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Technical Development, Competition from Low-Wage Economies and Low-Skilled Unemployment

Author

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  • DREZE, Jacques H.

    (CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

  • SNEESSENS, Henri

    (IRES, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium and Université catholique de Lille)

Abstract

The market position of less educated workers is weak and deteriorating, both in the US and in Europe, due in particular to technological development and growing competition from low-wage economies. In continental Europe, the resistance of relative wages of less-skilled workers has been an aggravating factor. Is it possible to reconcile labour costs low enough to promote full employment with reasonable incomes for low-skilled workers and proper incentives for economic efficiency? Constructive measures start with practical education and training, then go on to promote the demand and institutionalised supply of proximity services. Reliance on the price mechanism points towards measures reducing or eliminating the wedge between labour costs to employers and net marginal earnings of employees. A basicpolicy choice must be made between two avenues: minimum wages, unemployment benefits and employment subsidies concentrated on the low end of the wage scale; or flexible wages, no durable unemployment benefits, but a "participation income" issued on an individual basis to all adult members of the labour force. The merits of the second avenue hinge crucially on the prospects for implementing flexible wages. Union-wage and insider-outsider theories of wage determination cast doubts - but would need to be verified specifically for low skill levels. Short of making that choice, reductions or exemptions of employers' contributions to social security constitute a natural, urgently needed, first step. Such measures appear indispensable to the sustainability of free trade between countries with highly dissimilar levels of social protection.

Suggested Citation

  • DREZE, Jacques H. & SNEESSENS, Henri, 1994. "Technical Development, Competition from Low-Wage Economies and Low-Skilled Unemployment," CORE Discussion Papers 1994036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1994036
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    Cited by:

    1. Olivier Charlot & Franck Malherbet, 2010. "Réforme de la protection de l'emploi et inégalités face au chômage dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, vol. 76(1), pages 57-112.
    2. Turrini, Alessandro, 1998. "Endogenous education policy and increasing income inequality between skilled and unskilled workers," European Journal of Political Economy, Elsevier, vol. 14(2), pages 303-326, May.
    3. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2011. "Comparing the effectiveness of employment subsidies," Labour Economics, Elsevier, vol. 18(2), pages 168-179, April.
    4. Van der Linden, Bruno, 1998. "Fighting unemployment without worsening povety: Basic income versus reductions of social security contributions," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1999.
    5. Olivier Charlot, 2006. "Éducation, destruction des emplois et performance du marché du travail dans un modèle d'appariement," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 5-33.
    6. Dreze, Jacques H, 2000. " Economic and Social Security in the Twenty-First Century, with Attention to Europe," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 327-348, June.
    7. Cockx, Bart & Van der Linden, Bruno & Karaa, Adel, 1998. "Active Labour Market Policies and Job Tenure," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 685-708, October.
    8. Falk, Martin & Koebel, Bertrand M., 1997. "The Demand of Heterogeneous Labour in Germany," ZEW Discussion Papers 97-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Cordella, Tito & Grilo, Isabel, 2001. "Social dumping and relocation: is there a case for imposing a social clause?," Regional Science and Urban Economics, Elsevier, vol. 31(6), pages 643-668, November.
    10. Collard, Fabrice & Fonseca, Raquel & Munoz, Rafael, 2002. "Spanish unemployment persistence and the ladder effect," LSE Research Online Documents on Economics 20073, London School of Economics and Political Science, LSE Library.
    11. Picard, Pierre M., 2001. "Job additionality and deadweight spending in perfectly competitive industries: the case for optimal employment subsidies," Journal of Public Economics, Elsevier, vol. 79(3), pages 521-541, March.
    12. Cockx, Bart, 1999. "The Design of Active Labour Market Policies. What Matters and What Doesn't ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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