Go to the Mian menu
Go to the Mian menu

Occasional Paper SeriesKIET Korea Institute for Industrial Economics and Trade

  • home
  • Publications
  • Occasional Paper Series

Stabilizing the Macroeconomy with Labor Market Policies

Author Oh Jong-seok(오종석), Hong Sungwook(홍성욱) Date 2021.04.15 Page 101
File pdf

This study argues that aggregate demand management policies alone (which have traditionally been used to stabilize economies) may not be effective in the current crisis and argues that they should instead be implemented alongside labor market policies such as work sharing programs. The use of active labor market policies was critical during the global financial crisis of 2008. While the U.S. economy underwent a slow recovery despite the most aggressive fiscal and monetary policies pursued since the Great Depression, by contrast the German economy, having implemented active labor market policies such as the Working Time Account, experienced a prompt recovery process.
To begin with, we focus on the cyclicality of the share of labor income, that is, the moving correlation between the GDP growth rate and the share of labor income, as a measure of stability in the labor market. If the labor income share exhibits counter-cyclical movement in the business cycle, we can interpret that the labor market is stable. On the other hand, if it shows a procyclical movement, it implies that some stabilizing policy measures are required.