Ralf Einert

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Studies of Economic Change

Introduction (Assumptions)

Thousands of economists and hundreds of economic institutes need days, weeks, and years to predict the economic growth with a result which equals reading the tea leaves. But the equation of the gross domestic product is quite simple:

The gross domestic product is the factor of population, employment, hours worked, and labour productivity.

By that the population forecast is based on statistics according to the law of the large number, the hours worked is an agreement between the unions and the employer's associations, the increase of the productivity depends on the competition and is based on the idea of the evolution theory, the gross domestic product is a function of the "law" of diminishing marginal utility. Consequently the employment is the only not determined variable of the equation.

This leads to the basic assumptions which are already anticipated in the introduction:

The economic growth is slowing down according to the "law" of diminishing marginal utility, the productivity increases according to the idea of the evolution theory, consequently the productivity increases faster than the economic growth. This is contrary to the traditional thoughts by which more means the better and the labour costs are a problem if the economic growth is slowing down "unexpectedly and exceptionally".

A further analysis of the employment rate gives the evidence that unemployment and the hours worked are the only variable of the equation of the gross domestic product. It has to be added that even social- and wage dumping are a possible option as well. But neither unemployment nor social- and wage dumping are acceptable solutions. The reduction of the hours worked is therefore the only reasonable solution.

This is then the basis for the next chapters:

  1. Demography: The analysis of the demographic change reflects the possibilities and necessities to decrease the unemployment and to increase the labour force participation.
  2. Unemployment: The forecast of the development of the unemployment rate is an extrapolation of historic trends of the mentioned factors to the future.
  3. Worst case: But an extrapolation of historic trends to the future might cause problems. It is now shown that this could lead to a substantial threat to the social cohesion.
  4. Life cycle: The factors of economic growth and productivity are analysed from another perspective: The life cycle of economic growth over the time.
  5. Wage spiral: The impact of high and low wages on the social development confirms the dependence of the productivity by the idea of the evolution theory from another perspective.
  6. Labour demand: The impact of economic growth and labour productivity on the demand for labour and goods can be confirmed at this place again.
  7. Labour market: The analysis of moving the curves of supply and demand of labour picks up the results of chapter 7 as well as the assumptions.
  8. Inequality: The analysis of the origin of inequality according to chapter 8 does the same as the inequality is based on the development of the labour demand.

For the time from the 60th to the 80th of the last century while the assumptions were in effect an empirical study confirms that the increase of the productivity is by about 1% higher than the economic growth. Even if the study does not suffice academic formalism the results are exact enough to prove the assumptions. Forecasts of the development of the productivity and the economic growth follow as a basis of the forecast of the unemployment.

The following four graphics and explanations show the details.