The role of institutions: the US and French cases

Agnès Bénassy‐Quéré

DARES workshop, Paris, 6 November 2014

The standard scenario

Negative shock on

GDP

Fall in employment

Temporary rise in ULC

Fall in real wage

Fall in ULC

Rise in employment

Rise in labour productivity

Hence we expect:•Short term: fall in GDP and employment; rise in ULC•Medium term: fall in ULC, recovery in GDP and employment•Long-term increase in productivity: more recovery in GDP than employment

Benchmark: United States, 2008

Source: Ameco, Oct. 2014.

Another example: Korea, 1997

Source: Ameco, Oct. 2014.

Another example: Finland, 1991

Source: Ameco, Oct. 2014.

And also Latvia, 2008

Source: Ameco, Oct. 2014.

Germany: no employment crisis

Source: Ameco, Oct. 2014.

Greece: everything falls

Source: Ameco, Oct. 2014.

France: no ULC adjustment

Source: Ameco, Oct. 2014.

Italy: no ULC adjustment

Source: Ameco, Oct. 2014.

Spain: a collapse of employment despite ULC adjustment

Source: Ameco, Oct. 2014.

Ireland: not so different

Source: Ameco, Oct. 2014.

Questions

What are the key determinants of employment/ULC adjustments?• What do the Finland, Korea, Latvia and the USA have in common?• What do France and Italy have in common?• What do Spain and Ireland have in common?• What makes Germany and Greece so different from the others?

Intensive and extensive margins of adjustment• Only in Greece and Latvia did real compensation fall. Is real wage

adjustment so important? What about labor re-allocation?• Only in Germany and (to a lesser extent) the US is employment above its

pre-crisis level in 2014

To what extent is GDP endogenous to labor market institutions?• Germany, United States have enjoyed higher growth than the others• Could different labour market institutions have made a big change? Maybe in

France, where GDP growth has not been so bad?