Friday, March 19, 2010

Productivity, Unemployment & GDP

In a recent class, I asked my students to explain why output could grow while unemployment did not improve or even worsened. The answer seemed to be in productivity.

Now we come to this story in The Economist. It compares the recession, growth, unemployment and productivity in Europe and the U.S. The diagnosis is the same. The prognosis is that the U.S. recovery will be faster than Europe's despite the fact that Europe opted for lower productivity as a trade-off for saving jobs. The culprit, or at least one of them, appears to be institutions - in this case, labor regulations. It's an interesting read and presents a good case.

I welcome your thoughts.

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