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Micro-macro links in West Germany's unemployment

  • Paqué, Karl-Heinz
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    The main point of this paper will be that West German unemployment in the late 1980's has a curious double character: while its genesis is largely determined by the macroeconomic events of the last two decades - two stabilization crises and one wage revolution -, its current state reveals strongly microeconomic features which call for micro rather than macro policy measures. To make our case, we proceed as follows. In section II of the paper, we clear up our use of the terms 'macro' and 'micro' which may diverge somewhat from the normal textbook wording. In section III, we evaluate four major macro-paradigms of unemployment in West Germany: the traditional Keynesian demand-gap and the neoclassical wage-gap approach, the transatlantic crowding-out theory as recently advanced by Fitoussi, Phelps (1988), and, at some length, the hysteresis- theory as pioneered by Blanchard, Summers (1986a, b, c; 1988). We shall argue that none of these paradigms provides a sufficient explanation of the current persistence of unemployment in Germany, but that some of them - notably the wage-gap and the hysteresis-theory - contain most valuable elements; what they all lack is a due account of the structural and institutional (i.e. the 'micro') elements which are likely to cement an economy's macro inclination towards hysteresis. In section IV, we try to fill this gap by postdelivering a summary of these elements, with a focus on the structure of long-term unemployment, regional disparities and structural change between sectors of economic activity. In the final section V, we briefly evaluate different employment policy options and, from our own standpoint, make a policy choice.

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    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 378.

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    Date of creation: 1989
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    Handle: RePEc:kie:kieliw:378
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    1. Olivier J. Blanchard, 1986. "Hysteresis and Unemployment," Working papers 430, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Jacques R. Artus, 1984. "The Disequilibrium Real Wage Rate Hypothesis: An Empirical Evaluation (L'hypothèse du déséquilibre du taux de salaire réel: évaluation empirique) (La hipótesis de desequilibrio del salario real:," IMF Staff Papers, Palgrave Macmillan, vol. 31(2), pages 249-302, June.
    3. Rod Cross, 2000. "Hysteresis and Emu," Metroeconomica, Wiley Blackwell, vol. 51(4), pages 367-379, November.
    4. Freeman, Richard B, 1988. "Evaluating the European View that the United States Has No Unemployment Problem," American Economic Review, American Economic Association, vol. 78(2), pages 294-99, May.
    5. Glyn, Andrew & Rowthorn, Bob, 1988. "West European Unemployment: Corporatism and Structural Change," American Economic Review, American Economic Association, vol. 78(2), pages 194-99, May.
    6. Jackman, R & Roper, S, 1987. "Structural Unemployment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 9-36, February.
    7. Budd, Alan & Levine, Paul & Smith, Peter, 1988. "Unemployment, Vacancies and the Long-term Unemployed," Economic Journal, Royal Economic Society, vol. 98(393), pages 1071-91, December.
    8. Bluestone, Barry & Harrison, Bennett, 1988. "The Growth of Low-Wage Employment: 1963-86," American Economic Review, American Economic Association, vol. 78(2), pages 124-28, May.
    9. Paqué, Karl-Heinz, 1987. "Labour surplus and capital shortage: German unemployment in the first decade after the currency reform," Kiel Working Papers 290, Kiel Institute for the World Economy.
    10. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
    11. Blanchard, Olivier Jean & Summers, Lawrence H, 1988. "Beyond the Natural Rate Hypothesis," American Economic Review, American Economic Association, vol. 78(2), pages 182-87, May.
    12. Michael C. Burda & Jeffrey D. Sachs, 1987. "Institutional Aspects of High Unemployment in the Federal Republic of Germany," NBER Working Papers 2241, National Bureau of Economic Research, Inc.
    13. Paqué, Karl-Heinz, 1989. "Is structural unemployment a negligible problem? A critical note on the use of mismatch indices," Kiel Working Papers 357, Kiel Institute for the World Economy.
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