Unemployment and innovation patterns: the role of business coordination and market competition

The paper explores the institutional determinants of differences in European, Japanese and American unemployment and innovation pattern in a "comparative institutional analysis" perspective. Building on the definition of different modes of coordination among firms, the question is addressed as to how institutional settings affect firms' innovation strategy. A generalized efficiency wage model is developed determining both equilibrium unemployment and innovation. The mode of coordination is shown to affect firms' choice between radical and incremental innovations as well as firms' response (in terms of innovation strategy) to increased competitive pressure. Higher unemployment may result as a consequence of specialization along innovation trajectories.