Unemployment, Growth, and Complementarities between Innovation and Knowledge Diffusion

This paper analyzes the relationship between endogenous growth and unemployment. It provides knowledge diffusion as the link between innovation-based growth through creative destruction and the labor market outcome. Three dimensions of knowledge are considered: human capital (general skills), know-how gained through learning-byusing, and codified knowledge accumulated by research activities. Output growth is driven by innovations. However, the implementation of technological progress into a vintage-type production process requires the know-how that is only acquirable by the diffusion of knowledge through learning-by-using. A mutual feedback between research and the employment level thus arises, based on the complementary relationship between the input of labor in R&D and manufacturing. Inadequate knowledge diffusion causes limited growth and mismatch unemployment.