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Social cohesion in economic development : employment and wages


  • Christof Rühl

    (European Bank for Reconstruction and Development, United Kingdom)

  • Viatcheslav Vinogradov

    (Center for Economic Research and Graduate Education/Economic Institute, Czech Republic)


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.

Suggested Citation

  • Christof Rühl & Viatcheslav Vinogradov, 1997. "Social cohesion in economic development : employment and wages," Finnish Economic Papers, Finnish Economic Association, vol. 10(1), pages 3-19, Spring.
  • Handle: RePEc:fep:journl:v:10:y:1997:i:1:p:3-19

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    References listed on IDEAS

    1. Gali, Jordi, 1991. "Budget Constraints and Time-Series Evidence on Consumption," American Economic Review, American Economic Association, vol. 81(5), pages 1238-1253, December.
    2. Gali, Jordi, 1993. "Variability of Durable and Nondurable Consumption: Evidence for Six O.E.C.D. Countries," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 418-428, August.
    3. West, Kenneth D., 1988. "The insensitivity of consumption to news about income," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 17-33, January.
    4. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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    Cited by:

    1. Bouev Maxim & Matveenko Vladimir & Vostroknutova Ekaterina, 1998. "Transformational Decline and Preconditions of Growth in Russia," EERC Working Paper Series 98-03e, EERC Research Network, Russia and CIS.

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