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Productivity and unemployment in a two-country model with endogenous growth

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Author Info
Schaik, A.B.T.M.
Groot, H.L.F. de (Tilburg University, Center for Economic Research)

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

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

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Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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  1. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  3. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Groot, H.L.F. de, 1996. "The struggle for rents in a Schumpeterian economy," Discussion Paper 51, Tilburg University, Center for Economic Research. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Fagerberg, Jan, 1994. "Technology and International Differences in Growth Rates," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1147-75, September. [Downloadable!] (restricted)
  8. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  11. 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. [Downloadable!] (restricted)
  12. Dirk Pilat, 1996. "Labour Productivity Levels in OECD Countries: Estimates for Manufacturing and Selected Service Sectors," OECD Economics Department Working Papers 169, OECD, Economics Department. [Downloadable!]
  13. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  1. Askenazy, Philippe, 2001. "Minimum wage, exports and growth," CEPREMAP Working Papers (Couverture Orange) 0109, CEPREMAP. [Downloadable!]
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