EconStor >
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin >
DIW-Diskussionspapiere >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/61539
  

Full metadata record

DC FieldValueLanguage
dc.contributor.authorLindlar, Ludgeren_US
dc.contributor.authorScheremet, Wolfgangen_US
dc.date.accessioned2012-08-29T12:30:47Z-
dc.date.available2012-08-29T12:30:47Z-
dc.date.issued1998en_US
dc.identifier.urihttp://hdl.handle.net/10419/61539-
dc.description.abstractAccording to a widespread view, Germany's unemployment crisis is caused by rigid labour markets, low profitability and increasing international competition. We argue that this view does not provide a convincing explanation for the dramatic rise in Germany's unemployment rate since 1989, first because no distinction is drawn between the situation in the Eastern part of Germany and that in the Western part of Germany, and second because supply-side conditions in the Western part of Germany have not generally deteriorated. We argue that Germany's slump is the result of a series of adverse supply and demand shocks since unification. Supply shocks dominated in the East, demand shocks in the West. These shocks were mainly policy-induced. The adoption of an extremely overvalued exchange rate and rapid wage increases in East Germany magnified the general problems of transition, resulting in a loss of employment of more than a third and a sustained structural weakness of its economy. The wage explosion was made possible by the government's failure to create a proper institutional framework for wage negotiations. The unification shock to the East added at least 2.5 percentage points to Germany's overall unemployment rate, as measured by the OECD definition. We attribute some 1.5 to 2.5 percentage points of the present unemployment rate to the weak economic growth of the last several years and the impact of the increasing tax wedge on the wage level. Weak growth has been largely the consequence of uncoordinated, contradictory and procyclical macroeconomic policies that have been adopted since unification, while the increasing tax wedge has been mostly driven by the decision of the government to finance unification partly through the social security system. Econometric evidence suggests a structural break in aggregate wage-setting in West Germany, with increased nominal flexibility in recent years and insignificant persistent effects since the 1980s. Hence, aggregate wage setting in the Western part of Germany is highly responsive to unemployment, while in the Eastern part, it is not.en_US
dc.language.isoengen_US
dc.publisherDeutsches Institut für Wirtschaftsforschung (DIW) Berlinen_US
dc.relation.ispartofseriesDiskussionspapiere, Deutsches Institut für Wirtschaftsforschung 169en_US
dc.subject.jelE0en_US
dc.subject.jelF4-
dc.subject.jelJ6-
dc.subject.ddc330en_US
dc.subject.keywordGerman economy 1989-97en_US
dc.subject.keywordunemploymenten_US
dc.subject.keywordunificationen_US
dc.subject.stwArbeitslosigkeiten_US
dc.subject.stwNationale Einheiten_US
dc.subject.stwSchocken_US
dc.subject.stwLohnpolitiken_US
dc.subject.stwFinanzpolitiken_US
dc.subject.stwSteuerbelastungen_US
dc.subject.stwDeutschlanden_US
dc.subject.stwNeue Bundesländeren_US
dc.titleGermany's slump explaining the unemployment crisis of the 1990sen_US
dc.typeWorking Paperen_US
dc.identifier.ppn730617793-
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

Files in This Item:
File Description SizeFormat
dp169.pdf213.37 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.