Anton B. T. M. Van Schaik

Macroeconomic consequences of downsizing

Abstract The recession in the 1980s followed by the worldwide decrease in transportation and communication costs has triggered a process of downsizing. The macroeconomic consequences of this process are only weakly understood. The model developed in this paper associates downsizing with trade between countries with similar tastes, which predominantly exchange very similar, substitutable products. Our two-region model is characterized by the endogenous determination of product variety, firm size, R&D intensity, economic growth, relative productivity, relative wages and welfare. Downsizing enlarges profits, causing an increase in product varieties and a reduction in firm size. Smaller firms allocate less labour to research activities, so that growth is depressed and relative productivity of the region engaging in downsizing declines. The welfare effects of downsizing are shown to be ambiguous and crucially dependent on consumers taste for variety and their intertemporal elasticity of substitution.

Unemployment and catching up : Europe vis à vis the USA

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.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.