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High Unemployment in Europe: Diagnosis and Policy Implications

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  • Jeffrey Sachs

Abstract

Econometric evidence suggests that the non-accelerating inflation rate of unemployment (the NAIRU) has risen sharply in Europe in the past fifteen years. In the first section of this paper, I review the recent proliferation of supply-side models that say interesting things about why the NAIRU hasincreased so substantially in Europe. In the second section of the paper, I employ a simple example to show how aggregate demand should optimally be managed in response to transitory and permanent supply shocks, especially those shocks that cause a persistent rise in the NAIRU. Also, I discuss some policy implications of the increasingly popular "hysteresis hypothesis, that the NAIRU itself is influenced by the time path of actual unemployment.

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  • Jeffrey Sachs, 1986. "High Unemployment in Europe: Diagnosis and Policy Implications," NBER Working Papers 1830, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1830
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    Cited by:

    1. Jean-Paul Fitoussi & Edmund S. Phelps, 1987. "Politique économique aux Etats-Unis et croissance du chômage en Europe," Revue de l'OFCE, Programme National Persée, vol. 18(1), pages 123-147.
    2. Franz, Wolfgang, 1990. "Hysteresis in Economic Relationships: An Overview," Empirical Economics, Springer, vol. 15(2), pages 109-125.
    3. Belke Ansgar, 2018. "Secular Stagnation, Unemployment Hysteresis and Monetary Policy in EMU: Scratches but Not Scars?," The Economists' Voice, De Gruyter, vol. 15(1), pages 1-14, December.
    4. Geoffrey M. B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
    5. Franz, Wolfgang & Hofmann, Thomas, 1989. "Unemployment and stability of inflation: The concept of the NAIRU in an international perspective and an estimation for Germany using business survey data," Discussion Papers, Series II 87, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. Lucrezia Reichlin, 1989. "Fluctuations et croissance en Europe : une analyse empirique," Revue de l'OFCE, Programme National Persée, vol. 26(1), pages 71-93.
    7. repec:hal:spmain:info:hdl:2441/5951 is not listed on IDEAS
    8. Matthias Goecke, 2019. "Economic Hysteresis with Multiple Inputs - A Simplified Treatment," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 17(1-B), pages 98-113.
    9. Gottschalk, Jan, 2002. "Keynesian and monetarist views on the German unemployment problem: theory and evidence," Kiel Working Papers 1096, Kiel Institute for the World Economy (IfW Kiel).
    10. Patrick Artus & Sani Avouyi-Dovi, 1990. "Inflation anticipée, politique monétaire et taux d'intérêt aux Etats-Unis," Revue Économique, Programme National Persée, vol. 41(3), pages 581-598.
    11. Paqué, Karl-Heinz, 1989. "Wage gaps, hysteresis and structural unemployment: The West German labour market in the seventies and eighties," Kiel Working Papers 358, Kiel Institute for the World Economy (IfW Kiel).
    12. Belke, Ansgar & Göcke, Matthias & Werner, Laura, 2014. "Hysteresis Effects in Economics – Different Methods for Describing Economic Path-dependence," Ruhr Economic Papers 468, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    13. repec:zbw:rwirep:0468 is not listed on IDEAS
    14. Zens, Gregor & Böck, Maximilian & Zörner, Thomas O., 2020. "The heterogeneous impact of monetary policy on the US labor market," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    15. Ansgar Belke & Matthias Göcke & Laura Werner, 2014. "Hysteresis Effects in Economics – Different Methods for Describing Economic Path-dependence," Ruhr Economic Papers 0468, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    16. 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.
    17. Jakob Madsen, 1998. "The NAIRU and Classical Unemployment in the OECD Countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 12(2), pages 165-185.
    18. Michael Burda, 1988. "Is there a capital shortage in Europe?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 124(1), pages 38-57, March.
    19. 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.

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