TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Hammour,Mohamad L.
TI  - On the Timing and Efficiency of Creative Destruction
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4768
PY  - 1994
Y2  - June 1994
UR  - http://www.nber.org/papers/w4768
L1  - http://www.nber.org/papers/w4768.pdf
N1  - Author contact info:
Ricardo J. Caballero
MIT
Department of Economics
Room E52-373a
Cambridge, MA 02142-1347
Tel: 617/253-0489
Fax: 617/253-6915
E-Mail: caball@mit.edu

Mohamad Hammour
Delta
Ecole Nornale Superieurel
48 Boulvard Jourdan
75014 Paris
FRANCE
E-Mail: hammour@DELTA.ENS.FR
AB  - 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.
ER  -