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Capital scarcities as a reason for high unemployment in the European Union

  • Paul Frijters

This paper argues that scarcities for non-transferable fixed-supply goods such as land, infrastucture and social capital, may affect European unemployment in two, mutually enforcing, ways. Firstly the existence of minimum non-transferable capital requirements per worker implies that in a growing economy, workers must have ever higher productivities to obtain any wages at all. Secondly, the fact that non- transferable goods are not only production inputs, but are also indispensable consumer goods, increases the price of the non-tranferable goods even higher, thereby increasing again the minimum wages one needs to survive. Furthermore, in a simple general equilibrium model I show that the presence of high-productivity workers will decrease the wages (and job-opportunities) of other workers and increase the minimum wages necessary to survive. Unemployment and minimum living costs are also increased by an increase in population, by an increase in the relative productivity of capital, by an increase in the dispersion of labour quality and by an increase in the importance of capital goods for consumption.

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Paper provided by EconWPA in its series Macroeconomics with number 9706002.

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Date of creation: 05 Jun 1997
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Handle: RePEc:wpa:wuwpma:9706002
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  1. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  2. Saint-Paul, Gilles, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 527-50, May.
  3. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  4. Smith, B.D., 1990. "Sectoral Employment And Cyclical Fluctuations In An Adverse Selection Model," RCER Working Papers 218, University of Rochester - Center for Economic Research (RCER).
  5. Gottfries, Nils & McCormick, Barry, 1995. "Discrimination and open unemployment in a segmented labour market," European Economic Review, Elsevier, vol. 39(1), pages 1-15, January.
  6. Soskice, David, 1990. "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 36-61, Winter.
  7. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  8. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  9. Hoel, Michael, 1990. " Local versus Central Wage Bargaining with Endogenous Investments," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 453-69.
  10. Akerlof, George A, 1981. "Jobs as Dam Sites," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 37-49, January.
  11. Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1, July.
  12. Hargreaves Heap, Shaun P, 1994. " Institutions and (Short-Run) Macroeconomic Performance," Journal of Economic Surveys, Wiley Blackwell, vol. 8(1), pages 35-56, March.
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