Study title

Since the oil price shock in 1974 unemployment increased significantly and also did not really decline in periods of economic upswings in Europe. This is especially the case for the countries of the European Union; therefore we face a special need for explanation. Looking at the member states on finds considerable differences. Since 1977 the unemployment rate within the EU is higher than the average unemployment rate of all OECD countries. The economic upswing in the second half of the 80s relaxed the labor market but nevertheless the unemployment rate remained on a high level. This study deals with the development of unemployment between 1974 and 1993 in four different G7 countries: Germany, France, Great Britain and Italy. Besides the common trend of an increasing unemployment rate, there are significantly different developments within the four countries. The analysis is divided in two parts: the first part looks at the reasons for the increase in unemployment in the considered countries; the second part aims to explain the difference between the developments of unemployment during economic cycles in the different countries. After the description of similarities and differences of labor markets in the four countries it follows a long term analysis based on annual data as well as a short and medium term analysis on quarterly data. This is due to the fact that short and medium term developments are mainly influenced by cyclical economic developments but long term developments are mainly influenced by other factors like demographical and structural changes. A concrete question within this framework is if an increase in production potential can contribute to a decrease in unemployment. For the long term analysis among others the Hysteresis-hypothesis (Hysteresis = Greek: to remain; denotes the remaining effect; in this context: remaining of unemployment) used for the explanation of the persistence of a high unemployment rate. According to this approach...