A casual look at regional unemployment rates reveals that there are vast differences, which cannot be explained by different institutional settings. Our paper attempts to trace these differences in the labor market performance back to the regions' specialization in products that are more or less advanced in their product cycle. The model we develop shows how individual profit and utility maximization endogenously yields higher employment levels in the beginning. In later phases, however, employment decreases in the presence of process innovation. Our model suggests that the only way to escape from this vicious circle is to specialize in products that are at the beginning of their "economic life". The model is based on an interaction of demand and supply side forces.
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David G. Blanchflower & Andrew J. Oswald, 2005.
"The Wage Curve Reloaded,"
NBER Working Papers
11338, National Bureau of Economic Research, Inc.
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Eckey, Hans-Friedrich & Schwengler, Barbara & Türck, Matthias, 2007.
"Vergleich von deutschen Arbeitsmarktregionen,"
IAB Discussion Paper
200703, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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Blien, Uwe & Kirchhof, Kai & Ludewig, Oliver, 2006.
"Agglomeration effects on labour demand,"
IAB Discussion Paper
200628, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
[Downloadable!]