Neoclassical versus Keynesian approaches to Eastern German unemployment: a rejoinder to Merkl and Snower

Abstract

This rejoinder contrasts a Keynesian approach for explaining unemployment in Germany's eastern region with a neoclassical, market-failure approach advanced by Christian Merkl and Dennis Snower. A skewed distribution of headquarters favoring the western region, combined with insufficient levels of effective demand for output—and subsequently for labor—are argued to be the key causes of persistent unemployment. Seven tables offer a comparative approach to output, investment, and labor demand in Germany's eastern and western regions, noting the emergence and persistence of "involuntary" unemployment appearing as a jobs' gap in the eastern region, especially for services.

Keywords:

• economic method
• explanatory failure
• involuntary unemployment
• jobs' gap
• Keynesian theory
• neoclassical theory
• Treuhand privatization