Unemployment: Theoretical explanations

Abstract

"In the seventies and eighties various competing theories put forward by the classical and Keynesian camps tried to find a convincing explanation for the unemployment problem. The structuralist model emerged from these research efforts as the dominant approach of the nineties, combining both classical and Keynesian features. By generating a relationship between changes in inflation and deviations of unemployment from the long-run equilibrium, this approach carries on where the old Phillips curve debate left off. In our contribution we do not confine ourselves to a review of the research from the last decade, but rather stress the implications of several extensions of the macroeconomic model as well. Whereas in the standard structuralist model the demand side has a negligible influence on unemployment in the medium run, we show that stabilization policies are of greater importance once unemployment persistence and/or the openness of economies are taken into account. Furthermore, we build on the structuralist framework to not only address the macroeconomic aspects of the unemployment problem, but also the debate between trade theorists and labor economists about the impact of globalisation and biased technical change on the employment performance of different skill groups. In the literature, contra-factual implications of the standard Heckscher-Ohlin model are often used as an argument against trade-based explanations of the unemployment problem. By relaxing the assumption of perfect competition, we show that major aspects of this critique can be overcome. On the other hand, conventional wisdom which favors the biased technical change hypothesis can be questioned. Things are less obvious if the general equilibrium effects of biased technical change are taken into account. In contrast to results following from a simple partial framework, it has been shown that the unskilled could profit via indirect effects from biased technical change. To obtain the stylized fact that the unskilled loose employment shares, one not only needs a high elasticity of substitution, but also certain additional assumptions about the impact of biased productivity growth on the skill-specific wage formation process." (Author's abstract, IAB-Doku) ((en))

Cite article

Beissinger, T. & Möller, J. (2000): Unemployment: Theoretical explanations. In: H. Wagner (Hrsg.) (2000): Globalization and unemployment, p. 89-133.