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Institutional Aspects of High Unemployment in the Federal Republic of Germany

Listed author(s):
  • Michael C. Burda
  • Jeffrey D. Sachs

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2241.

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Date of creation: May 1987
Publication status: published as World Economy, 1988 Fall
Handle: RePEc:nbr:nberwo:2241
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  1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  2. Jeffrey Sachs, 1986. "High Unemployment in Europe: Diagnosis and Policy Implications," NBER Working Papers 1830, National Bureau of Economic Research, Inc.
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  6. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(3), pages 721-725, August.
  7. Lucas, Robert E, Jr, 1978. "Unemployment Policy," American Economic Review, American Economic Association, vol. 68(2), pages 353-357, May.
  8. 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.
  9. Schatz, Klaus-Werner, 1984. "Die Bedeutung kleiner und mittlerer Unternehmen im Strukturwandel," Kiel Discussion Papers 103, Kiel Institute for the World Economy (IfW).
  10. McCallum, John, 1985. " Wage Gaps, Factor Shares and Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 436-459.
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  13. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
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  15. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
  16. Breithaupt, Karl & Soltwedel, Rüdiger, 1980. "Nivellierungs- und Differenzierungstendenzen der inter- und intrasektoralen Lohnstruktur," Open Access Publications from Kiel Institute for the World Economy 3156, Kiel Institute for the World Economy (IfW).
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