Scale Effects and Labor Productivity

The topic of this thesis is the impact of scale effects onto labor productivity and its implications. Chapter one gives an overview of the economic literature on scale effects. It starts with reviewing early economic writings; summarizes the literature of the new trade theory, the new economic geography and the new growth theory and looks upon scale effects in the economics of integration. Last but not least it motivates the chapters to come. Chapter two deals with wage inequality between different types of labor in models of endogenous growth with scale effects in the growth rate of an economy or sector. In chapter three the same issue is analyzed within growth models that do not show this particular scale effect but where size either plays an important role in per capita production or not. Chapter four contains the empirical analysis of this thesis. Scale effects in the growth rate of economies have been rejected by the literature and scale effects in per capita production have similar consequences for inequality as is shown in chapter three. Therefore chapter four tries to find empirical evidence for scale effects in per capita production. It does so by using country data on GDP per capita and an inter-country scale variable motivated by an open economy growth model. The analysis is also carried out on the regional level for the U.S. and Europe. Strong evidence in favor of scale effects in per capita production is found.