German labour reforms: Unpopular success
Tom Krebs, Martin Scheffel 20 September 2013
Faced with stubbornly high and persistent unemployment in 2003-05 the German government implemented far-reaching labour-market reforms, the so-called Hartz reforms. This column shows that these reforms were highly successful in bringing down the non-cyclical component of unemployment in Germany but also argues that the Hartz reforms created winners and losers. This explains why these reforms have been hugely unpopular among the German public.
Just a few years ago, Germany was known as the sick man of Europe (Burda 2007). Starting from an average unemployment rate below 4% in the 1970s, Germany saw its rate increase to almost 9% in the period 1995-2005. As seen in Figure 1 the unemployment rate has a strong cyclical component but also a trend component that has been rising since the 1970s until the mid-2000s.
Figure 1. Quarterly unemployment rate, Germany 1970Q1-2012Q4
Labour markets Macroeconomic policy
Germany, unemployment, reforms
The downsizing dilemmas of European employers
Hendrik P van Dalen, Kène Henkens 28 August 2013
In times of economic crisis, managers often take drastic measures to survive. This column presents new research on the preferences of managers from across Europe when faced with ‘downsizing’. It seems that, when recession bites, the instincts or ‘animal spirits’ of employers that were previously suppressed by prosperity or considered to be outdated resurface. European employers predominantly resort to offering early retirement packages (and to a lesser extent buy-outs) in response to the threat of downsizing, exacerbating, in the long run, the problems associated with Europe’s ageing population. The only notable exception to this rule is the response of Danish employers, who prefer to tackle this problem by reducing the working hours of their employees.
Drastic measures are taken when managers formulate strategies to survive economic crises. Among these are downsizing, outsourcing, firing workers and cutting back on wages. But how do firms balance their interests against those of their workers?
unemployment, Eurozone crisis, downsizing, hiring, firing
Accounting for the ethnic unemployment gap in France and the US
Laurent Gobillon, Peter Rupert, Étienne Wasmer 23 July 2013
The unemployment rate in France is roughly six percentage points higher for African immigrants than for natives. Why? This column argues that the explanation is spatial: recent immigrants tend to have much longer commute times. Research suggests that in the region of 20% of the employment gap between the French minority and the French majority can be put down to commute times, but more research is needed, especially in France where research into the ethnic unemployment gap is scarce.
The unemployment rate in France is roughly six percentage points higher for African immigrants than for natives. In the US, the unemployment rate is approximately nine percentage points higher for black people than for white people. The gap between the minority (African immigrants or black people) and the majority (natives or white people) remains important even after controlling for individual attributes such as education, age or other demographic characteristics.
Europe's nations and regions Labour markets
France, unemployment, race, ethnicity, commuting
High home ownership as a driver of high unemployment
Andrew J Oswald 18 June 2013
Unemployment is once again the bane of the US and Europe. This column highlights an intriguing association between home ownership and high unemployment using US state-level data. Given the heavy subsidisation of and rise in home ownership, this association merits more attention from economists.
Unemployment matters. It is a major source of unhappiness, mental ill-health, and lost income. Yet after a century of economic research the determinants of unemployment are still imperfectly understood, and jobless levels in the industrialised nations are currently around 10%, with some over 20%.
If you search for ‘unemployment’ in the Web of Science, within the Social Science Citation Index a list of around 21,000 articles appears. For economics journals alone, there are approximately 10,000. The most prominent among these are:
unemployment, home ownership
Job placement and displacement: Evidence from a randomised experiment
Bruno Crépon, Esther Duflo, Marc Gurgand, Roland Rathelot, Philippe Zamora 24 April 2013
Youth unemployment in Europe seems to be sticking around. This column assesses youth unemployment policy in France using data from a controlled experiment. ‘Job counselling’ – a key French policy that prepares some job seekers for the recruitment process, and connects them with potential employers – seems to only marginally improve graduate’s chances of employment. Moreover, the evidence suggests that what’s good for one graduate may be bad for another: the beneficiaries of intensive job counselling are more likely to find employment simply at the expense of other job seekers.
