Scale effects and labor productivity [Elektronische Ressource] / vorgelegt von Jürgen Antony

Scale effects and labor productivity [Elektronische Ressource] / vorgelegt von Jürgen Antony

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SCALE EFFECTS AND LABORPRODUCTIVITYJurgen AntonyScale E ects and Labor ProductivityInauguraldissertationzurErlangung des Doktorgradesder Wirtschaftswissenschaftlichen Fakult atder Universit at Augsburgvorgelegt vonJurgen AntonyAugsburg, im Mai 2006Scale E ects and Labor ProductivityErstgutachter: Prof. Dr. Alfred Mau nerZweitgutachter: Prof. Dr. Peter MichaelisVorsitzender der mundlic hen Prufun g: PD Dr. Andreas PykaTag der mundlic hen Prufung: 1. August 2006TO MY PARENTSContents1 Scale E ects in Economic Theory 11.1 Basic Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2 Early Economic Writings . . . . . . . . . . . . . . . . . . . . . . . . 41.3 New Trade Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.4 New Economic Geography . . . . . . . . . . . . . . . . . . . . . . . . 101.5 New Growth Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 171.6 Growth and Economic Integration . . . . . . . . . . . . . . . . . . . 231.7 Motivation for Further Research . . . . . . . . . . . . . . . . . . . . 262 \Strong" Scale E ects and Wage Inequality 322.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322.2 The Basic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372.2.1 The Production Technology . . . . . . . . . . . . . . . . . . . 372.2.2 The Demand for technological Resources . . . . . . . . . . . . 392.2.

