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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.

Labor --- Production and Operations Management --- Business Fluctuations --- Cycles --- Labor Demand --- Wages, Compensation, and Labor Costs: General --- Macroeconomics: Production --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Mobility, Unemployment, and Vacancies: General --- Unemployment: Models, Duration, Incidence, and Job Search --- Labour --- income economics --- Macroeconomics --- Output gap --- Real wages --- Employment rate --- Production --- Economic theory --- Spain

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This paper argues that the large differences among EU countries in post-crisis employment performance are to a large extent driven by the need to adjust corporate balance sheets, which had greatly deteriorated during the boom years in some countries but not in others. To close the large gaps between saving and investment, firms reduced investment and cut costs to boost profits. With much of the cost adjustment falling on firms’ wage bills, employment losses were largest in countries under the most intense pressures to improve corporate profitability and with limited wage flexibility due to labor market duality.

Corporations --- Labor market --- Business corporations --- C corporations --- Corporations, Business --- Corporations, Public --- Limited companies --- Publicly held corporations --- Publicly traded corporations --- Public limited companies --- Stock corporations --- Subchapter C corporations --- Business enterprises --- Corporate power --- Disincorporation --- Stocks --- Trusts, Industrial --- Finance --- Corporate Finance --- Financial Risk Management --- Labor --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Wages, Compensation, and Labor Costs: General --- Demand and Supply of Labor: General --- Corporate Finance and Governance: General --- Financial Crises --- Labour --- income economics --- Ownership & organization of enterprises --- Economic & financial crises & disasters --- Labor markets --- Corporate sector --- Financial crises --- Economic sectors --- Economic theory --- Spain

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In the last decade, over half of the EU countries in the euro area or with currencies pegged to the euro were hit by large risk premium shocks. Previous papers have focused on the impact of these shocks on demand. This paper, by contrast, focuses on the impact on supply. We show that risk premium shocks reduce the output level that maximizes profit. They also lead to unemployment surges, as firms are forced to cut costs when financing becomes expensive or is no longer available. As a result, all countries with risk premium shocks saw unemployment surge, even as euro area core countries managed to contain unemployment as firms hoarded labor during the downturn. Most striking, wage bills in euro area crisis countries and the Baltics declined even faster than GDP, whereas in core euro area countries wage shares actually increased.

Economic history. --- Economic conditions --- History, Economic --- Economics --- Europe, Eastern --- Economic conditions. --- Financial Risk Management --- Investments: General --- Investments: Bonds --- Labor --- Forecasting and Other Model Applications --- Macroeconomics: Production --- Forecasting and Simulation: Models and Applications --- Business Fluctuations --- Cycles --- Fiscal Policy --- Investment --- Capital --- Intangible Capital --- Capacity --- Unemployment: Models, Duration, Incidence, and Job Search --- Financial Crises --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- General Financial Markets: General (includes Measurement and Data) --- Macroeconomics --- Labour --- income economics --- Economic & financial crises & disasters --- Investment & securities --- Return on investment --- Financial crises --- Sovereign bonds --- National accounts --- Financial institutions --- Saving and investment --- Economic theory --- Bonds --- Greece

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Most papers explaining the macro causes of the U.S. Great Recession focus on the behavior of the middle class: how its saving rate declined in the pre-crisis years, then surged following the crisis. This paper argues that the saving rate of the rich followed a similar pattern, the result of wealth effects associated with a boom-bust in asset prices. Indeed, the swings in saving by the rich must actually have played the most important role in the consumption boom-bust, since since the top 10 percent account for almost half of income and two-thirds of wealth. In other words, the rich played a critical role in the Great Recession.

Global Financial Crisis, 2008-2009. --- Rich people --- Income distribution --- Savings accounts --- Saving and investment --- Business cycles --- Consumption (Economics) --- Bank accounts --- Global Economic Crisis, 2008-2009 --- Subprime Mortgage Crisis, 2008-2009 --- Financial crises --- Macroeconomics --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- Personal Income, Wealth, and Their Distributions --- Income --- Consumption --- Income inequality --- Disposable income --- National accounts --- Economics --- National income --- United States

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Five years after the onset of the global financial crisis, Europe’s economy is still fragile. Notwithstanding recent positive signs amid calmer financial markets, medium-term growth is likely to remain frail owing to continuing weaknesses and vulnerabilities at the country level and in the fabric of European institutions and banks, especially in the euro area. In addition, unemployment in many countries has reached very high levels. The IMF research collected in this volume provides a number of guideposts that offer an opportunity for stronger and better-balanced growth and employment in Europe after what has been a long and dismal period of crisis.

Labor market --- Structural adjustment (Economic policy) --- Economic development --- Economic development -- Europe. --- Labor market -- Europe. --- Structural adjustment (Economic policy) -- Europe. --- Business & Economics --- Labor & Workers' Economics --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- E-books --- Labor market - Europe --- Structural adjustment (Economic policy) - Europe --- Economic development - Europe --- Exports and Imports --- Financial Risk Management --- Labor --- Macroeconomics --- Public Finance --- Accounting --- Demand and Supply of Labor: General --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Labor Economics: General --- Debt --- Debt Management --- Sovereign Debt --- Unemployment: Models, Duration, Incidence, and Job Search --- Trade: General --- Labour --- income economics --- International economics --- Finance --- Public finance & taxation --- Labor markets --- Labor market reforms --- Exports --- International trade --- Economic theory --- Labor economics --- Spain