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Wage gaps, hysteresis and structural unemployment: The West German labour market in the seventies and eighties

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  • Paqué, Karl-Heinz
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    Abstract

    In recent years, there has been an intense debate among economists about the causes of unemployment in Europe. Broadly speaking, the views can be grouped into two familiar camps: those with a more (neo-)classical outlook - stressing the importance of factor price movements, institutional rigidities and structural change - and those with a more Keynesian leaning, focusing on the restrictive fiscal policy stance in Europe or the long-term hyster- 2) esis effects of the worldwide recession of 1981-82. Lately, a new intermediate position has been added by Fitoussi, Phelps (1988), who point to the crowding-out of investment in Europe through the peculiar American policy mix of the eighties, thus making the United States the culprit of Europe's malaise. All major Keynesian positions (and also the one by Fitoussi, Phelps) rely on the tacit, but crucial assumption that - by and large - the unemployment of the eighties is an analytically new phenomenon to be explained separately from the experience of the seventies which is by now grudgingly admitted to have been a period of more classical than Keynesian unemployment. It is the purpose of this paper to show that this assumption is not warranted so that, at least in some important respectsj the eighties are simply the natural continuation and maybe culmination of developments which go back to the seventies. Empirically, we shall make our case for one country only, the Federal Republic of Germany, but similar lines of reasoning may apply to other EEC countries, of course with proper adjustments and qualifications.

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 358.

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    Date of creation: 1989
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    Handle: RePEc:kie:kieliw:358

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    1. Coen, Robert M & Hickman, Bert G, 1988. "Is European Unemployment Classical or Keynesian?," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 188-93, May.
    2. Dreze, Jacques H., 1987. "Underemployment equilibria : From theory to econometrics and policy," European Economic Review, Elsevier, Elsevier, vol. 31(1-2), pages 9-34.
    3. Jacques R. Artus, 1984. "The Disequilibrium Real Wage Rate Hypothesis: An Empirical Evaluation (L'hypothèse du déséquilibre du taux de salaire réel: évaluation empirique) (La hipótesis de desequilibrio del s," IMF Staff Papers, Palgrave Macmillan, vol. 31(2), pages 249-302, June.
    4. Blanchard, Olivier Jean & Summers, Lawrence H, 1988. "Beyond the Natural Rate Hypothesis," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 182-87, May.
    5. Rod Cross, 2000. "Hysteresis and Emu," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 51(4), pages 367-379, November.
    6. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
    7. Jackman, R & Roper, S, 1987. "Structural Unemployment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 49(1), pages 9-36, February.
    8. Franz, Wolfgang & Konig, Heinz, 1986. "The Nature and Causes of Unemployment in the Federal Republic of Germany since the 1970s: An Empirical Investigation," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(210(S)), pages S219-44, Supplemen.
    9. Lindbeck, Assar & Snower, Dennis J, 1988. "Long-term Unemployment and Macroeconomic Policy," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 38-43, May.
    10. Michael C. Burda & Jeffrey D. Sachs, 1987. "Institutional Aspects of High Unemployment in the Federal Republic of Germany," NBER Working Papers 2241, National Bureau of Economic Research, Inc.
    11. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 235-39, May.
    12. Alan S. Blinder, 1988. "The Challenge of High Unemployment," NBER Working Papers 2489, National Bureau of Economic Research, Inc.
    13. Giersch, Herbert, 1987. "Economic policies in the age of Schumpeter," European Economic Review, Elsevier, Elsevier, vol. 31(1-2), pages 35-52.
    14. Symons, J & Layard, R, 1984. "Neoclassical Demand for Labour Functions for Six Major Economies," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376), pages 788-99, December.
    15. Jeffrey Sachs, 1986. "High Unemployment in Europe: Diagnosis and Policy Implications," NBER Working Papers 1830, National Bureau of Economic Research, Inc.
    16. Klodt, Henning, 1988. "Industrial policy and repressed structural change in West Germany," Kiel Working Papers 322, Kiel Institute for the World Economy.
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