Séminaire COURNOT – Gilles SAINT-PAUL (Paris School of Economics)

Détails de l'événement :

Title: Can consumer society collapse? A theoretical analysis.

Abstract: The post world-war II era has witnessed the rise of several trends. First, growth was supported by the rise of mass consumption societies. A growing number of people could purchase an increasing range of products, which in turn supported a regime where those goods could be mass produced. Second, a middle class of clerical workers and managers emerged, (sometimes called “cadres” in French). These people where characterized, arguably, by their relatively high education level, the fact that their occupation was not directly involved in production tasks, and a relatively hedonistic lifestyle, involving the purchase of a variety of branded products.

This paper analyzes how these two trends are related. The existence of a large middle class of educated workers generates a sizable demand for a broad range of goods, which makes it profitable to elect industrial mass production technologies for these goods. Conversely, mass production technologies are based upon a high degree of division of labor, which raises the demand for coordination and therefore for educated workers (lawyers, accountants, managers, engineers, human resource specialists, marketers…) who perform the overhead tasks needed for a complex business to operate. It is this additional link which is studied in this paper, where I show that multiple equilibria may arise. The economy may be at a high equilibrium with a large middle class, a high skill premium and a large number of mass produced goods, or at a low equilibrium with a small middle class and a small number of mass produced goods. A large number of “cadres” broadens the range of goods for which market size is large enough to trigger industrialization; conversely, industrialization raises the demand for “cadres”. In equilibrium, typically, the owners of the industrial firms that have the larger market share are worse-off in the low equilibrium because they would also use mass production techniques in the low equilibrium, but have to pay higher wages to skilled workers in the high equilibrium. Owners of mass production technologies in relatively sophisticated goods are better-off in the high equilibrium, since the mass production technology would not be profitable for them in the low equilibrium.

Intriguingly, regulations that raise the size of the bureaucracy, such as increased standards for reporting and conformity, while reducing efficiency in partial equilibrium, may be beneficial in general equilibrium. This is because, by raising the demand for skilled workers, such rigidities make the high equilibrium more likely and the low equilibrium less likely. Conversely, improvements in the efficiency of management such as the “M form” and the slashing of intermediate layers may destroy the middle class in general equilibrium and trigger a brutal transition toward the low equilibrium.