Herbert S. Buscher

The Relationship between Unemployment and Output in Post-communist Countries

Unemployment is still disappointingly high in most Central and East European countries, which may be a reflection of the ongoing adjustment to institutional shocks resulting from systemic transition, or may be caused by high labour market rigidity or aggregate demand that is too weak. This article investigates the dynamics of unemployment and output in those eight post-communist countries which entered the EU in 2004. We use a model related to Okuns Law; i.e. the first differences in unemployment rates are regressed on GDP growth rates. We estimate country and panel regressions with instrument variables (TSLS) and apply some tests to the data and regression results. We assume transition of labour markets to be accomplished when a robust relationship exists between unemployment rate changes and GDP growth. Moreover, the estimated coefficients contain information about labour market rigidity and unemployment thresholds of output growth. Our results suggest that the transition of labour markets can be regarded as completed since unemployment responds to output changes and not to a changing institutional environment that destroys jobs in the state sector. The regression coefficients demonstrate that a high trend rate of productivity and a high unemployment intensity of output growth have been observable since 1998. Therefore, we conclude that labour market rigidities do not play an important role in explaining high unemployment rates. However, GDP growth is dominated by productivity progress and the employment-relevant component of aggregate demand is too low to reduce the high level of unemployment substantially.

Empirical macro models under test. A comparative simulation study of the employment effects of a revenue neutral cut in social security contributions

In the paper we simulate a revenue-neutral cut in the social security contribution rate using five different types of macro- / microeconomic models, namely two models based on time-series data where the labour market is modelled basically demand oriented, two models of the class of computable equilibrium models which are supply oriented and finally a firm specific model for international tax burden comparisons. Our primary interest is in the employment effects the models predict due to the cut in the contribution rate. It turns out that qualitatively all models considered predict an increase in employment three years after the cut. But the employment effects differ considerably in magnitude, which follows immediately from the different behavioral assumptions underlying the different models.

Exchange rate volatility effects on labour markets

With the transition to the euro, exchange rate volatility between the countries participating in European Monetary Union has been eliminated, reducing uncertainty and transaction costs. The other side of the coin is the loss of the exchange rate as a potential mechanism of adjustment to external shocks. The present article uses the case of Germany to study the implications of EMU for labour markets.

Regional Convergence and Economic Performance : A Case Study of the West German Laender

In the paper we analyze the convergence process of the West German Laender from 1970 to 1995 using descriptive tools as well as panel estimation methods. Although there have been some winners in this process, the main finding is that convergence was insufficient in the sense that no gains have been achieved with respect to a stronger harmonization of the economic performances in the Laender. Some of them proofed to be unable to respond adequately to structural changes, whereas others successfully overcame those challenges. Panel estimates of production functions of the Laender reveal no significant differences in the production technology across Laender.