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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 (WSI in der Hans Böckler Stiftung)
Achim Truger (WSI in der Hans Böckler Stiftung)

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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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Paper provided by EconWPA in its series Macroeconomics with number 0501007.

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Length: 37 pages
Date of creation: 07 Jan 2005
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Handle: RePEc:wpa:wuwpma:0501007

Note: Type of Document - pdf; pages: 37
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Keywords: Labour market institutions; macroeconomic policy; employment; Germany; Europian Monetary Union;

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E - Macroeconomics and Monetary Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Philip Arestis & Malcolm Sawyer, 2005. "Aggregate demand, conflict and capacity in the inflationary process," Cambridge Journal of Economics, Oxford University Press, vol. 29(6), pages 959-974, November. [Downloadable!] (restricted)
    Other versions:
  3. Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," SCEPA Working Papers 2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School. [Downloadable!]
    Other versions:
  4. Ronald Schettkat, 2003. "Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(2), pages 27-33, October. [Downloadable!]
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  8. Eckhard Hein, 2005. "Die NAIRU – eine post-keynesianische Interpretation," Macroeconomics 0501009, EconWPA. [Downloadable!]
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  9. Schettkat, Ronald, 2003. "Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?," IZA Discussion Papers 696, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Solow, Robert M, 2000. "Unemployment in the United States and in Europe - A Contrast and the Reasons," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  11. Eckhard Hein & Thorsten Schulten & Achim Truger, 2004. "Wage trends and deflation risks in Germany and Europe," Macroeconomics 0412008, EconWPA. [Downloadable!]
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  16. Engelbert Stockhammer, 2004. "Explaining European Unemployment: Testing the NAIRU Hypothesis and a Keynesian Approach," International Review of Applied Economics, Taylor and Francis Journals, vol. 18(1), pages 1-26, January. [Downloadable!] (restricted)
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  18. Siebert, Horst, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer. [Downloadable!] (restricted)
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  20. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept - opportunities and obstacles in the EMU," Macroeconomics 0408011, EconWPA. [Downloadable!]
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  21. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  22. Eckhard Hein, 2005. "Monetary Policy and Wage Bargaining in the EMU: Restrictive ECB Policies, High Unemployment, Nominal Wage Restraint and Rising Inflation," Macroeconomics 0501010, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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, The. [Downloadable!]
  2. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept – opportunities and obstacles in the EMU," Macroeconomics 0412007, EconWPA. [Downloadable!]
    Other versions:
  3. Jorg Bibow, 2005. "Bad for Euroland, Worse for Germany-The ECB's Record," Macroeconomics 0511018, EconWPA. [Downloadable!]
  4. Joerg Bibow, 2005. "Bad for Euroland, Worse for Germany: The ECB's Record," Economics Working Paper Archive wp_429, Levy Economics Institute, The. [Downloadable!]
  5. Eckhard Hein & Thorsten Schulten, 2004. "Unemployment, wages and collective bargaining in the European Union," Macroeconomics 0412006, EconWPA. [Downloadable!]
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