Economic Discontent versus Social Commitment in Economic Development
AbstractThe paper investigates the role of social cohesion in economic development. We capture 'social cohesion' as society's willingness to accept lower wages to increase employment, and as its willingness to offer benefit payments to the unemployed. The lower the minimum wage rate and the higher the welfare payments, the more cohesive the society, and vice versa. We compare two economies which differ only in this respect. We analyze how they react to shocks of different magnitudes. We show that for minor disturbances the less cohesive economy exhibits superior performance, while the reverse becomes true as the size of the shock increases. The Central and Eastern European transition economies exemplify the argument.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series East European Series with number 36.
Length: 25 pages
Date of creation: Jul 1996
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Find related papers by JEL classification:
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