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The Role in Demand Management Policies in Reducing Unemployment

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  • C Bean

Abstract

This paper considers the scope for demand management policies to reduce the present high levels of European unemployment. While the evidence suggests that contractionary demand shocks are partly to blame, the presence of endogenous persistence mechanisms limit the scope for effective activist policies. Furthermore, in isolation they can do nothing to tackle the significant fraction due to adverse supply, or structural, developments. However, if appropriate supply-side policies are introduced, supportive demand management policies can speed the reduction in unemployment. The paper considers what such supportive demand management policies should look like and argues that in some cases a mild, although temporary, increase in inflation may be appropriate. The implications of uncertainty about the equilibrium rate of unemployment are also considered. The paper argues that such supportive policies are probably best sustained through monetary rather than fiscal policies and are likely to require changes in intra-European real exchange rates. Consequently a rapid move to full monetary union may be ill advised. Finally a potential role for temporary incomes policies is also identified.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0222.

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Date of creation: Nov 1994
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Handle: RePEc:cep:cepdps:dp0222

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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References

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  1. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 93(372), pages 806-19, December.
  2. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  3. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 318-40, June.
  4. Meade, James E., 1977. "The Meaning of "Internal Balance"," Nobel Prize in Economics documents, Nobel Prize Committee 1977-2, Nobel Prize Committee.
  5. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  6. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199279173, October.
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Cited by:
  1. López Díaz, J., 1999. "Divergencia real en la unión monetaria: Un ejercicio de simulación," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 13, pages 87-100, Diciembre.
  2. Jürgen Von Hagen, 1999. "Macroeconomic Consequences of the EMU," Empirica, Springer, Springer, vol. 26(4), pages 359-374, December.
  3. Luis Alberiko Gil-Alana & Pedro Garcia-del-Barrio, . "New Revelations about Unemployment Persistence in Spain," Faculty Working Papers, School of Economics and Business Administration, University of Navarra 10/06, School of Economics and Business Administration, University of Navarra.
  4. Floro Ernesto Caroleo, 2000. "Le Politiche per l'Occupazione in Europa: una Tassonomia Istituzionale," CELPE Discussion Papers 52, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
  5. Werner Sesselmeier & Wilfried Fuhrmann & Christian Scholz & Uwe Walz & Rainer Schweickert & Axel Börsch-Supan & Margareta Kulessa, 1999. "Book reviews," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 135(1), pages 171-188, March.
  6. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, Elsevier, vol. 41(7), pages 1281-1307, July.
  7. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers, Stockholm University, Institute for International Economic Studies 639, Stockholm University, Institute for International Economic Studies.
  8. Ansgar Belke & Daniel Gros, 1999. "Estimating the costs and benefits of EMU: The impact of external shocks on labour markets," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 135(1), pages 1-47, March.
  9. Andrew Martin, 2000. "Social Pacts, Unemployment, and EMU Macroeconomic Policy," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 32, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  10. Berthold, Norbert & Fricke, Holger, 2007. "Volkswirtschaftliche Auswirkungen der finanziellen Ausgleichsysteme in Deutschland," Wirtschaftswissenschaftliche Beiträge 93, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.

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