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Institutional Aspects of High Unemployment in the Federal Republic of Germany

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  • Michael C. Burda
  • Jeffrey D. Sachs

Abstract

The sustained rise in German unemployment since 1973 poses a problem of critical importance for the world economy. Fewer than two decades ago, Germany boasted an average unemployment rate of under 1% and imported labor to relieve chronic labor shortages. By the mid-1980s, unemployment had risen to over 8 percent of the labor force. This paper investigates some of the reasons for the secular rise in unemployment. We find that while deficient aggregate demand can probably explain some of the current joblessness, the secular rise in unemployment has consisted primarily of an increase in the equilibrium rate of unemployment. We also find little evidence that this increase is due to changes in frictional unemployment. Rather, after reviewing institutional details of the labor market in Germany, we identify various impediments to the kinds of structural adjustments that have operated to maintain a fairly constant equilibrium rate of unemployment in the United States.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2241.

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Date of creation: May 1987
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Publication status: published as World Economy, 1988 Fall
Handle: RePEc:nbr:nberwo:2241

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  1. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 576-95, September.
  2. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  4. McCallum, John, 1985. " Wage Gaps, Factor Shares and Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 436-59.
  5. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
  6. Jeffrey Sachs, 1986. "High Unemployment in Europe: Diagnosis and Policy Implications," NBER Working Papers 1830, National Bureau of Economic Research, Inc.
  7. Klodt, Henning, 1986. "Lohnquote und Beschäftigung - die Lohnlücke," Open Access Publications from Kiel Institute for the World Economy 1313, Kiel Institute for the World Economy (IfW).
  8. Schatz, Klaus-Werner, 1984. "Die Bedeutung kleiner und mittlerer Unternehmen im Strukturwandel," Kiel Discussion Papers 103, Kiel Institute for the World Economy (IfW).
  9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 777-93, August.
  10. David T. Coe & Francesco Gagliardi, 1985. "Nominal Wage Determination in Ten OECD Economies," OECD Economics Department Working Papers 19, OECD Publishing.
  11. Michael Burda, 1988. "Is there a capital shortage in Europe?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 124(1), pages 38-57, March.
  12. Lucas, Robert E, Jr, 1978. "Unemployment Policy," American Economic Review, American Economic Association, vol. 68(2), pages 353-57, May.
  13. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 3(3), pages 721-25, August.
  14. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, Econometric Society, vol. 55(5), pages 1035-56, September.
  15. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  16. Breithaupt, Karl & Soltwedel, Rüdiger, 1980. "Nivellierungs- und Differenzierungstendenzen der inter- und intrasektoralen Lohnstruktur," Open Access Publications from Kiel Institute for the World Economy 3156, Kiel Institute for the World Economy (IfW).
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Citations

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Cited by:
  1. Naveen Srinivasan & Pratik Mitra, 2014. "The European unemployment problem: its cause and cure," Empirical Economics, Springer, vol. 47(1), pages 57-73, August.
  2. Arne Heise, 1995. "Lohnzurückhaltung und Beschäftigung - Plädoyer wider den unkritischen Empirismus," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 21(2), pages 235-246.
  3. Schmidt, Klaus-Dieter, 1990. "Mehr Arbeitsplätze durch weniger Regulierung: Britische Erfahrungen mit einer anderen Arbeitsmarktpolitik," Kiel Working Papers 406, Kiel Institute for the World Economy.
  4. Klodt, Henning, 1988. "Lohnquote und Beschäftigung: Eine Erwiderung," Open Access Publications from Kiel Institute for the World Economy 1372, Kiel Institute for the World Economy (IfW).
  5. Siebert, Horst, 1987. "Kündigungsschutz und Sozialplanpflicht: Optimale Allokation von Risiken oder Ursache der Arbeitslosigkeit?," Discussion Papers, Series II 27, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  6. Siebert, Horst, 1989. "Kündigungsschutz und Sozialplanpflicht - Optimale Allokation von Risiken oder Ursache der Arbeitslosigkeit?," Open Access Publications from Kiel Institute for the World Economy 693, Kiel Institute for the World Economy (IfW).
  7. Paqué, Karl-Heinz, 1990. "Unemployment in West Germany: A survey of explanations and policy options," Kiel Working Papers 407, Kiel Institute for the World Economy.
  8. Paqué, Karl-Heinz, 1989. "Micro-macro links in West Germany's unemployment," Kiel Working Papers 378, Kiel Institute for the World Economy.
  9. Paqué, Karl-Heinz, 1989. "Wage gaps, hysteresis and structural unemployment: The West German labour market in the seventies and eighties," Kiel Working Papers 358, Kiel Institute for the World Economy.
  10. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
  11. Klodt, Henning, 1990. "Industrial policy and repressed structural change in West Germany," Open Access Publications from Kiel Institute for the World Economy 1417, Kiel Institute for the World Economy (IfW).

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