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Investment or Employment Subsidies for Rapid Employment Creation in the European Economic Community?

Published online by Cambridge University Press:  17 August 2016

Alfred Steinherr
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Abstract

Current unemployment is at unacceptably high levels for both the segment of the population concerned and policy-makers in most industrialised countries. The causes of the rise in world-wide unemployment are usually attributed to the severe supply shocks in the 1970s (the sharp increase in oil and other raw material prices), the associated redistribution of income from countries with high propensities to spend to countries with low propensities to spend, inadequate policy responses and rigidities in industrial economies responsible for slow adjustment to a different environment(‘)• Rigidities seem to be more severe for the countries of the EEC than for Japan and the US and unemployment consequently has risen more sharply in the EEC. The main rigidity can be seen in the high growth of real wage costs. Instead of attenuating the supply shocks through moderate wage increases the effects of these shocks have been accentuated in the EEC by the wage cost explosion of the 1970s. An approximate empirical measure for these effects is provided by the sharp increase of the real wage cost gap in EEC countries which, however, is an underestimate since firms have responded by reducing employment to improve productivity.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 50 , Issue 1-2 , 1984 , pp. 153 - 188
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1984 

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Footnotes

*

Université Catholique de Louvain. Section 3 to 6 of this paper are based on C. Chiarella and A. Steinherr, «Marginal Employment Subsidies: An Effective Policy to Generate Employment», Economic Papers, n°9, Commission of the European Communities, 1982.

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