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Research Working Groups
Economic
Growth and Employment
Link to Data
and Software page
Willi Semmler,
SemmlerW@newschool.edu
Tarron Khemraj, khemt851@newschool.edu
In Cooperation
with: Philippe Aghion (Harvard University), Masanao Aoki ( UCLA),
Ray Fair (Yale University), James Ramsey (New York University),
Peter Flaschel (Bielefeld University), Ekkehard Ernst (OECD), Jerome
Henry (ECB), Carl Chiarella (University of Technology, Sydney),
Hashem Pesaran (Cambridge University), Hiroshi Yoshikawa (Tokyo
University) and Gang Gong (Tsinghua University, Bejing).
 Motivation,
Scope, and Goals
From the beginning
of the 1990s, until the beginning of the year 2000 the U.S. economy
went through a considerable economic boom with annual real growth
rates as high as four to five percent, low rates of unemployment
of four to five per cent and historically very low inflation rates.
Europe has exhibited also low inflation rates but suffered from
low growth rates and high rates of unemployment. Concerning the
differences of the performance of the labour market in the US and
the Europe there are two major views.
One view is
that the U.S. economy has shown impressively high growth and low
unemployment rates in the 1990s because of flexible product, financial,
and labour markets, low tax rates and welfare payments and fast
implementation of information and communication technologies. These
results contrast with the relatively poor performance of European
countries. In Europe, in the same time period, low economic growth
has been accompanied by high unemployment rates of up to 10 per
cent on average. In this view overregulated product and financial
markets, less flexible labour markets, generous welfare programs,
expansionary fiscal policies and resulting high public debt and
heavy tax burdens as well as the delay in the implementations of
new technologies have been seen as the main causes of the weak economic
performance of the Euro-area. The policy conclusion is that there
should be labour market and structural reforms in these regions
aimed at enhancing the performance of labour markets.
A second view
is that the less impressive performance of the Euro-area countries
is found in bad macroeconomic policies (already pointed out by James
Tobin in the 1990s as an obstacle for growth and job creation) rather
than in inefficient structures. In this view it is argued that Europe,
as compared to the US, has historically always shown generous welfare
state measures, social security systems, and labour market institutions
that had not affected economic growth performance in earlier times.
In addition, those measures and labour market institutions in Europe
have generated less inequality in the long-run. Moreover, supporters
of this view are confident that such a strategy will pay off in
the long-run as the Euro has stabilized and the increasing potential
of large markets in Europe crystallizes. In this view, the European
welfare state, the region's developed infrastructure, and its educated
labour force are favorably assessed.
Thus, academics
and politicians have divided opinions on what the real causes of
those different performances of the US and Europe are, what the
respective potential output is, how productivity and employment
are interlinked, and what policies should be pursued to improve
the growth rate as well as employment.
The Specific
Research Agenda
The project
on Growth and Employment will focus on micro and macro foundations
of the link of economic growth and employment. Numerous approaches
have studied the medium and long-run forces of economic growth,
yet recently the link between growth and employment has become an
important issue. In earlier times this link has been studied under
the topic of Okun's law which refers to the empirical observation
that the growth rate of the economy should be above some threshold
in order to reduce unemployment. The threshold of annual growth
rates above which unemployment starts decreasing is usually estimated
between two and three percent. Yet the speed at which employment
picks up may have slowed down in different countries depending on
the country's labour market institutions, productivity increase
and labour saving technical change, elasticity of labour supply,
and so on. One of the important issues will thus be to include considerations
on economic growth and the speed and magnitude of job creation and
destruction, the specifics of labour markets and labour market search
and matching institutions, the shape and shift of the Beveridge
Curve (which defines the relationship of vacancies and unemployment),
the effect of outsourcing, and the time varying reaction of employment
to growth. A further important issue is the interaction of the financial
market (business valuation), product market entry and exits (product
market restrictions) and labour market (labour market institutions)
in affecting the relationship of growth and employment. We also
will study how fiscal and monetary policies affect growth as well
the rate of job creation and destruction. Moreover, it will be important
to study how growth can generate inequality and differential employment
chances across skill groups, industries and countries. These issues
will be pursued in terms of dynamic micro and macro modelling as
well as with modern statistical and econometrics tools.
Publications:
Franke, Reiner (2006) Technical Report: Themes on Okun's Law and Beyond.
Semmler, Willi
(ed., 2005), Monetary
Policy and Unemployment, London: Routledge.
Willi Semmler,
Alfred Greiner, and Gang Gong (2005) The
Forces of Economic Growth, Princeton University Press.
Gang Gong and
Willi Semmler, "Stochastic Dynamic Macroeconomics" (forthcoming
Oxford University Press, 2005)
Semmler, Willi;
Greiner, Alfred and Zhang, Wenlang (2005) Monetary
and Fiscal Policies in the Euro-Area: Macro Modelling, Learning
and Empirics, Elsevier Press.
Flaschel, Peter;
Franke, Reiner and Semmler, Willi (1997) Dynamic Macroeconomics:
Growth and Fluctuations in Monetary Economies, MIT Press.
Flaschel, Peter;
Chiarella, Carl; Groh, Gandolf and Semmler, Willi (2000) Disequilibrium,
Growth and Labor Market Dynamics, Springer Publishing House.
Nell, Edward
and Semmler, Willi (eds., 1991) Nikolas Kaldor and Mainstream
Economics, MacMillan.
Working Papers:
Ernst, Ekkehard; Gong, Gang; Semmler, Willi and Bukuviciute, Lina, 2006, "Quantifying the Impact of Structural Reforms"
Aoki, Masanao and Yoshikawa, Hiroshi, 2005, "Effects of Demand Share Patterns and Allocative Disturbances on Okun's Law and the Beveridge Curves"
Chen, Pu; Chiarella,
Carl; Flaschel, Peter and Semmler, Willi, 2005, "Keynesian
Macrodynamics and the Phillips Curve: An estimated Baseline Macromodel
for the U.S. Economy"
Flaschel, Peter;
Kaurermann, Goran; and Semmler, Willi, 2005, Testing
Wage and Price Phillips Curves for the United States
Links:
Numerous further
research papers on the comparative macroeconomic performance of
the US as compared to Europe can be found at the website: newschool.edu/gf/cem.
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