Policymakers the world over are staring at the strength of the German economy with envious eyes. This column argues that the root of Germany’s miracle lies in its “wage moderation” that was the result of labour-market policies in the years preceding the global crisis – a point that is often ignored in the public debate.
While the US labour market has seen a dramatic loss in jobs in the Great Recession, the German labour market has seemed to be unaffected – the number of employed workers has remained stable. This is all the more surprising as German GDP dropped more than in the US in 2009 (-4.7% vs. -2.7%). Some economists (e.g. Möller 2010) have correctly pointed out that German firms were hoarding labour and thereby absorbing part of the output shock.
Deviations from the Taylor rule and the dual mandate
Nicolas Groshenny02 February 2011
Was monetary policy in the US too easy between 2002 and 2006? This column argues "no”. It shows that the large and persistent deviations from the Taylor rule over that period were indeed consistent with the pursuit of the Federal Reserve's dual mandate.
According to its official mandate, the Federal Reserve sets the federal funds rate to achieve a dual goal of price stability and maximum sustainable employment. Since the global crisis erupted, debate has been raging over the Federal Reserve's conduct of monetary policy over the period 2002-2006. For example, Taylor (2007) criticises the Federal Reserve for departing from its usual conduct of monetary policy after 2001 and suggests it kept the federal funds rate too low between 2002 and 2006 (see Figure 1).
Is short-time work a good method to keep unemployment down?
Pierre Cahuc, Stéphane Carcillo01 February 2011
One method for combating unemployment during the global crisis has been the use of short-time work schemes that allow employers to temporarily reduce hours worked while compensating workers for the induced loss of income. In the first of two columns on labour markets, the authors present new evidence establishing that these schemes do indeed reduce unemployment. But they are no panacea and are not without their own problems.
Short-time compensation (or short-time work) aims at reducing lay-offs by allowing employers to temporarily reduce hours worked while compensating workers for the induced loss of income. At present, short-time work schemes are widespread among OECD countries, having grown in popularity during the Great Recession. As shown by Figure 1, they are now used in 25 of the 33 OECD countries.1
Figure 1. Short-time work take-up rates in the OECD countries (as a percentage of employees)
Gianmarco I.P. Ottaviano, Giovanni Peri, Greg C Wright18 November 2010
Manufacturing production and employment in the US has been in decline over recent decades, often with the finger pointed at immigration and globalisation. This column presents evidence from the US between 2000 and 2007 to show that immigrant and native workers are more likely to compete against offshoring than against each other. Moreover, offshoring's productivity gains can spur greater demand for native workers.
Manufacturing production and employment in the US has been in decline over recent decades. This loss of jobs is often blamed on a combination of multinational firms relocating jobs abroad and immigrant workers increasing competition in the labour market. But measuring the impact of globalisation on jobs is more difficult than that, even if many choose not to believe it.
Unemployment and happiness: A new take on an old problem
Andreas Knabe, Ronnie Schöb, Joachim Weimann17 November 2010
“We were happy in those days… Because we were poor”, goes the old Monty Python sketch. This column suggests there might be some shred of truth in this joke. It finds that while unemployed people report being less satisfied with their life in general, their emotional wellbeing experienced during day-to-day activities does not seem to suffer at all.
Recently, economists and policymakers alike have been paying more and more attention to subjective wellbeing (Graham 2010). The UK government just announced plans to start recording the nation’s happiness for the first time through a “general wellbeing index” following suggestions by France and Canada.
CEPR Discussion Paper 8100 re-examines the ability of old-Keynesian and new-Keynesian models to cope with persistence of unemployment. The author argues the an import input of persistent unemployment is the "animal spirits" of the unemployed. He tests an old-Keynesian model in which the Phillips curve is replaced by a belief function and finds it a better fit for the data than new-Keynesian variants.
The role of openness and labour market institutions for employment dynamics during economic crises
Elisa Gamberoni, Erik von Uexkull, Sebastian Weber29 September 2010
How do trade and labour market institutions affect employment during a crisis? This column finds that trade openness leads to sharper drops in employment, but also faster recoveries. High severance pay dampens employment contraction and very high unemployment benefits are associated with a stronger contraction. These findings suggest that global employment is set to remain stagnant for 2010 before recovering in 2011.
As a result of the global crisis and the related domestic and debt crises, global employment growth, according to the ILO’s Global Employment Trend (Jan 2010), slowed down to 0.7% in 2009 from 1.9% in 2007 and 1.4% in 2008. According to the ILO study, the slowdown occurred across all regions of the world except for the Middle East.
Trends in environmental concern as revealed by Google searches: The chilling effect of recession
Matthew E. Kahn, Matthew J. Kotchen21 August 2010
Is concern for the environment a luxury good? This column presents data from Google searches for the words “unemployment” and “global warming” by US users. It argues that recessions increase concerns about unemployment at the expense of people’s interest in climate change – in some cases leading them to deny its existence.
Google Insights is a publically available online tool for tracking aggregate Google search activity over time for specific geographic areas. Recent research shows that Google search terms are a powerful tool to predict public health epidemics (Pelat et al. 2009 and Valdiva and Monge-Carella 2010) and economic activity (Choi and Varian 2009, D’Amuri and Marcucci 2009, and Varian 2009).
Rising unemployment has forced policymakers to look for ways to get the unemployed back to work – to raise the “reemployment” rate of the unemployed. This column provides new evidence from the Netherlands suggesting that the stick of benefit sanctions is much more effective than the carrot of reemployment bonuses.
Given difficult circumstances, governments are considering various policy instruments to increase the “reemployment” rate of unemployed workers. This is no easy task – traditional active labour market policies are often not very successful.
Challenges in the coming phase of globalisation: A sense of déjà vu
Otaviano Canuto, José Manuel Salazar28 June 2010
Economic integration transmitted the negative shocks of the crisis to workers across the world. As the global economic recovery begins, this column says that there is no cause for complacency or celebration. It warns that unemployment rates are expected to remain high in many countries and recommends designing government policies so that more may share in the gains from globalisation.
The global crisis has hit workers hard. The ILO (2010) estimates that unemployment increased by more than 30 million in 2009 to 212 million jobless. While openness can contribute to growth and helps to buffer domestic shocks, it also increases exposure to external shocks.