NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Timing and Efficiency of Creative Destruction

Ricardo J. Caballero, Mohamad L. Hammour

NBER Working Paper No. 4768
Issued in June 1994
NBER Program(s):   EFG

This paper analyzes the timing, pace and efficiency of the on- going job reallocation that results from product and process innovation. There are strong reasons why an efficient economy ought to concentrate both job creation and destruction during cyclical downturns, when the opportunity cost of reallocation is lowest. Malfunctioning labor markets can disrupt this synchronized pattern and decouple creation and destruction. Moreover, irrespective of whether workers are too strong or too weak, labor market inefficiencies generally lead to technological 'sclerosis,' characterized by excessively slow renovation. Government incentives to production may alleviate high unemployment in this economy, but at the cost of exacerbating sclerosis. Creation incentives, on the contrary, increase the pace of reallocation. We show how an optimal combination of both types of policies can restore economic efficiency.

download in pdf format
   (665 K)

email paper

This paper is available as PDF (665 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4768

Published: Quarterly Journal of Economics, Vol. 446, no. 3 (August 1996): 805-852.

Users who downloaded this paper also downloaded these:
Caballero and Hammour w7849 Creative Destruction and Development: Institutions, Crises, and Restructuring
Caballero and Hammour w5757 The Macroeconomics of Specificity
Caballero and Hammour w3922 The Cleansing Effect of Recessions
Caballero and Jaffe How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth
Davis and Haltiwanger Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us