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11. Full Employment: A Survey of Theory, Empirics and Policies

Author:
Aleksandr Arsenev, Meryem Gökten, Philipp Heimberger, and Andreas Lichtenberger
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The concept of full employment is associated with diverse economic, political and social aspects. We provide a survey of theory, empirics and policy issues related to full employment. We make a novel contribution by tying together multi-dimensional aspects of full employment regarding definitions, theoretical perspectives, empirical measurements, policy debates and real-world policy programs. We distinguish: concepts of full employment that provide systematic links to price stability; minimum unemployment and maximum employment approaches; and the unfilled vacancies perspective. Furthermore, we provide and discuss different empirical measures of full employment for selected economies, and we propose a new full employment typology. Based on our survey findings, we argue that conceptualising and measuring full employment is not merely a technical task, but inevitably involves normative judgments. Finally, we discuss avenues for future research.
Topic:
Labor Issues, European Union, Employment, Macroeconomics, OECD, Welfare State, and Jobs
Political Geography:
Europe

12. Gender and Education Gaps in Employment: New Evidence for the EU

Author:
Aleksandr Arsenev, Meryem Gökten, Philipp Heimberger, Andreas Lichtenberger, and Torben Schütz
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses (age-adjusted) employment rates by gender and education. We find that male female gender gaps and high-low education gaps in employment vary markedly across European Union (EU) countries and regions, with larger gaps existing in Eastern and Southern Europe than in Nordic and Continental EU countries. We estimate that closing existing education gaps in employment between high and lower education levels would raise the employment rate in the EU for the year 2022 by 10.6 percentage points, whereas closing the gender gaps between men and women would lead to an increase of 2.5 percentage points. At the same time, closing both the gender and education gaps would raise the EU employment rate from 76% to 89% of the population. Furthermore, we provide new evidence on the cyclical behaviour of employment gaps, finding that gender gaps are procyclical. While female employment rates tend to be more resilient than male employment rates during economic downturns, male employment rates tend to grow at a faster pace than female employment rates during upswings. In contrast, education gaps are more countercyclical, as employment risks are more strongly concentrated where education is low.
Topic:
Education, Labor Issues, European Union, Employment, Inequality, Macroeconomics, Unemployment, Gender, and Income Distribution
Political Geography:
Europe

13. Can Price Controls Be Optimal? The Economics of the Energy Shock in Germany

Author:
Tom Krebs and Isabella Weber
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
In the wake of the global energy crisis, many European countries used energy price controls to fight inflation and to stabilize the economy. Despite its wide adoption, many economists remained skeptical. In this paper, we argue that price controls should be part of the policy toolbox to respond to shocks to systemically important sectors because not using them can have large economic and political costs. We put forward our arguments in two steps. In a first step, we analyze the impact on the German economy and society of the global energy crisis that followed Russia’s attack on Ukraine in February 2022. Our analysis shows that energy shocks matter. Specifically, the one-year GDP loss of the energy crisis 2022 amounts to 4 percent and is of a comparable magnitude to the short-run output losses during the COVID-19 crisis 2020 and the global financial crisis 2008. In addition, during the energy crisis 2022 inflation rates rose dramatically and real wages dropped more than in any other year in post-war Germany. There are also clear signs that the crisis is causing severe long-term economic damage (hysteresis effects). At the beginning of 2024, GDP is 7 percent and real wages are 10 percent below their pre-COVID-19 trend. We argue that the German government handled the immediate response to the energy shock well, but subsequently waited too long to introduce an energy price brake in 2022. This failure to act decisively in response to heightened economic insecurity coincided with a strong rise of the approval rates of the far-right AfD in the summer of 2022. We also show that the German energy price brake was an effective price stabilization policy for households, but did not protect the industrial base appropriately making it more likely that the German economy will continue to stagnate. In a final step, we turn to the use of price controls as an optimal policy response to an energy shock within a general equilibrium framework. We develop a simple production model with an energy sector and shows that price controls are socially optimal whenever selffulfilling expectations generate endogenous price uncertainty in the wake of an energy shock. We also link our analysis to the so-called sunspot literature that was developed in the 1980s as a response to the rational-expectations revolution in macroeconomics. Finally, we use our theoretical analysis to shed some light on the economic policy debate and the resistance of German mainstream economists to the introduction of energy price controls in 2022.
Topic:
Economics, Inflation, Macroeconomics, Price Control, Energy, and Stabilization
Political Geography:
Europe and Germany

