A SCHUMPETERIAN GROWTH MODEL WITH EQUILIBRIUM UNEMPLOYMENT Carmelo Pierpaolo Parello* Sapienza Università di Roma (April 2008; revised June 2009) ABSTRACT We introduce efficiency-wage unemployment in a model of growth with endogenous technical change. Our research aim is twofold. First, we try to provide an analytically tractable model of growth with efficiency-wage unemployment that can be viewed as alternative to the standard models of growth and search unemployment. Second, we try to analyze the steady-state effects of some labor market policies on unemployment and growth. We find that a positive relationship between growth and unemployment exists and that the effectiveness of any labor market policy aimed at improving the performance of the labor market crucially depends on how individuals discount future income. 1. INTRODUCTION The question of whether growth can destroy employment has been widely debated in economics. According to Aricò (2003), it is possible to group the existing literature along two distinct research lines. The first line focuses on institutional issues and leads to policy-oriented models (Gordon, 1995; Cahuc and Michel, 1996; Van Schaik and De Groot, 1998; Daveri and Tabellini, 2000; Peretto, 2000 among others). The second line focuses on technical change and addresses the issue of growth and unemployment at either micro or macro level (Aghion and Howitt, 1994; Mortensen and Pis- sarides, 1995; Acemoglu, 1997; Cerisier and Postel-Vinay, 1998; Postel- Vinay, 1998; Mortensen, 2005). In both cases though, no clear prediction about how growth affects unemployment is reached. * I would like to thank Raouf Boucekkine, Guido Cozzi, Paul Segerstrom, Klaus Wälde and two anonymous referees for their helpful comments and suggestions on previous drafts of this paper. I gratefully acknowledge financial support from the Italian Ministry of the University and Scientific Research. Any remaining errors are mine. Metroeconomica 1–29 doi: 10.1111/j.1467-999X.2009.04076.x © 2009 The Author Journal compilation © 2009 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA