The interdependence of product markets and labour markets : the economic development and employment trend of the industrial countries from the product market perspective.

Abstract

"The article takes up a taboo subject in the field of economic sciences. It poses the question as to whether market saturation in individual product markets brought about the flagging economic dynamism and thus may be the cause of the income and labour market problems. The question arises as to whether Schumpeter's dynamic theory of economic development can explain the present situation in the 'industrial countries' as well as its 'golden age' of the 1950s and 1960s. Schumpeter explained economic upswing and downswing phases by the creation of new products and their finite life cycle. With 'old' products, market saturation occurs, which slows down the economic dynamism. This article discusses whether Schumpeter's 'product market perspective' is compatible with the economic development of the 'industrial countries', which is characterised by decreasing employment in industry and increasing employment in the service sector. Are the labour market and income problems in the 'industrial countries' the result of product market developments? Can market saturation in industrial products and the cost disease in services explain the trade-off between gains in employment and gains in productivity which can be observed in international comparison? In a dynamic economy, full employment requires an exact balance of employment-creating effects in expanding markets and employment-destroying effects in shrinking markets. If the creation of new product markets lags behind the destruction of old product markets, the result is Schumpeter's stagnation; then unemployment occurs. Needs are often regarded as inexhaustible - which perhaps they really are - , but this is certainly not true for all products. In the debate concerning saturation phenomena one can even refer to the founder of economic sciences, Adam Smith, who predicted saturation in agricultural products - quite a daring thesis in the 18th century- but who could not imagine saturation in industrial commodities - not a particularly surprising point of view in the 18th century. Even though Adam Smith was right in this respect for some 200 years, there are clear indications in the 'industrial countries' that the production of industrial commodities is now only expanding underproportionally to the gains in productivity, which can be seen in falling employment figures. Employment growth is taking place in the service sector. Product market developments can not only explain the sectoral employment developments well; they also explain the intensification of competition which is being lamented everywhere. The 'product market perspective' is seen as an alternative or at least as an addition to traditional explanations of unemployment - such as external shocks, labour market rigidities etc." (Author's abstract, IAB-Doku) ((en))

Cite article

Schettkat, R. (1997): Die Interdependenz von Produkt- und Arbeitsmärkten. Die Wirtschafts- und Beschäftigungsentwicklung der Industrieländer aus der Produktmarktperspektive. In: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Vol. 30, No. 4, p. 721-731.