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Macroeconomic Causes of Unemployment: Diagnosis and Policy Recommendations /

Makroökonomische Ursachen der Arbeitslosigkeit: Diagnose und Therapievorschläge

Editors: Filc, Wolfgang | Köhler, Claus

Veröffentlichungen des Instituts für Empirische Wirtschaftsforschung, Vol. 36


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This conference volume deals with one of the most severe economic, social and political problems major European economies face since the early nineties, the problem of lasting high unemployment. Contrary to the current German discussion, solely concentrating on microeconomic explanations and therapy recommendations, this volume presents papers based on various macro-economic points of view, showing different ways out of the employment crisis. Apart from renowned German economists, some well-known international academics participated in the 1998 Berlin symposium, to learn from experience in other countries.

The first chapter contains the main standard textbook models and paradigms explaining lasting high unemployment. The question in the second chapter is if it is possible to fight unemployment with the help of macro policy on a purely national basis in the presence of global markets. The third chapter indicates possible effects of misalignments in financial markets on economic growth and employment. The contributions of the fourth chapter present experiences of other countries, which have succeeded in recent years in lowering their unemployment rates. The question at issue is, if these concepts can be transferred to Germany. The topics of the concluding chapter are practical macroeconomic starting points for sustainable employment growth in Europe. The methods contradict supply side arguments for the stabilisation of employment predominant in the German discussion. Attention is focused on relations between the role of monetary and fiscal policy in close conjunction with wage policy. Furthermore it is made evident that in global markets a theoretical macroeconomic concept as a base for sustainable employment is not very promising without enhanced international co-operation.

