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What ever happened to Germany? Is the decline of the former european key currency country caused by structural sclerosis or by macroeconomic mismanagement?

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Author Info

  • Eckhard Hein
  • Achim Truger

Abstract

This paper challenges the institutional sclerosis view of the German crisis according to which rigid labour markets and generous welfare state institutions have driven Germany into its position as 'Europe's sick man'. In general, the view is not convincing, because the underlying hypotheses about the effects of labour market regulation and welfare state institutions on employment and growth cannot unambiguously be derived from modern labour market theory and are at least partially at odds with accepted empirical findings. In particular, the explanation is unconvincing, because in international comparison Germany's labour market and welfare state institutions are simply not as sclerotic as often supposed. In most of the aggregate indicators for structural rigidities Germany is not worse than the average OECD or EU country. Moreover, there is a macroeconomic explanation focusing on the combined effects of restrictive and pro-cyclical monetary, fiscal and wage policies in Germany that is broadly consistent with modern macroeconomic theory and is supported by empirical data.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 19 (2005)
Issue (Month): 1 ()
Pages: 3-28

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Handle: RePEc:taf:irapec:v:19:y:2005:i:1:p:3-28

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Related research

Keywords: Labour market institutions; macroeconomic policy; employment determination; Germany; European Monetary Union;

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References

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  1. Andrew Glyn, 2003. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," Economics Series Working Papers 168, University of Oxford, Department of Economics.
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  14. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Truger, Achim & Will, Henner, 2012. "The German 'debt brake': A shining example for European fiscal policy?," IPE Working Papers 15/2012, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  2. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept - opportunities and obstacles in the EMU," Macroeconomics 0408011, EconWPA.
  3. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Truger, Achim & Schulten, Thorsten & Hein, Eckhard, 2004. "Wage trends and deflation risks in Germany and Europe," WSI Discussion Papers 124, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
  5. Hein, Eckhard & Schulten, Thorsten, 2004. "Unemployment, Wages and Collective Bargaining in the European Union," WSI Discussion Papers 128, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
  6. Ines Perez-Soba Aguilar & Elena Marquez de la Cruz & Ana Rosa Martinez-Canete & Alfonso Palacio-Vera, 2006. "Capital Stock and Unemployment: Searching for the Missing Link," Economics Working Paper Archive wp_475, Levy Economics Institute.
  7. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis: The case for a Global Keynesian New Deal," IPE Working Papers 06/2010, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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