Home > Uncategorized > Unemployment – a long run

Unemployment – a long run

Unemployment

The elephant in the room: in a historical perspective, unemployment in the Eurozone is still very elevated, not only in Spain and Greece, but also in France and even Germany. I’ve updated and completed my long-term unemployment series with 2013 and 2014 data (Eurostat) as well as 1948-1983 data for France and the UK (UK: Bank of England, I increased the BoE data a little as the BoE data are systematically lower than the Eurostat data. France: guesstimate as the source shows unemployment as a % of the total population, not as a % of the labour force). This shows that the high rate of unemployment in Germany around 1950 was quite exceptional. But, remarkably, the inflow of 10.000.000+ refugees in Western Germany in the 1945-1950 period did not prevent (enabled?!) this country to experience a ‘Wirtschaftswunder’, an economic miracle, and unemployment quickly fell to (at that time) normal levels, despite the enormous amount of social and economic dislocation after the war and (this is the classic movie about this period). After reunification in 1991 Germany was not able to repeat this miracle and the unemployment rate went up to levels which were even higher than in 1950, equal to the highest rates ever reached in France and the UK. At this moment the vacancy rate is up and, tellingly, the highest  regional rate of unemployment is in Bremen (West-Germany) and not in East Germany anymore. After 1945, Germany however experienced a severe baby bust and a baby boom only started in about 1949. As the rate of job creation seems to slow down (and has been about zero in East Germany during the last ten years), the upward trend of the vacancy rate may well be caused by this baby boom generation going into retirement.

  1. guest
    September 10, 2015 at 8:55 pm

    The evolution of unemployment in the Netherlands follows closely the rate in Germany from 1960 till 1996 — which is understandable, as both economies were closely intertwined and involved in the same long phase of European economic growth.

    However, unemployment rates diverged after 1996 — several years before the introduction of the Euro and the dot.com bust, and several years after the German reunification.

    What happened?

  2. JdeV
    September 10, 2015 at 11:42 pm

    Dr Knibbe. I’m presuming your BoE figures were in turn derived from data provided by our Department of Work and Pensions. Despite the best efforts of our Office of National Statistics et al, these figures are intrinsically suspect/manipulated.

    • September 11, 2015 at 2:40 am

      Hmm. Sounds like somethingI better not joked about.

      • JdeV
        September 11, 2015 at 3:54 am

        Garrett. The pathology of Uk’s current situation has been an occasion for black humour no doubt. See uk wp blog “vox political” which’s a good quality (moderated comments !!) left-ish resume of our Gov’ts antics.

  3. September 11, 2015 at 11:20 am

    Back to science
    Comment on ‘Unemployment – a long run’

    Heterodoxy is in danger of joining Orthodoxy at the lowest possible intellectual level. To argue that figures are suspect/manipulated and to describe a situation as pathological is brain-dead political rhetoric. Does anybody think that playing the blame-game helps to stop growing unemployment?

    Growing unemployment is, first and foremost, the proof that economics is a failed science. To recall: orthodox economics entails the claim/promise that all resources are fully employed or at least on the way to full employment. Even for the layman persistent unemployment is the irrefutable proof that the market economy does not work as intended or claimed.

    Heterodoxy as scientific enterprise means to improve statistics if they are unreliable and to come up with a new paradigm if the old has failed.

    The current situation is a clear refutation of both employment and quantity theory. There is not much use discussing these defunct theories any further. The most elementary version of the correct employment equation is summarized here:*

    This equations tells us four things:
    (i) Full employment is attainable.
    (ii) An increase of the expenditure ratio rhoE leads to higher employment.
    (iii) Increasing investment expenditures exert a positive influence on employment.
    (vi) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

    The factor cost ratio formally represents the price mechanism which, however, works quite differently from what standard economics suggests. As a matter of fact, overall employment INCREASES if the average wage rate W increases relative to average price P and productivity R. This is a SYSTEMIC law and not a behavioral assumption.

    The core of the employment problem is that the price mechanism does not work as the textbook cliche says. It is worldwide UPward wage rate stickiness that produces worldwide unemployment and deflation.

    Best of all: the employment equation is testable, so there is no need at all to continue the brain-dead orthodox/heterodox beer hall blather.

    Egmont Kakarot-Handtke

    * For details see ‘Major Defects of the Market Economy’
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

    and ‘The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment’
    The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment

  4. Macrocompassion
    September 11, 2015 at 1:55 pm

    For every new mouth that arrives as an immigrant, comes a new pair of hands. We should welcome immigrants and invest in their welfare because the returns on what they will do later on are worthwhile. Immigrant countries find that the demand for new housing adds to the progress of thge building trade and from this the earnings spread over the entire economy.

  5. JdeV
    September 12, 2015 at 3:12 pm

    Dr Kakarot-Handtke. Re me being brain dead I’m sure you are as qualified to judge me on that score as anyone else. I’ve dipped into enough of your work to read fully that which I was capable of comprehending. I will avoid providing a long list of citations below of same for the sake of brevity. If people can contrive to be reasonably polite to Dr Mccloskey on these pages, (other than you referring to her silliness [for what it’s worth I agree on that one!]), why am I entitled to less respect from you. This is not a rhetorical question btw. If I’m not moderated off by the keepers of this site presumably I’m polite / brief enough to do no harm. How much do know about the harm that’s being done in current Uk?Interesting that you should utilise a beer hall debate analogy though.

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