IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_871.html
   My bibliography  Save this paper

Unemployment in Germany: Reasons and Remedies

Author

Listed:
  • Norbert Berthold
  • Rainer Fehn

Abstract

This paper discusses the reasons for the dismal labor market performance of Germany over the last three decades along with potential remedies. It argues that labor market rigidities along with a generous welfare state in conjunction with certain changes in the economic environment are important in explaining this development but cannot solely account for it. Barriers to entrepreneurship, to setting up new firms and to innovations which are prevalent on goods and capital markets also play an important role in explaining the lackluster German economic performance of which rising unemployment is only one part. Comprehensive institutional reforms are therefore called for.

Suggested Citation

  • Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo.
    • Handle: RePEc:ces:ceswps:_871
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo_wp871.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
    2. Yu‐Fu Chen & Dennis Snower & Gylfi Zoega, 2003. "Labour‐market Institutions and Macroeconomic Shocks," LABOUR, CEIS, vol. 17(2), pages 247-270, June.
    3. Wasmer, Etienne, 2002. "Interpreting Europe and US labor markets differences: the specificity of human capital investments," Arbetsrapport 2003:9, Institute for Futures Studies.
    4. Norbert Berthold & Rainer Fehn & Eric Thode, 2002. "Falling Labor Share and Rising Unemployment: Long–Run Consequences of Institutional Shocks?," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 431-459, November.
    5. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, "undated". "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
    7. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
    8. Patrick Minford & Ruthira Naraidoo, 2010. "Vicious And Virtuous Circles – The Political Economy Of Unemployment," South African Journal of Economics, Economic Society of South Africa, vol. 78(1), pages 1-22, March.
    9. Davis, Steven J. & Henrekson, Magnus, 2005. "Wage-setting institutions as industrial policy," Labour Economics, Elsevier, vol. 12(3), pages 345-377, June.
    10. Calmfore, L., 1993. "Centralization of Wage Bargaining and Macroeconomic Performance - A Survey," Papers 536, Stockholm - International Economic Studies.
    11. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
    12. Koeniger, Winfried, 2002. "Employment Protection, Product Market Competition and Growth," IZA Discussion Papers 554, Institute of Labor Economics (IZA).
    13. Caballero, Ricardo J. & Hammour, Mohamad L., 1998. "Jobless growth: appropriability, factor substitution, and unemployment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 51-94, June.
    14. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW Kiel).
    15. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084, Elsevier.
    16. Richard B. Freeman & Robert S. Gibbons, 1995. "Getting Together and Breaking Apart: The Decline of Centralized Collective Bargaining," NBER Chapters, in: Differences and Changes in Wage Structures, pages 345-370, National Bureau of Economic Research, Inc.
    17. Guiso, Luigi, 1998. "High-tech firms and credit rationing," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 39-59, March.
    18. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
    19. Carlin, Wendy & Mayer, Colin, 2003. "Finance, investment, and growth," Journal of Financial Economics, Elsevier, vol. 69(1), pages 191-226, July.
    20. Robert Solow, 2000. "Unemployment in the United States and in Europe - A Contrast and the Reasons," CESifo Working Paper Series 231, CESifo.
    21. Saint-Paul, Gilles, 2002. "Employment protection, international specialization, and innovation," European Economic Review, Elsevier, vol. 46(2), pages 375-395, February.
    22. Lindbeck, A & Snower, D-J, 1996. "Centralized Bargaining, Multi-Tasking, and Work Incentives," Papers 620, Stockholm - International Economic Studies.
    23. repec:hhs:iuiwop:528 is not listed on IDEAS
    24. Ansgar Belke & Rainer Fehn & Neil Foster, 2001. "Venture Capital Investment and Labor Market Performance: A Panel Data Analysis," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 197/2001, Department of Economics, University of Hohenheim, Germany.
    25. Kraus, Florian & Puhani, Patrick A. & Steiner, Viktor, 1998. "Do public works programs work? Some unpleasant results from the East German experience," ZEW Discussion Papers 98-07, ZEW - Leibniz Centre for European Economic Research.
    26. Lindbeck, Assar, 1997. "The Division of Labor Within Firms," Seminar Papers 628, Stockholm University, Institute for International Economic Studies.
    27. Belke Ansgar & Fehn Rainer, 2002. "Unterentwickelter Risikokapitalmarkt und geringe Beschäftigungsdynamik: Zwei Seiten derselben Medaille im strukturellen Wandel?," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 51(3), pages 344-375, December.
