Theoretical Foundations of Social Innovation in Finance

Deliverable D5.2 of the E.U. FP-7 project CrESSI (613261

Report Contrasting CRESSI’s Approach of Social Innovation with that of Neoclassical Economics

Deliverable 1.

The Netherlands : failure of a neo-classical policy agenda

The neo-classical plea for flexibilizing European labour markets is strong and convincing within a static general equilibrium framework, but it is counter-productive for dynamic Schumpeterian efficiency. Taking the example of the US and the Netherlands, we argue that more flexible labour relations and reduction of wage-cost pressure did indeed unleash high job growth, but gave negative incentives to labour productivity growth and innovation. Our illustration with macro figures is supported by evidence from micro data. Firms in the Netherlands that realized substantial wage savings due to flexible labour relations do not realize above-average sales growth; and there are indications that they realized lower labour productivity growth. Anglo-Saxon "hire and fire" labour relations can be favourable for "entrepreneurial" innovation regimes, but they may be harmful for "routinized" innovation regimes that are dependent on a continuous historical accumulation of knowledge

Loonmatiging schaadt productiviteitsontwikkeling wel

No abstract

The Dutch productivity slowdown: The culprit at last?

Two aspects of the recent performance of the Dutch economy (1982–2001) have attracted wide international attention: (1) rapid employment growth and (2) a significant slowdown in labour productivity growth. This paper argues that the shift from a high-productivity, low-employment towards a low-productivity, high-employment growth path constitutes a structural change set off by the policy of low wage growth launched in 1982. Various theoretical perspectives—including neo-classical substitution, induced technological change, vintage and the Verdoorn Law—point to channels through which wage growth restraint may hold back labour productivity growth. Our growth accounting analysis—based on these perspectives—suggests that a substantial part of the Dutch labour productivity growth slowdown can be attributed to the wage growth slowdown

Loonmatiging schaadt productiviteitsontwikkeling wel

No abstract

The Dutch productivity slowdown: The culprit at last?

Two aspects of the recent performance of the Dutch economy (1982–2001) have attracted wide international attention: (1) rapid employment growth and (2) a significant slowdown in labour productivity growth. This paper argues that the shift from a high-productivity, low-employment towards a low-productivity, high-employment growth path constitutes a structural change set off by the policy of low wage growth launched in 1982. Various theoretical perspectives—including neo-classical substitution, induced technological change, vintage and the Verdoorn Law—point to channels through which wage growth restraint may hold back labour productivity growth. Our growth accounting analysis—based on these perspectives—suggests that a substantial part of the Dutch labour productivity growth slowdown can be attributed to the wage growth slowdown

The NAIRU reconsidered: why labour market deregulation may raise unemployment

According to the mainstream theory of equilibrium unemployment, persistent unemployment is caused mainly by ‘excessive’ labour market regulation, whereas aggregate demand, capital accumulation and technological progress have no lasting effect on unemployment. We show that the mainstream non‐accelerating inflation rate of unemployment (NAIRU) model is a special case of a general model of equilibrium unemployment, in which aggregate demand, investment and endogenous technological progress do have long‐term effects. It follows that labour market deregulation does not necessarily reduce steady‐inflation unemployment. Theoretically, if the decline in real wage growth claims owing to deregulation is smaller than the ensuing decline in labour productivity growth and in the warranted real wage growth, then in that case steady‐inflation unemployment may increase. Empirical evidence for 20 Organisation for Economic Cooperation and Development (OECD) countries (1984–1997) indicates that the impact of labour market deregulation on OECD unemployment is zero, and possibly negative (causing a higher rate of unemployment).demand‐led growth, equilibrium unemployment, NAIRU, endogenous technological progress, Kaldor–Verdoorn relation, O4, O3, E3,