The Classical Unemployment Hypothesis and International Comparisons of Labour Market Behaviour

One of the most striking developments in the economic performance of industrialized economies in the last 25 years has been their contrasting employment experiences. The facts are evident from Table 10.1: whereas Canada and the United States have seen 80 per cent and 58 per cent increases in total employment from 1960 to 1984, Germany and Britain have experienced small reductions in employment and, for the OECD European economies as a whole, employment grew only 5 per cent. The contrasts among these countries are evident in the years before the first oil price shock in 1973 as well as after it: in the United States from 1960 to 1973 employment grew by 28 per cent while in Germany and Britain it rose only about 3 per cent; between 1973 and 1984, employment in the US increased by 23 per cent, but in Germany and Britain employment fell by 4 to 7 percent. In other words, annual employment growth in the United States was slower after 1973, but it remained clearly positive, whereas during the same period total employment barely changed in Western Europe. Because the adult population and labour force in these European economies expanded during these years, unemployment necessarily increased: as Table 10.1 shows, in Germany and France the fraction of the adult population employed fell ten percentage points from 1960 to 1984 and the unemployment rate rose seven to eight percentage points; in Britain the employment rate fell by six percentage points and the unemployment rate rose ten percentage points. Table 10.1 Employment and unemployment in selected industrialized economies, 1960–84