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Cover IMF Working Papers
Employment and the Great Recession: The Role of Real Wages
Author: Mr. Bas B. Bakker
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 229
Language:
English
Publication Date:
28 Oct 2015
DOI:
https://doi.org/10.5089/9781513504100.001
ISBN:
9781513504100
ISSN:
1018-5941
Pages:
60
Keywords:
WP; potential GDP; Great Recession; real wages; employment; unemployment; Okun’ s law; employment rate; output gap estimate; output gap development; real wage growth; output gap coefficient; employment loss; Output gap; Employment rate; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper argues that the sharp increase in unemployment in a number of advanced countries during the Great Recession was not just cyclical (the result of a lack of aggregate demand); the degree of adjustment of real wages and the impact this had on labor productivity also played a role. In many countries, post-2007 employment losses were modest, as real wages adjusted when the economy slowed down. But in some countries real wage growth stayed too high for too long. The result was large-scale labor shedding, which boosted labor productivity but also contributed to a sharp rise in unemployment. In this context, the paper discusses the different experiences of the UK (where employment increased) and Spain (where it fell sharply), and finds that almost two thirds of the employment losses in Spain resulted from the failure of real wages to adjust adequately.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2015: Issue 229

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