Browsing by Author "Yukhtenko, Anna"

In this paper I develop an endogenous growth model with labor market frictions and spillover effects of physical capital stock on human capital accumulation. Using this instrument, I study the effects of labor market frictions on the balanced growth path of the economy, accounting for possible substitutability or complementarity between the two types of capital. I find out that severe labor market frictions impede economic growth, lower workers’ wage, educational and work effort. Faster human capital accumulation process caused by improved market conditions, enhanced importance of work experience or exogenous positive shocks benefits economic growth. I prove that if human and physical capital are complements (positive externality), the process of on-the-job learning increases the speed of human capital accumulation, resulting in higher work effort and economic growth rate. Substitutability between the two factors of production (negative externality) leads to inability of workers to adjust to rapid technological progress, causing economic inefficiencies, invalid usage of capital and, in the end, lower growth rate of the economy.