The labour market, institutions and policy

High and persistent unemployment in Germany (and in most of the EU-member states as well) is mainly not a business cycle problem. The main part of unemployment is due to a deficit in workplaces which has been increasing from cycle to cycle since 1973. Since then real labour costs (wages and supplementary costs of labour) have been growing nearly as fast as employment-neutral labour productivity despite the global lack of workplaces (giving no room to hire additional employees). It is the decision-making of the monetary and fiscal authorities (which is not analysed here) in combination with the decision-making process within the collective bargaining on wages and within the social policy authorities, which have been hampering the German economy to return to a situation of full employment for more than 20 years.