Unemployment and endogenous growth

In this paper we develop a two-sector endogenous growth model with a dual labour market, based on efficiency wages. Growth is driven by intentional R&D performed in the high-tech and high-wage sector. It is examined how a change in rivalry among firms affects simultaneously growth and unemployment. On the one hand, an increase of the elasticity of substitution between the product varieties of different high-tech firms reduces market power and leads to higher growth but reduces job prospects. On the other hand, if barriers to entry exist, an increase of the number of rivals in the market (due to removal of entry barriers) leads to lower growth, whereas the effect on aggregate employment is ambiguous.