Developments and Causes of Mismatch Unemployment in West Germany

The West German labor market has been in a state of disequilibrium for more than 15 years. The economic downturns in 1974/75 and 1981/82 — caused by, or at least coinciding with a jump in the price of oil — led to considerable declines in employment and synchronous to this a drastic increase in unemployment. In the subsequent recovery phases (1976 – 1980 and since 1983), the decline in employment has been more than compensated for; however, the reduction in unemployment has been relatively limited. To conclude from this that the upturn has bypassed the unemployed would be premature: changing demographics, the increasing propensity of women seeking employment, and the flow of immigrants from Eastern Europe have at the same time increased the number of potential wage and salary earners. Furthermore, competition and structural changes ensure constant flows of unemployment and vacancies in a market economy. On the one hand, firms are forced totally out of the market or they contract at least temporarily; on the other hand, new firms are founded or existing firms are expanded. The IAB’s1 job turnover analysis (Cramer and Koller, 1988) shows that, depending on the economic situation, the resulting hirings and firings make up a multiple of the total economic expansion or contraction. On top of this comes the movement of employees between existing positions. Therefore, the additional supply of labor on the job market competes as a part of job turnover with the redundant labor for the newly created or open existing jobs. There are always new or existing jobs to be filled; there are always unemployed persons looking again, or for the first time for work, or hitherto employed persons looking for another job.