A Post-Keynesian Approach
Edited by Claude Gnos, Louis-Philippe Rochon and Domenica Tropeano
Chapter 6: Still Unemployed, After All These Wage Cuts. Labor in Europe
Engelbert Stockhammer INTRODUCTION Much as in the rest of the world, the late 1970s and early 1980s marked a watershed in European politics. Unlike in the USA or the UK, neoliberalism in continental Europe did not come with an outright assault on labor unions. Notably, important transformations were initiated not by national governments, but by supranational organizations and central banks. The Single European Act, signed in 1986 and effective in 1992, opened national economies and established a competition policy that rules out industrial policy and prevents state-owned enterprises from being subsidized for employment policy. International capital flows were liberalized as part of the European Monetary System (EMS). The Bundesbank dominated the EMS throughout the 1980s and dictated a high real interest rate, which high-inflation countries had to top in order to maintain stable exchange rates. In the 1990s the Bundesbank was succeeded by the European Central Bank, and the Stability and Growth Pact (SGP) shaped monetary and fiscal policies. One of the most important outcomes of these policies was the rise and the persistence of unemployment. Unemployment in the euro area was around 2 percent in 1970 but increased to (and above) 8 percent after 1981. A second important development has received less publicity: wage growth has consistently lagged behind productivity growth in this period, which amounts to a substantial redistribution of income between capital and labor.1 Critical economists have frequently blamed monetary and fiscal policies for these developments, but few quantitative assessments of their relative impact exist. Ideally one...
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