The Welfare State and the Forces of Globalization

23 Pages Posted: 9 Mar 2007 Last revised: 10 Jul 2007

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

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.

Suggested Citation

Sinn, Hans-Werner, The Welfare State and the Forces of Globalization (March 2007). NBER Working Paper No. w12946. Available at SSRN: https://ssrn.com/abstract=969624

Hans-Werner Sinn (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany
+49 89 9224 1276 (Phone)
+49 89 9224 1409 (Fax)

HOME PAGE: http://www.cesifo.de

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ludwig Maximilian University of Munich (LMU)

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
53
Abstract Views
1,041
rank
72,200
PlumX Metrics