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The role of demand management policies in reducing unemployment


  • Charles R. Bean


This paper considers the scope for demand management policies to reduce the present high levels of European unemployment. While the evidence suggests that contractionary demand shocks are partly to blame, the presence of endogenous persistence mechanisms limit the scope for effective activist policies. Furthermore, in isolation they can do nothing to tackle the significant fraction due to adverse supply, or structural, developments. However, if appropriate supply-side policies are introduced, supportive demand management policies can speed the reduction in unemployment. The paper considers what such supportive demand management policies should look like and argues that in some cases a mild, although temporary, increase in inflation may be appropriate. The implications of uncertainty about the equilibrium rate of unemployment are also considered. The paper argues that such supportive policies are probably best sustained through monetary rather than fiscal policies and are likely to require changes in intra-European real exchange rates. Consequently a rapid move to full monetary union may be ill advised. Finally a potential role for temporary incomes policies is also identified.
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Suggested Citation

  • Charles R. Bean, 1994. "The role of demand management policies in reducing unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 99-167.
  • Handle: RePEc:fip:fedkpr:y:1994:i:jan:p:99-167

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    References listed on IDEAS

    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, January.
    2. Olivier Jean Blanchard & Peter Diamond, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 417-434.
    3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    4. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    5. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-819, December.
    6. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-340, June.
    7. Meade, James E, 1993. "The Meaning of "Internal Balance."," American Economic Review, American Economic Association, vol. 83(6), pages 3-9, December.
    8. Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1371-1391.
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    Cited by:

    1. López Díaz, J., 1999. "Divergencia real en la unión monetaria: Un ejercicio de simulación," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 13, pages 87-100, Diciembre.
    2. Jürgen Von Hagen, 1999. "Macroeconomic Consequences of the EMU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(4), pages 359-374, December.
    3. Floro Ernesto Caroleo, 2000. "Le politiche per l'occupazione in Europa: una tassonomia istituzionale," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2000(71).
    4. Ansgar Belke & Daniel Gros, 1999. "Estimating the costs and benefits of EMU: The impact of external shocks on labour markets," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 1-47, March.
    5. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July.
    6. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers 639, Stockholm University, Institute for International Economic Studies.
    7. Andrew Martin, 2000. "Social Pacts, Unemployment, and EMU Macroeconomic Policy," EUI-RSCAS Working Papers 32, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    8. Luis Alberiko Gil-Alana & Pedro Garcia-del-Barrio, 2006. "New Revelations about Unemployment Persistence in Spain," Faculty Working Papers 10/06, School of Economics and Business Administration, University of Navarra.
    9. Werner Sesselmeier & Wilfried Fuhrmann & Christian Scholz & Uwe Walz & Rainer Schweickert & Axel Börsch-Supan & Margareta Kulessa, 1999. "Book reviews," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 171-188, March.
    10. Berthold, Norbert & Fricke, Holger, 2007. "Volkswirtschaftliche Auswirkungen der finanziellen Ausgleichsysteme in Deutschland," Discussion Paper Series 93, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    11. García-Cintado, Alejandro & Romero-Ávila, Diego & Usabiaga, Carlos, 2015. "Can the hysteresis hypothesis in Spanish regional unemployment be beaten? New evidence from unit root tests with breaks," Economic Modelling, Elsevier, vol. 47(C), pages 244-252.


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