Adams, Charles, Fenton, Paul R., and Larsen Flemming
The deterioration in labor market performance in most of the industrial countries since the early 1970s remains one of the most serious economic problems confronting policymakers. Even though a broad range of measures has been implemented to tackle this problem, unemployment has continued to rise in a large number of countries, particularly in Europe.
Developments in the world economy since 1979 have heightened concern for the economic well-being of the poorest groups of the population in the developing countries. Widespread payments difficulties and a consequent import compression since 1982 have set back the growth process in many of these countries. One of the chief concerns arising out of the slowdown in growth has been the impact on employment, and this study focuses on three aspects of this issue: the evidence of changes in unemployment (or underemployment) in developing countries in recent years; the functioning of labor markets in these countries and the nature of policies that affect these markets; and, finally, the factors (including labor market efficiency) that affect the transmission of external economic disturbances to labor markets in developing countries.
Over much of the past decade, monetary policies in most of the major industrial countries have been oriented toward controlling the growth rates of monetary aggregates as a medium-term strategy for bringing down inflation. Although inflation rates rose considerably during the late 1970s, substantial declines since 1980 stand as evidence of an increased commitment to price stability. Indeed, by 1985, the average rate of consumer price inflation in the seven major industrial countries had been reduced to one third of the peak rate in 1980, and to half of the average rate for the decade through 1977.
Boughton James M., Haas Richard D., Masson Paul R., and Adams Charles
Two questions arise when large changes occur in exchange rates among the currencies of the major industrial countries. First, what are the effects of those changes on other important economic variables both domestically and abroad, including current account balances, output, prices, and interest rates? Second, what policy reactions, if any, should they entail? These questions are particularly timely in view of the large swings in exchange rates that have characterized the floating-rate era and especially the past five or six years. The 23 percent decline in the nominal effective exchange rate of the U.S. dollar and the 47 percent appreciation of the Japanese yen against the dollar from March 1985 through April 1986, and the decision by the five largest industrial countries in September 1985 to encourage changes in their exchange rates, have added to the urgency of developing a clear understanding of the processes that are involved and of their impact.
This paper reviews recent analytical and empirical research on the determination of employment, to provide a framework for evaluating the merits of alternative policies to cope with unemployment. Particular emphasis is placed on the mechanisms of employment and wage determination described in recent studies. The lack of any systematic relationship between countries' long-run growth and employment performances reflects the fact that output per person employed (labor productivity) or, conversely, the labor intensity of production, has developed quite differently across countries. The main mechanism through which the rise in real wages has prevented greater employment gains in Europe over the past ten to fifteen years seems to have been a substitution of capital for labor which has lowered the labor intensity of production significantly more than in the United States. There are a number of important caveats with respect to the apparent relationship between differences in employment and labor cost developments across countries.
The impact of the recession of 1980–83 on the economies of developing countries, the effects of high interest rates in financial markets since 1979, and the reduction in new bank lending to developing countries since 1982 have been major recent topics of discussion. Nevertheless, the precise mechanisms through which these effects have been transmitted are complex and only partially understood. This paper reviews the available evidence on the principal links through which changes in macroeconomic performance in the industrial countries influence major economic variables, in particular the rate of economic growth, in developing countries.