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Capital Scarcities as a Reason for High Employment in the European Union

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  • Paul Frijters

    () (University of Amsterdam)

Abstract

This paper argues that scarcities for non-transferable fixed-supply goods such as land, infrastucture and social capital, may affect European unemployment in three, mutually enforcing, ways. Firstly the existence of minimum non-transferable capital requirements per worker implies that in a growing economy, workers must have ever higher productivities to obtain any wages at all. Secondly, the increased costs of production due to scarcity in production factors will increase the price of output, thereby increasing the minimum costs of living. Thirdly, the fact that non-transferable goods are not only production inputs, but are also indispensable consumer goods, increases the price of the non-tranferable goods even higher, thereby increasing again the minimum wages one needs to survive. Thus in a simple general equilibrium model I show that the presence of high-productivity workers will decrease the wages (and job-opportunities) of other workers and increase the minimum wages necessary to survive.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 96-173/3.

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Date of creation: 19 Nov 1996
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Handle: RePEc:dgr:uvatin:19960173

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  1. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  2. Gottfries, Nils & McCormick, Barry, 1995. "Discrimination and open unemployment in a segmented labour market," European Economic Review, Elsevier, vol. 39(1), pages 1-15, January.
  3. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  4. Teulings,Coen & Hartog,Joop, 2008. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521049399.
  5. Saint-Paul, Gilles, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 527-50, May.
  6. Hargreaves Heap, Shaun P, 1994. " Institutions and (Short-Run) Macroeconomic Performance," Journal of Economic Surveys, Wiley Blackwell, vol. 8(1), pages 35-56, March.
  7. Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1.
  8. Dolado, Juan José & Bentolila, Samuel, 1994. "Labour Flexibility and Wages : lessons from Spain," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3309, Universidad Carlos III de Madrid.
  9. Akerlof, George A, 1981. "Jobs as Dam Sites," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 37-49, January.
  10. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  11. Smith, B.D., 1990. "Sectoral Employment And Cyclical Fluctuations In An Adverse Selection Model," RCER Working Papers 218, University of Rochester - Center for Economic Research (RCER).
  12. Hoel, Michael, 1990. " Local versus Central Wage Bargaining with Endogenous Investments," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 453-69.
  13. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
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Cited by:
  1. Frijters, Paul & Gregory, Bob, 2006. "From Golden Age to Golden Age: Australia's "Great Leap Forward"?," IZA Discussion Papers 2068, Institute for the Study of Labor (IZA).

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