Year: 2007
Type: report
Abstract: The emergence of the Asian tiger countries and the participation of the ex-Communist countries in world trade has reduced the equilibrium price of labor in western Europe and elsewhere.However, the actual price of labor hardly reacts, because the welfare state's minimum replacement incomes are fixed.The rigidity of wages causes pathological overreactions of the European economy in terms of excessive capital exports, excessive immigration and excessive structural change towards the capital intensive export sectors.The overreactions cause unemployment, sluggish growth, a current account surplus and a high export volume, but may prevent gains from trade.Moving from a system of wage replacement incomes to one that pays wage subsidies would enable a more efficient economic reaction that would not jeopardize social goals but bring about more employment, growth and gains from trade.
DOI: 10.3386/w12946
Author: Hans-Werner Sinn
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1768372155