The Fall and Rise of Keynesian Economics

By John Eatwell; Murray Milgate | Go to book overview

6
Unemployment on a World Scale

From 1950 to 1970, all the major industrial countries enjoyed employment levels at or near full employment. This was also a time in which world trade grew more rapidly than in any equivalent period before or since, and in which productivity growth (that is, the absorption of technological change) was faster than at any time before or since. Inflation was also low relative to later experience; it was a Golden Age of Western capitalism. Over the same period, there was a sustained improvement in economic performance in almost all of the Third World, maintained in large part by the steady growth of demand emanating from the industrial countries.

A distinct break occurred around 1970, with a sharp increase in trend levels of unemployment. The increase was greatest in the major countries of the European Union, with West Germany experiencing an almost eightfold increase (from a very low base). Only Italy had a relatively low increase, but this was from what was, for the 1960s, a high base. Canada and the United States, both relatively high-unemployment countries in the 1960s, also suffered “only” 50% and 130% increases, respectively, in average levels of unemployment. Japan’s experience is exceptional, having very low unemployment in the 1960s and from that low base suffering only a 120% increase (see table 6.1).

The economic disruption visited upon the 1970s by oil price shocks, together with the deflationary measures taken by G7 governments in reaction to the oil price rise, might be thought to have been the source of the deterioration in G7 economic performance. The OECD estimated

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