14. Designing conditionality in the supply of European public goods

Author:
Roel Beetsma and Marco Buti
Publication Date:
12-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The European Union will need in the coming years to invest a substantial amount of resources in European public goods (EPGs), including for the digital and climate transitions, and for defence and security. Funding for this could be provided in a centralised way at EU level, via either a fund or from the EU budget, but for this to be politically viable, and to create the necessary trust, national budgetary policies need to comply with the common EU fiscal rules. Setting adequate conditions for access to central financing is, however, not straightforward. The tightness of the conditionality needs to balance the desirability of a country pursuing sound fiscal policies with the need to deliver on the provision of EPGs that benefit several or all EU countries. The optimal tightness should reassure fiscally-conservative countries that EU money would not result in opportunistic behaviour that results in less discipline at national level. More fiscally fragile countries should be reassured that their fiscal retrenchment efforts will be duly rewarded.
Topic:
Governance, Budget, European Union, Finance, and Macroeconomics
Political Geography:
Europe

15. Long-term care policies in practice: a European perspective

Author:
Svend E. Hougaard Jensen, David Pinkus, and Nina Ruer
Publication Date:
12-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper offers a comprehensive study of the long-term care (LTC) systems in Germany, France, Slovenia, Italy and Denmark. In many EU countries, the demand for LTC services already exceeds supply. Without major reforms, this ‘care gap’ is likely to widen further because of population ageing. This paper highlights a number of recent reforms to reduce this care gap by affecting the demand for and supply of long-term care services. We find that most measures to increase the supply of formal LTC services focus on workforce attractiveness. By examining recent policy efforts and reforms, we aim to understand in which direction LTC policy is going, and to showcase measures to prepare for the future increase in demand for care.
Topic:
Health, Public Policy, Macroeconomics, and Aging
Political Geography:
Europe, France, Germany, Denmark, Italy, and Slovenia

16. The European Central Bank’s operational framework and what it is missing

Author:
Giulia Gotti and Francesco Papadia
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In March 2024, the European Central Bank published the results of a review of its operational framework. After discussing how the ECB operational framework has changed since the Great Financial Crisis, we provide an assessment of the review, which we deem as premature and highlight some gaps it has not resolved. First, the choice of a hybrid system is attractive, but needs a precise specification. Second, the review did not specify the timing of the introduction of structural long-term refinancing operations and a structural portfolio of securities. We find that these measures should be implemented when the level of excess liquidity reaches between €1.3 trillion and €2 trillion, projected between mid-2026 and late 2027. Finally, as the introduction of a digital euro could impact bank liquidity, it is crucial to design a framework that can flexibly increase the supply of central bank liquidity.
Topic:
Monetary Policy, Governance, European Union, Macroeconomics, Fiscal Policy, European Central Bank, and Banking
Political Geography:
Europe

17. Joint public procurement as a tool for European Union industrial policy

Author:
Francesco Nicoli and Roel Beetsma
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Joint procurement is an important tool that is currently under-exploited at European Union level. It can greatly enhance the effectiveness of public spending in Europe, achieving greater coherence between spending across different countries, exploiting monopsony power, producing economies of scale, reducing downward competition between public authorities, improving the single market and producing a degree of solidarity without resulting in redistribution between EU countries. The EU has already implemented several joint-procurement projects, including for COVID-19 vaccines, gas supplies and ammunition for Ukraine. These previous experiences can work both as a blueprint and as a pilot for larger-scale actions. Joint procurement could be particularly relevant in sectors with substantial economies-of-scale and industry-government ties, such as defence. Despite some degree of political opposition, experimental public opinion studies have shown consistently that joint procurement in such areas can strongly improve public support for EU-level action. Measures that could expand European joint procurement in a politically sustainable way include the use of framework contracts, which allow for ad-hoc commitments tailored to the needs of different EU countries; reporting by countries of their future large public procurement plans as a part of the European Semester so that the European Commission could propose coordinated actions if necessary; and the use of staggered contracting and multiple-award strategies, which can ensure a level playing field among companies of similar market power, promoting market-building and supporting the entry of new competitors.
Topic:
Industrial Policy, Governance, European Union, Macroeconomics, and Public Spending
Political Geography:
Europe

