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Unemployment and Catching Up: Europe Vis-à-vis the USA

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Abstract

This paper develops a two-region two-sector endogenous growth model with a dual labour market based on efficiency wages. Growth is driven by research done in the (high-tech) tradeables sector. The follower region tends to catch up in terms of labour productivity with the leader region. Differences in unemployment compensation systems can lead to relative convergence, i.e., a steady state with the backward region lagging behind the leader region. The reason for this is that high social welfare compensations generate high unemployment and reduce the amount of labour employed for R&D purposes.

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De Groot, H.L., Van Schaik, A.B. Unemployment and Catching Up: Europe Vis-à-vis the USA. De Economist 145, 179–201 (1997). https://doi.org/10.1023/A:1002990104412

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