public sector and more peaceful industrial relations unequivocally boost long run growth, the effect on income distribution is not obvious. It depends on how the state of the labor market and public research affect the trade-off between labor and capital productivity growth, that is the slope of the innovation possibility frontier. While it appears plausible that a stronger workers' bargaining power may increase the wage share, higher public R&D investments will not affect income distribution unless it is biased toward either labor- or capital- saving innovations.

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