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Institutional Aspects of High Unemployment in the Federal Republic of Germany

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  • Michael C. Burda
  • Jeffrey D. Sachs

Abstract

The sustained rise in German unemployment since 1973 poses a problem of critical importance for the world economy. Fewer than two decades ago, Germany boasted an average unemployment rate of under 1% and imported labor to relieve chronic labor shortages. By the mid-1980s, unemployment had risen to over 8 percent of the labor force. This paper investigates some of the reasons for the secular rise in unemployment. We find that while deficient aggregate demand can probably explain some of the current joblessness, the secular rise in unemployment has consisted primarily of an increase in the equilibrium rate of unemployment. We also find little evidence that this increase is due to changes in frictional unemployment. Rather, after reviewing institutional details of the labor market in Germany, we identify various impediments to the kinds of structural adjustments that have operated to maintain a fairly constant equilibrium rate of unemployment in the United States.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:2241
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    Cited by:

    1. Schmidt, Klaus-Dieter, 1990. "Mehr Arbeitsplätze durch weniger Regulierung: Britische Erfahrungen mit einer anderen Arbeitsmarktpolitik," Kiel Working Papers 406, Kiel Institute for the World Economy (IfW).
    2. Siebert, Horst, 1987. "Kündigungsschutz und Sozialplanpflicht: Optimale Allokation von Risiken oder Ursache der Arbeitslosigkeit?," Discussion Papers, Series II 27, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    3. Klodt, Henning, 1988. "Lohnquote und Beschäftigung: Eine Erwiderung," Open Access Publications from Kiel Institute for the World Economy 1372, Kiel Institute for the World Economy (IfW).
    4. 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).
    5. Naveen Srinivasan & Pratik Mitra, 2014. "The European unemployment problem: its cause and cure," Empirical Economics, Springer, vol. 47(1), pages 57-73, August.
    6. Klodt, Henning, 1990. "Industrial policy and repressed structural change in West Germany," Open Access Publications from Kiel Institute for the World Economy 1417, Kiel Institute for the World Economy (IfW).
    7. Paqué, Karl-Heinz, 1989. "Micro-macro links in West Germany's unemployment," Kiel Working Papers 378, Kiel Institute for the World Economy (IfW).
    8. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.

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