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SCALE EFFECTS AND LABOR
PRODUCTIVITY
Jurgen AntonyScale E ects and Labor Productivity
Inauguraldissertation
zur
Erlangung des Doktorgrades
der Wirtschaftswissenschaftlichen Fakult at
der Universit at Augsburg
vorgelegt von
Jurgen Antony
Augsburg, im Mai 2006Scale E ects and Labor Productivity
Erstgutachter: Prof. Dr. Alfred Mau ner
Zweitgutachter: Prof. Dr. Peter Michaelis
Vorsitzender der mundlic hen Prufun g: PD Dr. Andreas Pyka
Tag der mundlic hen Prufung: 1. August 2006TO MY PARENTSContents
1 Scale E ects in Economic Theory 1
1.1 Basic Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Early Economic Writings . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 New Trade Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 New Economic Geography . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 New Growth Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.6 Growth and Economic Integration . . . . . . . . . . . . . . . . . . . 23
1.7 Motivation for Further Research . . . . . . . . . . . . . . . . . . . . 26
2 \Strong" Scale E ects and Wage Inequality 32
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.2 The Basic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.2.1 The Production Technology . . . . . . . . . . . . . . . . . . . 37
2.2.2 The Demand for technological Resources . . . . . . . . . . . . 39
2.2.3 Determinants of the Relative Wage for High Skilled . . . . . 41
2.3 Endogenous Technological Change . . . . . . . . . . . . . . . . . . . 42
2.3.1 Skill Speci c Technological Change . . . . . . . . . . . . . . . 42
2.3.2 Sector Speci c Tec Change . . . . . . . . . . . . . . 45
2.4 A Special Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.5 Directed Technological Change in the Open Economy . . . . . . . . 59
2.5.1 Two Identical Countries . . . . . . . . . . . . . . . . . . . . . 59
2.5.2 One large and one small Country . . . . . . . . . . . . . . . . 62
2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
iii2.7 Appendix A: Stability Conditions for the Lab Equipment Speci cation 64
2.8 Appendix B: Stability for the Knowledge-Based R&D
Speci cation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3 \Weak" Scale E ects and Wage Inequality 70
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.2 A Model with Ethier/Dixit and Stiglitz Production Technology . . . 74
3.2.1 The High and Low Skilled Sector . . . . . . . . . . . . . . . . 74
3.2.2 Di erentiated Input Factors . . . . . . . . . . . . . . . . . . . 75
3.2.3 Final Goods Production . . . . . . . . . . . . . . . . . . . . . 76
3.2.4 Equilibrium Conditions . . . . . . . . . . . . . . . . . . . . . 77
3.2.5 The Price for Investment Goods and Wage Inequality . . . . 80
3.3 A Model with the Romer Production Technology . . . . . . . . . . . 86
3.3.1 The High and the Low Skilled Sector . . . . . . . . . . . . . . 87
3.3.2 Di erentiated Intermediate Input Factors . . . . . . . . . . . 87
3.3.3 Final Good Production . . . . . . . . . . . . . . . . . . . . . 88
3.3.4 Equilibrium conditions . . . . . . . . . . . . . . . . . . . . . . 88
3.3.5 Fixed Costs, Production Costs and Wage Inequality . . . . . 91
3.4 Relative Wage Rigidity and Unemployment . . . . . . . . . . . . . . 99
3.5 Exogenous Technology Shocks . . . . . . . . . . . . . . . . . . . . . . 106
3.6 Neither \Strong" nor \Weak" Scale E ects . . . . . . . . . . . . . . 108
3.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4 Evidence for \Weak" Scale E ects 113
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
4.2 The Theoretical Model . . . . . . . . . . . . . . . . . . . . . . . . . . 120
4.2.1 Households . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
4.2.2 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
4.2.3 Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
4.3 Empirical Analysis on the Country level . . . . . . . . . . . . . . . . 127
4.3.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1274.3.2 Methodology and Results . . . . . . . . . . . . . . . . . . . . 128
4.4 Empirical Analysis on the Regional Level . . . . . . . . . . . . . . . 134
4.4.1 European Data . . . . . . . . . . . . . . . . . . . . . . . . . . 134
4.4.2 US Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
4.4.3 Estimation Issues . . . . . . . . . . . . . . . . . . . . . . . . . 139
4.4.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
4.6 Appendix: Proof of local Saddle Path Stability and additional Cal-
culations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
5 Conclusions 152
5.1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
5.2 Prospects for Future Research . . . . . . . . . . . . . . . . . . . . . . 158
References 160List of Figures
2.1 Relative wage of non-production workers . . . . . . . . . . . . . . . . . 33
2.2 Relative supply of non-production workers . . . . . . . . . . . . . . . . 34
2.3 Elasticity of substitution . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.4 Growth of non-production employment and \high-tech" a nity . . . . 53
4.1 Scale e ect of the G7 countries . . . . . . . . . . . . . . . . . . . . . . 133
4.2 Population density EU 15 . . . . . . . . . . . . . . . . . . . . . . . . . 135
4.3 GDP per capita EU 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
4.4 Population density US . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
4.5 Personal income per capita US . . . . . . . . . . . . . . . . . . . . . . 138
4.6 In uence of the scale variable EU 15 . . . . . . . . . . . . . . . . . . . 142
4.7 In uence of the scale variable US . . . . . . . . . . . . . . . . . . . . . 144
viList of Tables
4.1 List of Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
4.2 Estimation Results Country Level . . . . . . . . . . . . . . . . . . . 132
4.3 Descriptive statistics: GDP and population EU 15 . . . . . . . . . . 135
4.4e Personal income and population US . . . . . . 138
4.5 First step regression for regional population EU 15 . . . . . . . . . . 141
4.6 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
viiChapter 1
Scale E ects in Economic
Theory
Scale e ects play an important role in economics. They are a key assumption in the
form of increasing returns to scale in the models of the new trade theory and the
new economic geography and an important result, re ecting basic assumptions, of
models of the new growth theory. While the former theories try to explain trade
behavior between countries or regions and clustering phenomenons of economic ac-
tivity, the latter in general tries to explain the observation that labor productivity
in an economy is growing steadily over the long run.
The topic of this thesis is about scale e ects and their implications for productivity,
where the emphasis clearly lies on labor productivity measured by per capita pro-
duction. Since per capita production is an important determining factor of wages,
the discussion will be about relative and absolute wages for di erent types of labor
as well. Models will be developed that take up ideas, and hence assumptions, of all
the aforementioned theories in order to elaborate on the relationship between scale
and labor productivity.
This chapter looks rst at some basic considerations about scale e ects and their role
in production. After a short review of contributions to the early economic literature,
the focus will be on more recent strands of the literature as mentioned in the rst
paragraph. The models used will be brie y explained by looking at the economic
1