Unemployment in West Germany: A survey of explanations and policy options

By historical standards, the 1980's have been a time of high unemployment in West Germany. Not surprisingly, they have also been a boom period for theories about unemployment and policy proposals against it. This paper is an attempt in stocktaking: We shall try to sort out which of the most prominent of these theories and policy proposals are still relevant today at the end of the decade, with the West German economy having somewhat recovered from its prior growth slack, but unemployment nevertheless remaining a persistent macroeconomic phenomenon. Of course, the survey-like nature of the paper prohibits any extensive discussion of theoretical subtleties and any detailed presentation of econometric evidence. Instead, it must suffice to sketch the main threads of arguments and to identify major characteristic features of the empirical picture. Our survey consists of three parts. In section II of the paper, we shall summarize some important macroeconomic facts about West German unemployment in the eighties. In section III, we shall briefly evaluate some major theories of unemployment with a view to their explanatory power for present-day West Germany. In the final section IV, we shall discuss various policy measures which have been proposed as a cure to the unemployment malaise.