Abstract. I construct a model of Schumpeterian growth with cycles for an economy with efficiency wages in R&D and wage bargaining in production. I show that the economy generates cycles in which capital, output and employment vary in fixed proportions. Capital accumulates until a new technology is introduced, at which moment employment falls sharply due to obsolescence of capital. While employment varies counter-cyclically, wages grow on the average in proportion to the level of productivity.
Published in “Stochastic Economic Dynamics”, edited by B.S. Jensen and T. Palokangas. CBS Press 2007. Homepage