    28. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    29. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    30. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    31. repec:hhs:iuiwop:529 is not listed on IDEAS
    32. Ansgar Belke & Rainer Fehn, "undated". "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press.
    33. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    34. Bertola, Giuseppe & Blau, Francine D & Kahn, Lawrence, 2001. "Comparative Analysis of Labour Market Outcomes: Lessons for the US from International Long-Run Evidence," CEPR Discussion Papers 3023, C.E.P.R. Discussion Papers.
    35. Giuseppe Bertola & Andrea Ichino, 1995. "Wage Inequality and Unemployment: United States versus Europe," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 13-66, National Bureau of Economic Research, Inc.
    36. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    37. Calmfors, Lars & Skedinger, Per, 1995. "Does Active Labour-Market Policy Increase Employment? Theoretical Considerations and Some Empirical Evidence from Sweden," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 11(1), pages 91-109, Spring.
    38. Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, vol. 105(430), pages 601-619, May.
    39. Robert Solow, 2000. "Unemployment in the United States and in Europe : a contrast and the reasons ; the European unemployment problem," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(01), pages 3-5, October.
    40. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    41. Michael Lechner, 1999. "Nonparametric bounds on employment and income effects of continuous vocational training in East Germany," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 1-28.
    42. Alan B. Krueger & Jorn-Steffen Pischke, 1997. "Observations and Conjectures on the U.S. Employment Miracle," NBER Working Papers 6146, National Bureau of Economic Research, Inc.
    43. Ansgar Belke & Rainer Fehn, "undated". "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press.
    44. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
    45. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
    46. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    47. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    48. Lindbeck, Assar & Snower, Dennis J., 2002. "The Insider-Outsider Theory: A Survey," IZA Discussion Papers 534, Institute of Labor Economics (IZA).
    49. Samuel Kortum & Josh Lerner, 1998. "Does Venture Capital Spur Innovation?," NBER Working Papers 6846, National Bureau of Economic Research, Inc.
    50. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    51. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 88-120, January.
    52. Rainer Fehn, "undated". "Der strukturell bedingte Anstieg der Arbeitslosigkeit in Europa - Ursachen und Lösungsansätze," List Monographien 019, List Gesellschaft e.V..
    53. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001. "Deunionization, technical change and inequality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264, December.
    54. James J. Heckman, 2002. "Flexibility and Job Creation: Lessons for Germany," NBER Working Papers 9194, National Bureau of Economic Research, Inc.
    55. Paul A. Gompers & Josh Lerner, 1998. "What Drives Venture Capital Fundraising?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998 Micr), pages 149-204.
    56. Mr. Ramana Ramaswamy & Mr. Bob Rowthorn, 1993. "Centralized Bargaining, Efficiency Wages, and Flexibility," IMF Working Papers 1993/025, International Monetary Fund.
    57. Lindbeck, Assar & Snower, Dennis J., 2000. "The Division of Labor and the Market for Organizations," Working Paper Series 528, Research Institute of Industrial Economics.
    58. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
    59. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
    60. Dietmar Harhoff, 1998. "Are there Financing Constraints for R&D and Investment in German Manufacturing Firms," Annals of Economics and Statistics, GENES, issue 49-50, pages 421-456.
    61. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
    62. Sargent, Thomas & Ljungqvist, Lars, 2002. "The European Employment Experience," CEPR Discussion Papers 3543, C.E.P.R. Discussion Papers.
    63. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2002. "Aktivierende Sozialhilfe - Ein Weg zu mehr Beschäftigung und Wachstum," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 55(09), pages 03-52, May.
    64. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-984.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anita Staneva, 2007. "Econometric analysis of Labour Market in Bulgaria - 1991-2006," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 144-172.
    2. Berthold, Norbert & von Berchem, Sascha, 2003. "Job-AQTIV, Hartz, Agenda 2010: Aufbruch zu neuen Ufern oder viel Lärm um Nichts?," Discussion Paper Series 66, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    3. Pooe T. K., 2019. "Law and Economic Development in South Africa: An Assessment through the General Theory of Law and Development," The Law and Development Review, De Gruyter, vol. 12(2), pages 377-401, June.
