Strategic policy to fight Germany's unemployment problem

Unemployment in Germany remains a major policy issue. The unemployment problem began with ratchet effects following the two crude oil-price shocks in the 1970s. In each case, a persistent increase in (long-term) unemployment became particularly noticeable, with the slow rate of job creation in the service sector being a fundamental cause. With the objective of isolating a likely successful policy prescription for Germany, this paper presents an international comparison of different approaches to reducing unemployment and increasing job creation. The author suggests "strategic employment policy" as a possible solution to overcoming the existing blockage of economically reasonable labour market reforms and develops a specific proposal to transform the existing German Alliance for Jobs as a voluntary vehicle for consensus into an incentive-generating "social pact with bite".