"The most obvious reason for the slow improvement in longterm unemployment following the two most recent contractions was the relatively slower pace of job growth. Following each of the recessions of the mid-1970s and early 1980s, employment rose by 1.5 percent within a year. In contrast, employment was virtually unchanged in the year following the 1990–91 and 2001 recessions. As shown in the accompanying table, even by the time long-term unemployment had started to decline, employment had risen by 1.0 percent or less. Also, in contrast to the recessions of the mid-1970s and early 1980s, the employment-to-population ratio continued to decline far longer following the recessions of 1990–91 and 2001."Further, rapid growth in US productivity later in the 1990's was largely attributable to heavy investment in information technology which was driven by rapidly increasing capabilities of information technology and the massive increase in Internet-related business and consumer activity. I don't foresee any kind of major technological shift occurring in the next few years that would be centered in Germany, particularly considering that German firms have been scrimping on research and development, as Dullein noted. With respect to housing booms in the countries where the median age is under 40, the booms were created by reduced interest rates and easier credit conditions that allowed younger households to purchase homes. Now, it is clear that housing markets have oversupply in these countries, but domestic growth was aided by the booms. In the aged countries, there is little chance that GDP growth will be aided by housing construction, as the number of households in these countries will remain flat or begin to shrink soon.
Monday, July 02, 2007
German growth potential
Misplaced scepticism about Germany’s growth potential; a piece at Eurozone Watch by Sebastian Dullien hypothesizes "that Germany is just on a good path to increase its medium term growth performance." Writing from a US perspective, I have to say that I think that Dullein's piece has completely misinterpreted the US productivity story in the 1990's. While welfare reforms did in fact reduce the number of individuals on welfare, I am positive that the number of persons who moved from long-term unemployment to employment was not "in the millions". This link to a study by the US Bureau of Labor Statistics on long-term unemployment directly contradicts Dullein's assertion that "The U.S. recovery after the 1990/1991 recession started out with very strong job growth". The study states that