Table of Contents

Section Title Page Action Price
Contents 5
Editorial Introduction 9
I. Macroeconomics and Employment 21
Wolfgang Franz: Macroeconomics and Joblessness: An Introductory Statement 23
I. Basic Analytical Framework 23
II. Possible Sources of German Unemployment 25
1. Sources Resulting from Wage Setting 25
2. Sources Stemming from Labor Demand 27
3. Transmission from Non-Structural Unemployment to Structural Unemployment 28
III. Conclusions 28
References 29
Rudolf Richter: Warum Arbeitslosigkeit? Antworten von Wirtschaftstheoretikern seit Keynes (1936) 31
I. Die klassische Antwort 31
II. Die Argumentation von Keynes 33
III. Die neoklassische Synthese 35
IV. Die Attacken von Friedman und Lucas 36
V. Verteidigungsstrategien der Neuen Keynesianer 38
VI. Fehlende Arbeitsplätze 42
VII. Arbeitslosigkeit aus polit-ökonomischer Sicht 43
VIII. Arbeitslosigkeit infolge der Kartellstruktur von Arbeitsmärkten: Industrie-Ökonomik der Arbeitslosigkeit 44
IX. Arbeitsmarkt und Arbeitslosigkeit aus Sicht der Neuen Institutionenökonomik 47
X. Zusammenfassung 50
Summary: Why Unemployment? Answers by Economists since Keynes (1936) 54
Literatur 56
Jan Priewe: Klassische und keynesianische Arbeitslosigkeit – eine Kritik hybrider Typologien 59
I. Die hybriden Typologien 59
II. Konjunkturelle und „capital shortage unemployment 62
III. Neukeynesianische Ungleichgewichtstheorie: Malinvauds klassische und keynesianische Arbeitslosigkeit 69
IV. Natürliche und inflationsstabile Arbeitslosigkeit – klassische Arbeitslosigkeit? 73
V. Zu hohe Reallöhne und „Lohnlücke\" – klassische Arbeitslosigkeit? 78
VI. Keynesianische Arbeitslosigkeit – zwei Varianten 81
Summary: Classical and Keynesian Unemployment – A Critique of Hybrid Topologies 85
II. Globalization and Employment 87
Hans-Joachim Heinemann: Nationale Beschäftigungspolitik bei globalisierten Märkten? 89
Summary 95
Literatur 95
Paul Davidson: Global Macro Policies for Reducing Persistent High Unemployment Rates in OECD Countries 97
I. The golden age of economic development 97
II. The lesson that should have been learned 100
III. The Post Keynesian explanation of persistently high OECD unemployment 101
IV. Why the law of comparative advantage is inapplicable to our global economy 103
V. Additional macroeconomic errors embedded in mainstream conventional wisdom 104
VI. Reforming the world’s monetary payment system 105
VII. A Post Keynesian international payments system 108
VIII. Conclusion 114
References 115
Henning Klodt: International Direct Investment: Export of Headquarter Services or Export of Jobs? 117
I. Introduction 117
II. Statistics on Foreign Direct Investment 117
The German Balance of Foreign Direct Investment by Different Statistical Sources 117
III. Theory of Multinational Firms 120
IV. Patterns of Foreign Direct Investment 122
V. Conclusions 125
References 125
III. Financial Markets and Employment 127
Alexander Juchems / Willi Leibfritz: Monetary Conditions and Fiscal Policy – A Comparison over Various Business Cycles and Different Phases of the Business Cycle 129
I. Unemployment and Business Cycle 129
II. Monetary Conditions and Fiscal-Policy in the Overall Business Cycle 129
1. Description of Indicators 130
2. Analytical Test of Indicator Performance 135
III. Monetary Conditions and Fiscal-Policy in Recessions 137
IV. Consequences for Economic Policy 139
Annex: Types of Currency Market Intervention 140
References 142
Peter Winker: Financing Constraints, Output and Employment. Lessons from Theory and Empirical Evidence on the Micro and Macro Level 143
I. Introduction 143
II. Financing Constraints at the Firm Level 144
1. Causes for Financing Constraints 144
2. Effects 146
III. An Aggregate View on Loan Markets 150
1. Interest Rates 150
2. Partial Analysis 150
3. Total Analysis 152
IV. Macroeconomic Effects? 157
V. Conclusions 158
References 159
Summary 160
Michael Frömmel / Lukas Menkhoff: The Informational Efficiency of Financial Markets and Macroeconomic Equilibrium 163
I. Introduction 163
II. On the testing of informationally efficient financial markets 164
1. The concept of informational efficiency 164
2. Measuring informational efficiency 165
3. Are past prices used efficiently? 169
4. Interim summary 171
III. Implications of informational efficiency and surveys on behavior 172
1. Questionnaire approach methodology 172
2. The concrete questioning of foreign exchange market participants 173
3. The type of information considered 174
4. The way of information processing 176
5. The institutional environment 178
6. Interim summary 179
IV. Options for economic policy 180
References 183
Summary 185
Zusammenfassung 185
IV. Country Studies and Country Comparisons 187
Lothar Funk: Labour Market Dynamics in Western Europe and the USA 189
I. Introduction 189
II. Different paths of economic development in the U.S. and Western Europe: The stylized facts of unemployment and employment growth 192
III. The role of the demand side: Is hysteresis or are institutional rigidities mainly responsible for persistent European unemployment? 194
