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There are signs that the UK labour market has behaved differently in the most recent economic recovery. After the end of the recession in 1992 unemployment began to fall much earlier than expected, whilst wage and price inflation remained very low. Chart 1 plots unemployment and real wages in the first three years of the last two recoveries. In both cases unemployment rose in the first year of the recovery but thereafter the performance in the 1990s is much better. In the second year, unemployment began to fall significantly, much earlier than it had in the 1980s recovery. Three years after the low point in output the rate of unemployment was around 8½ per cent, 2½ per cent below the level pertaining at the equivalent point in the last cycle. At the same time real wages have shown little growth benefits compared with 4 per cent growth in the 1980s recovery.

In recent years considerable attention has been paid to the condition of labour markets in Europe. The recession of the early 1990s saw unemployment reach a post war high in a number of European countries. As Chart 1 shows unemployment has shown a secular upward trend in Germany, Italy and most notably, Spain. Real wage growth was also slower in the 1980s and 1990s than it had been in the 1970s (Chart 2).

AbstractThis paper examines the impact of temporal variation in labour market institutions and other structural factors on unemployment in Europe. A system comprising a labour demand and a wage equation is estimated on pooled time‐series data for the six largest EU countries for the 1980s and 1990s. The results suggest that changes in regional mismatch, trade union density and the ratio between consumer and producer prices are positively associated with structural unemployment. This result is robust to a wide variety of different specifications. No consistent role is found for other institutional factors (such as social security benefits, employment security and minimum wage).

This paper examines the impact of temporal variation in labor market institutions & other structural factors on unemployment in Europe. A system comprising a labor demand & a wage equation is estimated on pooled time-series data for the six largest EU countries for the 1980s & 1990s. The results suggest that changes in regional mismatch, trade union density & the ratio between consumer & producer prices are positively associated with structural unemployment. This result is robust to a wide variety of different specifications. No consistent role is found for other institutional factors (such as social security benefits, employment security & minimum wage). 9 Tables, 2 Figures, 38 References. Adapted from the source document.

This paper examines the effects of changes in Euro Area interest rates using macroeconomic models. It examines the results of a harmonised monetary policy simulation at the Euro Area level using the National Institute of Economic and Social Research's Global Economic Model (NiGEM) and the European Central Bank's Area Wide Model (AWM). Comparison is also drawn with the aggregate results from Euro Area National Central Bank models as reported in van Els et al. (2001). Overall, the results across the different models are broadly consistent with what might be regarded as the stylised facts of the monetary transmission mechanism. That is to say that, following a policy tightening, there is an initial fall in output consisting of a more pronounced investment response and a less pronounced consumption response. This output fall is accompanied by protracted price dynamics.

Global economic conditions improved markedly last year. Within the OECD, output growth is estimated to have risen to 3 per cent, the best outturn since 1989. Growth was particularly buoyant in North America, reflecting strong domestic demand, with the NAFTA economies forecast to have grown by 4 per cent. Economic prospects also improved in Europe, with growth picking up in both Germany and France. However this has yet to produce any significant declines in unemployment in those countries, suggesting that a considerable degree of slack still remains in their labour markets. In contrast, the unemployment rate in the United States has fallen under 5 per cent for the first time since the early 1970s. Growth has slowed, although not yet collapsed, in Japan with domestic demand having proved unexpectedly weak in the aftermath of moves to tighten fiscal policy. We expect to see some slowdown in global growth this year, largely as a result of the impact of recent developments in Asia, with the growth in OECD GDP projected to moderate to 2.6 per cent, some 0.4 percentage points lower than we would otherwise have predicted.

There are now widespread signs that activity in the world economy has slowed sharply. This slowdown has been particularly marked within Europe, where our estimates suggest that the European Union economies may have expanded by only some 0.6 per cent in the second half of last year. Elsewhere, the Japanese economy has still to emerge from recession and growth has possibly declined in the United States to a little below trend levels (Chart 1). The perception of recent growth in the US has also changed significantly as a result of the recent rebasing of their national accounts, with the growth of real GDP in 1995 now projected to be between 2–2 1/4 per cent rather than 3 1/4 per cent as shown in our previous forecast. We discuss this issue in more detail below. Overall growth in the OECD region is now projected at 2 per cent in 1995, after 2.6 per cent in 1994. This slowdown has been reflected elsewhere within the world economy, with total world trade growth estimated to have declined to around 6 3/4 per cent last year, and the prices of many industrial raw materials having begun to weaken. For 1996, we presently expect growth of 2 1/4 per cent in the OECD region and growth of 2 per cent in both Europe and the United States.