Growth,income distribution and unemployment in a two-sector economy

We build a two-sector general equilibrium growth model with capital-intensive consumption goods and a labour-intensive investment goods sector to investigate the coexistence of growth and unemployment. The model uses heterogeneity in saving behaviour, introduces an effective demand problem, has full employment of capital with input non-substitutability and shows that the aggregate labour employment is determined by available capital along with commodity market equilibrium. The long-run growth may not be balanced, and under biased growth, the level of unemployment may monotonically increase or decrease over time, or may first increase (decrease) and then decrease (increase). Such possible unemployment paths help us tightly define “jobless growth”.