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Productivity and Unemployment in a Two-country Model with Endogenous Growth

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  • Schaik, A.B.T.M. van
  • Groot, H.L.F. de

    (Tilburg University, Center for Economic Research)

Abstract

Relative to the United States, most European countries have high rates of unemployment and low levels of productivity in manufacturing. To relate these issues, we develop a leader-follower model with endogenous growth and dual labour markets, stressing the role of high-tech and high-wage sectors in trade between countries. The model shows a negative relation between unemployment and growth. The steady state relative productivity level and the corresponding rates of unemployment depend on the relative level of fixed costs in the high-tech sectors of both countries. Downsizing of firms in the leader country raises the worldwide rate of unemployment, whereas downsizing of firms in the follower country enlarges the productivity trap.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-53.

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Date of creation: 1997
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Handle: RePEc:dgr:kubcen:199753

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Web page: http://center.uvt.nl

Related research

Keywords: international trade; endogenous growth; unemployment; efficiency wages; managerial fixed costs; relative productivity;

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References

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  1. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  2. Gordon, David M, 1994. "Bosses of Different Stripes: A Cross-National Perspective on Monitoring and Supervision," American Economic Review, American Economic Association, vol. 84(2), pages 375-79, May.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  5. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  6. Edward E. Leamer, 1999. "Effort, Wages, and the International Division of Labor," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1127-1162, December.
  7. Smulders, Sjak & van de Klundert, Theo, 1995. "Imperfect competition, concentration and growth with firm-specific R & D," European Economic Review, Elsevier, vol. 39(1), pages 139-160, January.
  8. Peretto, Pietro F, 1996. "Sunk Costs, Market Structure, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 895-923, November.
  9. Groot, H.L.F. de & Schaik, A.B.T.M. van, 1997. "Unemployment and catching up: Europe vis à vis the USA," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73836, Tilburg University.
  10. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
  11. Groot, H.L.F. de, 1996. "The Struggle for Rents in a Schumpterian Economy," Discussion Paper 1996-51, Tilburg University, Center for Economic Research.
  12. Fagerberg, Jan, 1994. "Technology and International Differences in Growth Rates," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1147-75, September.
  13. Dirk Pilat, 1996. "Labour Productivity Levels in OECD Countries: Estimates for Manufacturing and Selected Service Sectors," OECD Economics Department Working Papers 169, OECD Publishing.
  14. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  15. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  16. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
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Cited by:
  1. Askenazy, Philippe, 2003. "Minimum wage, exports and growth," European Economic Review, Elsevier, vol. 47(1), pages 147-164, February.

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