We study the effects of German unification in a model with capital accumulation, skill differences and a welfare state …. Absent a welfare state, we observe an investment boom, depressed output and employment conditions. Capital owners and high …-skilled agents are willing to give up to 4% of per-capita consumption to favor unification. When a welfare state exists the …

This paper calculates the quantitative significance of the welfare effects of wage compression in Sweden. This is done … compression lead to large welfare losses, since wage compression creates costly unemployment among low-skilled workers. This … welfare loss can be significantly reduced (but not eliminated) if firms and unions bargain over efficient labor contracts. In …

slightly decrease over time. There is a negligible loss in welfare, however, from immediately setting the R&D subsidy to its …