Employment and the Great Recession: The Role of Real Wages

October 28, 2015

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Format: Chicago

Bas B. Bakker Employment and the Great Recession: The Role of Real Wages, (USA: International Monetary Fund, 2015) accessed July 9, 2025

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Employment, Employment rate, Labor, Output gap, Production, Real wages, Unemployment

Keywords: Employment, Employment loss, Employment rate, Employment rate, Europe, Great Recession, Okun’s law, Output gap, Output gap coefficient, Output gap development, Output gap estimate, Potential GDP, Real wage growth, Real wages, Unemployment, WP

Publication Details

Pages:

60
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/229
Stock No:

WPIEA2015229
ISBN:

9781513504100
ISSN:

1018-5941

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