Social cohesion in economic development : employment and wages
The paper investigates the role of social cohesion in economic development. We capture 'social cohesion' as society swillingness to accept lower wages to maintain high 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.
Volume (Year): 10 (1997)
Issue (Month): 1 (Spring)
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