Youth unemployment is a growing concern in many countries, including France where more than a quarter of recent graduates cannot find stable work. Some of these young graduates do not benefit from resources like unemployment benefits because they lack a sufficient employment history.
unemployment, Eurozone crisis, youth unemployment, graduates
Budget balance, structural unemployment and fiscal adjustments: The Spanish case
Javier Andrés, Rafael Doménech 05 April 2013
Fiscal adjustment and structural reform are key parts of Eurozone bailout packages (or key features of government policy that aims to avoid such bailouts). This column argues that patience is the most prized virtue of policymakers implementing fiscal adjustment and structural reform. Reducing unemployment and fiscal consolidation are mutually reinforcing, but they move at different speeds.
One of the most important questions in the current process of fiscal consolidation in many developed economies concerns the size and the pace of the adjustment. An excessive and/or too-fast fiscal retrenchment can have dramatic effects on unemployment and growth, while if it is too slow, it can prove to be ineffective and lack credibility in the eyes of the financial markets. Thus, when the debt-to-GDP ratio is high and there is limited fiscal space, the challenge is to find the proper balance between growth, efficiency and credibility of the fiscal adjustment.
Europe's nations and regions
unemployment, Spain, fiscal policy, Eurozone crisis, structural adjustment
European labour-market reform
John Driffill 08 March 2013
How do we solve worryingly high unemployment across Europe? In a time of crisis, would reform actually exacerbate unemployment? This column argues that labour markets – especially in southern Europe – have to be reformed, presenting policy prescriptions to that effect. If we are to break the back of sluggish labour markets, policymakers need to learn from Europe’s success stories.
Unemployment continues to rise in the Eurozone and is increasingly drawing attention to its sluggish labour markets. There is a lingering suspicion that these markets are not flexible enough; that wage growth (real and in money terms) does not respond sufficiently to unemployment. Labour-market reform has featured prominently in the bailout agreements reached between the Troika and Greece, Portugal, and Ireland. Reform is surely a good thing. But what is it meant to achieve? What should and can be done? Is the time now ripe for reform?
Europe's nations and regions Labour markets
Europe, unemployment, EU
Jobs and growth are still linked (that is, Okun’s Law still holds)
Laurence Ball, Daniel Leigh, Prakash Loungani 26 January 2013
Will recovery be jobless? A broad array of analysts, from Vox columnists to McKinsey, are arguing that Okun’s Law is broken. This column presents new research suggesting that, in fact, Okun is alive and well. When output recovers, the jobs will come back, although employment will differ across countries. There may be good reasons for the structural reforms that many propose as a way to boost job creation, but undertaking them in the belief that Okun’s Law has broken down should not be one of them.
Unemployment rates remain high in most advanced countries. Many scholars have drawn attention to an apparent decoupling of unemployment increases from output declines during the Great Recession (e.g. IMF 2010, Cazes et al. 2011).
Global crisis Labour markets
unemployment, jobless recovery, Okun, output
It’s not a skill mismatch: Disaggregate evidence on the US unemployment-vacancy relationship
Rand Ghayad, William Dickens 05 January 2013
US unemployment seems stuck at an unusually high level of 8%, prompting some to suggest a widespread skills mismatch. This column argues that a skills mismatch is not supported by the evidence. Rather, out of the possible explanations, it seems that any shift in the ratio between unemployment and vacancies is driven by either lower search efforts by the long-term unemployed or by a reduction in their employability.
The Beveridge curve – the empirical relationship between unemployment and vacancies – is thought to be an indicator of the efficiency of the functioning of the labour market. Normally when vacancies rise, unemployment falls following a curved path that typically remains stable over long periods of time.
US, unemployment, skills, welfare
Jobs: The next piece of Africa’s growth jigsaw
David Fine, Susan Lund 04 December 2012
Africa's recent growth is impressive, yet its rate of stable job creation is anything but. This column argues that Africa needs rapid growth in stable, wage-paying jobs in order to ensure future stable growth and prosperity. African governments must develop and implement targeted jobs strategies – which focus on labour-intensive, competitive industries – to get the most out Africa’s rapid economic emergence.
Africa’s recent economic performance has been impressive. With average annual growth of 5.1% over the past ten years, the continent is the second fastest-growing region in the world (IMF 2012). The share of people in extreme poverty is falling. Since 2000, 31 million African households have joined a 90 million-strong consuming class with discretionary income to spend or save1.
Development Labour markets
employment, unemployment, Africa, labour