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Three Ways to ... High Unemployment

Listed author(s):
  • Kazimierz Laski


    (The Vienna Institute for International Economic Studies, wiiw)

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    The author intends to prove that economic policy in Germany after 1979 was opposed to that recommended by Kalecki in his famous 'Three ways to Full Employment' and was responsible for the surge in unemployment. Part I of the paper sketches the theoretical background of Kalecki's recommendations. Special attention is devoted to private investment, budget deficit and trade balance as factors determining (but not being determined by) private savings. A related topic is the change of the degree of capacity utilization and of labour force. Part II is devoted to an empirical investigation of Germany in 1960-96. The author comes to the conclusion that two factors were mainly responsible for the slowdown of GDP growth after 1979 first, the weak expansion of private investment, caused - at least to some degree - by the restrictive monetary policy of the Bundesbank and, second, the increase in the private propensity to save, related to an engineered shift in the distribution of income from wages to profits. The increase of the trade surplus in the 1980s and then in the 1990s could not prevent the slowing down of GDP growth and the increase of unemployment provoked by these two factors. In the USA, in contrast, the stagnation of private investment in 1980-91 was counterbalanced by a decrease of the private propensity to save and by an increase of the budget deficit. Thus a stagnation of GDP could be avoided and unemployment did not increase very much.

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    Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 12.

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    Date of creation: Jan 2000
    Publication status: Published as wiiw Working Paper
    Handle: RePEc:wii:wpaper:12
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    1. Stephan Schulmeister, 1996. "Interest Rates, Investment, Growth, and Public Debt," WIFO Monatsberichte (monthly reports), WIFO, vol. 69(11), pages 729-735, November.
    2. A. Bhaduri & K. Laski & M. Riese, 1999. "Effective demand versus profit maximization in aggregate demand/supply analysis: a dynamic perspective," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 52(210), pages 281-293.
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