Introduction

Abstract

Unemployment rates in all industrialised countries increased following the oil crisis in the seventies. In Germany, the “unification” shock also led to a substantial rise in unemployment. These increases following negative shocks are to be expected even in a well functioning labour market as workers and firms require t ime to ada pt to the structural change. However, the disturbing feature is that these rates failed to decline in the long-term after the economy has had time to adjust to the new conditions. Therefore and unfortunately, the first part of the above quote is as true now as it was then: the unemployment rat es in many industrialised countries are st ill much higher than they used to be in the 1960s and early 1970s which clearly indicates that the labour market s are characterised by persistent imperfections. Does that mean that macroeconomics is really not good for anything? Well, of course every reader is entitled to his or her own personal view on this question but fact is that the persistently high unemployment rates have led to a large increase in the amount of research on and understanding of the workings of labour markets. The following chapters do not try to summarise all of this research — perhaps the “Handbooks of Labor Economics” with their 5 volumes and more than 3600 pages come closest to achieving this — but aim to shed a little more light on three major branches of this research, the analysis of trade unions, efficiency wages and matching theories in order to gain deeper insights as to why countries are still struggling to reduce the number of people failing to find a job.

“There is a fact, a big unmistakable unsubtle fact: essentially everywhere in the modern industrial capitalist world, the unemployment rates are much higher than they used to be two or three decades ago. Why is that? If macroeconomics is good for anything, it ought to be able to und erstand and explain this fact.” Solow (1986, p. S23)