Essays in Honour of Günther Schmid
Edited by Hugh Mosley and Jacqueline O’Reilly
Chapter 2: What can we learn from other countries? Comparative research on the impact of wages on employment performance
2. What can we learn from other countries? Comparative research on the impact of wages on employment performance Ronald Schettkat NATIONAL ECONOMIC MODELS: WHAT CAN WE LEARN FROM OTHER COUNTRIES? What can be learned from other countries’ experiences? This question is of acute interest to politicians, always in search of a ‘good tip’, but is also extremely relevant to economists because international comparisons provide an opportunity to investigate the impact of institutions on economic performance. No wonder national models like the ‘Dutch Miracle’, ‘Celtic Tiger’ and ‘Northern Star’ make headlines in the business press. But the ‘market’ for the ‘right’ institutions or national economic models shows enormous volatility almost comparable to that of the stock market and likewise sometimes out of touch with the ‘fundamentals’ and liable to suffer from speculative bubbles. Some countries are praised as shining examples equipped with the right institutions, even though their supposed superiority in economic performance is far from clear and sometimes based on measurement error (see the discussion below). In general, the idea of an equity–efﬁciency trade-off1 is highly attractive. According to this view, countries can opt either for efﬁciency and economic progress, which may raise the standard of living across the board, including that of low-income groups, or for equity in pay, which may lower economic growth or even entail economic stagnation. In this view of the equity–efﬁciency trade-off, which is espoused by many neoclassical economists, the United States is thought to have opted for efﬁciency...
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