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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)

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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File URL: http://128.118.178.162/eps/mac/papers/0501/0501007.pdf
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Bibliographic Info

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

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

Note: Type of Document - pdf; pages: 37
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Web page: http://128.118.178.162

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

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References

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Citations

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Cited by:
  1. 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).
  2. 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).
  3. Eckhard Hein & Thorsten Schulten, 2004. "Unemployment, wages and collective bargaining in the European Union," Macroeconomics 0412006, EconWPA.
  4. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept - opportunities and obstacles in the EMU," Macroeconomics 0408011, EconWPA.
  5. 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.
  6. 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.
  7. Eckhard Hein & Thorsten Schulten & Achim Truger, 2004. "Wage trends and deflation risks in Germany and Europe," Macroeconomics 0412008, EconWPA.

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