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Germany's Poor Economic Performance in the Last Decade: It's the Macroeconomy, not Institutional Sclerosis

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  • Truger, Achim
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    Abstract

    This paper challenges the institutional sclerosis explanation 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 explanation 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 procyclical monetary, fiscal and wage policy in Germany that is broadly consistent with mainstream macroeconomics and is well backed by empirical data. --

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    Paper provided by Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung in its series WSI Discussion Papers with number 118.

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    Date of creation: 2003
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    Handle: RePEc:zbw:wsidps:118

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    1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    2. 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.
    3. Robert Solow, 2000. "Unemployment in the United States and in Europe - A Contrast and the Reasons," CESifo Working Paper Series 231, CESifo Group Munich.
    4. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 55-74, Summer.
    5. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-15, C.V. Starr Center for Applied Economics, New York University.
    6. Andrew Glyn, 2003. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," Economics Series Working Papers 168, University of Oxford, Department of Economics.
    7. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262011719, December.
    8. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 37-54, Summer.
    9. Belot, M.V.K. & Ours, J.C. van, 2001. "Unemployment and Labor Market Institutions: An Empirical Analysis," Discussion Paper, Tilburg University, Center for Economic Research 2001-50, Tilburg University, Center for Economic Research.
    10. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
    11. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 14(4), pages 375-93, December.
    12. Truger, Achim & Hein, Eckhard, 2003. "Schlusslicht Deutschland': Resultat institutioneller Verkrustungen?," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 83(8), pages 509-516.
    13. Hein, Eckhard, 2003. "Die NAIRU: Eine post-keynesianische Interpretation," WSI Discussion Papers 113, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
    14. Hein, Eckhard & Truger, Achim, 2005. "European Monetary Union: nominal convergence, real divergence and slow growth?," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 16(1), pages 7-33, March.
    15. Stefan Bach & Dieter Vesper, 2000. "Finanzpolitik und Wiedervereinigung: Bilanz nach 10 Jahren," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, DIW Berlin, German Institute for Economic Research, vol. 69(2), pages 194-224.
    16. Robert Solow, 2000. "Unemployment in the United States and in Europe : a contrast and the reasons ; the European unemployment problem," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 1(1), pages 3-5, October.
    17. Allsopp, Christopher & Vines, David, 1998. "The Assessment: Macroeconomic Policy after EMU," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 14(3), pages 1-23, Autumn.
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