    4. Berthold, Norbert & von Berchem, Sascha, 2003. "Die Sozialhilfe zwischen Effizienz und Gerechtigkeit: wie kann der Spagat gelingen?," Discussion Paper Series 62, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    5. Miltiades N. Georgiou & Nicholas Kyriazes, 2006. "Banking Entrepreneurship Differentials between Europe and USA. A Note," Papers on Entrepreneurship, Growth and Public Policy 2006-17, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    6. Klaus Heine & Karsten Mause, 2004. "Policy Advice as an Investment Problem," Kyklos, Wiley Blackwell, vol. 57(3), pages 403-427, August.
    7. Lerbs, Oliver, 2010. "Is there a link between home ownership and unemployment levels? Evidence from German regional data," CAWM Discussion Papers 34, University of Münster, Münster Center for Economic Policy (MEP).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rainer Fehn & Carsten-Patrick Meier, 2001. "The Positive Economics of Labor Market Rigidities and Investor Protection," CESifo Working Paper Series 456, CESifo.
    2. Ansgar Belke & Rainer Fehn, "undated". "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press.
    3. Ansgar Belke & Rainer Fehn, "undated". "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press.
    4. Fehn, Rainer, 2001. "Korporatismus auf dem Arbeitsmarkt und institutionelle Rahmenbedingungen auf dem Kapitalmarkt: zwei Seiten ein- und derselben Medaille?," Discussion Paper Series 46, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    5. Berthold, Norbert & Fehn, Rainer, 2002. "Struktureller Wandel, new economy und Beschäftigungsentwicklung: welche Rolle spielen die institutionellen Rahmenbedingungen auf dem Kapitalmarkt?," Discussion Paper Series 53, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    6. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Discussion Paper Series 54, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    7. Ansgar Belke & Rainer Fehn & Neil Foster, 2003. "Does Venture Capital Investment Spur Employment Growth?," Vienna Economics Papers vie0303, University of Vienna, Department of Economics.
    8. Ansgar Belke & Rainer Fehn & Neil Foster, 2003. "Does Venture Capital Investment Spur Employment Growth?," CESifo Working Paper Series 930, CESifo.
    9. Norbert Berthold & Rainer Fehn, 2002. "Arbeitsmarktpolitik in der Europäischen Währungsunion," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 3(3), pages 317-345, August.
    10. Fehn, Rainer & Meier, Carsten-Patrick, 2000. "The positive economics of corporatism and corporate governance," Kiel Working Papers 982, Kiel Institute for the World Economy (IfW Kiel).
    11. Berthold, Norbert & Fehn, Rainer, 2000. "Arbeitsmarktpolitik in der Europäischen Währungsunion," Discussion Paper Series 38, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    12. Ansgar Belke & Rainer Fehn & Neil Foster, 2001. "Venture Capital Investment and Labor Market Performance: A Panel Data Analysis," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 197/2001, Department of Economics, University of Hohenheim, Germany.
    13. Ansgar Belke & Rainer Fehn & Neil Foster, 2001. "Venture Capital Investment and Labor Market Performance: A Panel Data Analysis," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 197/2001, Department of Economics, University of Hohenheim, Germany.
    14. Linzert, Tobias, 2005. "The Unemployment Inflation Trade-Off in the Euro Area," IZA Discussion Papers 1699, Institute of Labor Economics (IZA).
    15. Stephen Nickell, 2003. "A Picture of European Unemployment: Success and Failure," CEP Discussion Papers dp0577, Centre for Economic Performance, LSE.
    16. Giuseppe Bertola & Francine Blau & Lawrence Kahn, 2007. "Labor market institutions and demographic employment patterns," Journal of Population Economics, Springer;European Society for Population Economics, vol. 20(4), pages 833-867, October.
    17. Raquel FONSECA & Natalia UTRERO- GONZALEZ, 2005. "Financial Development, Labor and Market Regulations and Growth," Finance 0509016, University Library of Munich, Germany.
    18. Nickell, Stephen & Nunziata, Luca & Ochel, Wolfgang & Quintini, Glenda, 2001. "The Beveridge curve, unemployment and wages in the OECD from the 1960s to the 1990s - preliminary version," LSE Research Online Documents on Economics 20113, London School of Economics and Political Science, LSE Library.
    19. Eckhard Hein & Achim Truger, 2005. "What ever happened to Germany? Is the decline of the former european key currency country caused by structural sclerosis or by macroeconomic mismanagement?," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 3-28.
    20. Berthold, Norbert & Fehn, Rainer, 1999. "Aggressive Lohnpolitik, überschießende Kapitalintensität und steigende Arbeitslosigkeit: können Investivlöhne für Abhilfe sorgen?," Discussion Paper Series 28, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.

    More about this item

    Keywords

    unemployment; Germany; labor market reforms; venture capital; innovations;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_871. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.