IV. The interaction between demand- and supply-side policies 204
V. Lessons from the United Kingdom and the Netherlands for Germany 206
VI. Some concluding reform proposals for Germany 218
References 222
Michael Heise / Mathias Moersch: Micro and Macro Determinants of Unemployment. A Comparison of Trends in the United States and Germany 227
I. Introduction 227
II. High unemployment in Europe is not due to slower growth or demographic changes 228
III. Structural differences 232
1. Wage differentiation and mobility of the labour 232
2. Collective wage bargaining systems – less organisation and centralisation, less corporatism in the U.S. 234
3. Business dynamism and venture capital markets 236
IV. Macroeconomic analysis of unemployment 237
1. Wage development and labour intensity of the growth process 237
2. Employment effects of monetary policy 239
a) The natural rate 239
b) Monetary policy 240
c) Implications for the country comparison 242
V. Summary 243
References 243
Arne Heise: Unemployment in Germany and Britain – A Question of Micro-Rigidities or Macro-Obstruction? 245
I. An introduction to deregulation and flexibility 245
II. Britain and Germany: Prototyps of flexibility and sklerosis? 246
III. Testing neo-liberal hypotheses 248
IV. Macroeconomics of comparative labour market developments 258
V. Conclusions 265
Literature 267
Wayne Simpson / Norman Cameron: Reducing Unemployment in an Era of Low Inflationary Expectations 271
I. Introduction 271
II. Do Canadians Resist Pay Cuts during Low Inflation? 273
III. Can Pay Cut Resistance Affect Employment? 276
IV. Evidence on the Employment Effects of Pay Cut Resistance 278
V. The Impact of Pay Cut Resistance on Unemployment 281
VI. Is Hypoinflation Worth the Unemployment Cost? 283
References 284
Appendix: A Bargaining Model with Pay Cut Resistance 284
V. Macroeconomic Policy Designs to Regain High Employment 289
Attiat F. Ott: Effects of a Change in Policy Rules on the Growth of the Economy: Temporary versus Permanent Effects 291
I. Introduction 291
II. Stylized Facts of Growth 292
III. Growth Models and their Quantitative Predictions 295
1. The Neoclassical Model 295
2. Convergence: Absolute and Conditional 298
3. Endogenous Growth 301
IV. Policy Rules and Economic Growth 305
1. Policy Rules: Feedback Versus Fixed Rules 309
2. Transitory and Permanent Effects 310
3. Budget Policy and Productivity Growth 311
V. Empirical Analysis 313
References 323
Loek Groot / Ronald Schettkat: Does Structure Matter? The Macroeconomics of Unbalanced Growth 327
I. Introduction 327
II. Brief discussion of some unbalanced productivity growth models 327
III. Simulation models 332
IV. Concluding summary 341
Appendix 345
Bibliography 345
Ewald Nowotny: The Role of Macroeconomic Policy in Overcoming Slow Economic Growth. International Comparisons and Policy Perspectives 347
I. Economic Growth and Labour Markets in Europe 347
II. The Growth Perspective – the Central Role of Interest Rates 347
III. Economic Growth and Employment 354
1. General View 354
2. Wage Shares, Wage Flexibility and Employment 354
3. Productivity and the Service Sector 358
IV. The Austrian Experience – Macroeconomic Perspectives 359
Literature 363
Carl-Ludwig Holtfrerich: Economic Policy Targeting, Policy Mix and (Un-)Employment 365
I. Okun’s Law 365
II. Supply-side measures 366
III. Fiscal policy under the Maastricht Treaty 366
IV. Policy mix and policy results 368
V. Conclusions 376
Heinz-Peter Spahn: Central Bankers, Games and Markets. A Critical Assessment of the Microeconomic Optimization Approach in the Theory of Macroeconomic Stabilization 379
I. A heyday of the theory of monetary policy? 379
II. The macroeconomic policy framework of the Barro-Gordon model 381
III. Central bankers on the problem of time inconsistency 384
IV. Looking at the facts: Causes of and policies against inflation 387
V. How to cope with supply constraints and unemployment 392
VI. Real determinants of the nominal anchor or non-neutrality of monetary policy? 396
VII. Summary: Six propositions 399
References 399
Hans-Jürgen Krupp / Karen Cabos: The Impact of Monetary Policy on Employment 405
I. The relationship between monetary policy and employment policy 405
II. Empirical studies on the real effects of monetary policy 408
III. Theoretical attempts at an explanation 412
IV. Monetary policy in the context of European Monetary Union 416
References 417
Gustav A. Horn: Zur Koordination von Geld- und Lohnpolitik. Eine empirische Analyse für die USA und Deutschland 419
I. Einleitung 419
II. Zur Interaktion von Geld- und Lohnpolitik 421
III. Ein System interdependenter Lohn- und monetärer Entwicklungen 424
1. Die Variablen 424
2. Zur Reihung der Variablen 425
3. Die Darstellung des VAR Systems 426
4. Zu den Schätzungen des VAR Systems 427
IV. Die Resultate 428
1. VAR Systeme für die USA und Deutschland 428
2. Die Ausrichtung der Geldpolitik 430
3. Die Ausrichtung der Lohnentwicklung 434
V. Schlußfolgerungen für die Koordination von Geld- und Lohnpolitik 437
Literaturverzeichnis 438
Editors and Authors 441