18. Financing European air defence through European Union debt

Author:
Armin Steinbach and Guntram B. Wolff
Publication Date:
09-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Europe is vulnerable to air attacks by both state and non-state actors. Russia has substantially increased its production of hypersonic missiles, missiles and drones, while European air defence capacities remain patchy with little improvement in coverage in recent years. Air defence is a classic European public good. No individual nation alone can provide it comprehensively, while air defence provided individual European Union countries can offer significant benefits to Europe as a whole. Joint EU funding for the build-up of greater air defence capabilities would be thus justified and help ensure rapid and sufficient provisioning. Debt funding would be economically justified as air defence systems, such as Patriot and IRIS-T, involve large upfront costs – debt would allow the cost of the investment to be smoothed over longer periods. Issuing EU debt, similarly to what was done with the NextGenerationEU post-pandemic recovery instrument, would be justified given the level of the air-attack threat. EU debt funding of air defence system is legally possible. Debt funding for air defence would respect the EU’s limited competence in defence and such a scheme would maintain the exceptional character of debt funding, with EU countries responding to a security threat in an act of solidarity. Joint debt issuance would not imply changing the command structure of air defence as foreseen under NATO and the European Sky Shield Initiative, but it would impact procurement processes. Procurement could be organised in the framework of the EU’s existing Permanent Structured Cooperation (PESCO) system. Additional EU debt would benefit the development of European industrial capacities in air defence, even if in the short term some funds were used to buy systems from the United States. Significant funds for research and the development of the domestic industrial base should be part of the initiative.
Topic:
Security, Defense Policy, Debt, European Union, Finance, Macroeconomics, and Russia-Ukraine War
Political Geography:
Europe and Ukraine

19. The state of the UK economy 2024

Author:
UK in a Changing Europe
Publication Date:
01-2024
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
The state of the UK economy is always an important matter, but it is all the more so in what looks likely to be an election year. This UK in a Changing Europe report takes stock of the UK economy in order to assess how it can break from the current economic and political ‘doom loop’. The report provides a constructive framework to address the need for a longer-term, joined up approach in policy areas, ranging from education to immigration, to public services and artificial intelligence. It shows that there is no single silver bullet for the problems facing the UK economy, however a number of themes have emerged. The UK has long been plagued by short-termism and political instability which needs to be addressed. Edited by Senior Fellow Professor Jonathan Portes, it brings together leading UK academics on the economy from universities across the UK, the Migration Observatory, the Institute for Fiscal Studies and other research institutions.
Topic:
Education, Industrial Policy, Migration, Economy, Tax Systems, Macroeconomics, Trade, Artificial Intelligence, Housing, Labor Market, Public Service, Productivity, and Net Zero
Political Geography:
United Kingdom and Europe

20. China “De-risking”: A Long Way from Political Statements to Corporate Action

Author:
Ole Spillner and Guntram Wolff
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Major Western leaders have been calling for “de-risking” from China, rather than “decoupling.” But what exactly de-risking means and how it differs from decoupling, remains unclear. It is ultimately firms, not governments, driving trade and investment relations. But firms cannot account for unidentified risks by themselves. National security risks are for governments to define. Complex supply chain externalities might entail risks to production that are also difficult for firms to account for. Furthermore, firms may bet that governments will rescue them if a worst-case scenario happens, effectively socializing risks. In the EU, Germany is particularly exposed to China risk in terms of security, macroeconomic, and political exposure.
Topic:
Security, European Union, Macroeconomics, Supply Chains, and Geoeconomics
Political Geography:
China, Europe, and Asia