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Aggregate Supply and Demand Factors in OECD Unemployment: An Update

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  • Michael Bruno

Abstract

The paper analyzes the change in unemployment in 12 OECD countries over the period 1970-83 in terms of underlying aggregate supply and demand shifts. Earlier evidence on wage gaps (given by Brunoand Sachs) is revised and extended. For most European countries a process of reduction in gaps is taking place in the 1980's, but the average absolute levels, when weighted by country size, are still sizeable, thus a 'classical' element of unemployment remains. However, most of the large additional increase in unemployment after 1980 (as well as the profit squeeze and investment slowdown) is ascribed to the contractionary stance of macropolicy in Europe, in contrast to the subsequent expansion and sharp fall of unemployment in the U.S. The large U.S. deficit coupled with monetary restraint and the resulting dollar appreciation also account for the sharp difference in the behavior of import prices in the U.S. and Europe which in turn may explain the considerably slower inflation deceleration in Europe and the reluctance to expand activity more rapidly.

Suggested Citation

  • Michael Bruno, 1985. "Aggregate Supply and Demand Factors in OECD Unemployment: An Update," NBER Working Papers 1696, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1696
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    References listed on IDEAS

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    1. Jeffrey D. Sachs, 1979. "Wages, Profits, and Macroeconomic Adjustment: A Comparative Study," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 269-332.
    2. Leslie Lipschitz & Susan M. Schadler, 1984. "Relative Prices, Real Wages, and Macroeconomic Policies: Some Evidence from Manufacturing in Japan and the United Kingdom (Prix relatifs, salaires réels et politiques macroéconomiques: résultats ob," IMF Staff Papers, Palgrave Macmillan, vol. 31(2), pages 303-338, June.
    3. Bruno, Michael, 1980. "Import Prices and Stagflation in the Industrial Countries: A Cross-Section Analysis," Economic Journal, Royal Economic Society, vol. 90(359), pages 479-492, September.
    4. James H. Chan-Lee & Helen Sutch, 1985. "Profits and Rates of Return in OECD Countries," OECD Economics Department Working Papers 20, OECD Publishing.
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    Cited by:

    1. Orley Ashenfelter & David Card, 1986. "Why Have Unemployment Rates in Canada and the U.S. Diverged?," Working Papers 584, Princeton University, Department of Economics, Industrial Relations Section..
    2. Jeffrey Sachs, 1986. "High Unemployment in Europe: Diagnosis and Policy Implications," NBER Working Papers 1830, National Bureau of Economic Research, Inc.
    3. Rachel McCulloch, 1988. "Macroeconomic Policy and Trade Performance: International Implications and U.S. Budget Deficits," NBER Chapters, in: Issues in US-EC Trade Relations, pages 349-370, National Bureau of Economic Research, Inc.

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