Page 8 - AEI Insights 2019 - Vol. 5, Issue 1

AEI Insights, Vol 5, Issue 1, 2019

Introduction

There is a remarkable difference in labour market outcomes, especially unemployment rates,
between Asia and Europe. A recent analysis by The Economist (2018a) suggests that there is
no similarity in unemployment patterns between the two regions. Simply put, unemployment
rates in Asia are generally low while unemployment rates in Europe are relatively and
persistently higher.

Persistently high unemployment rates among European countries have been a well-known fact
among economists since the 1980s. Some of the leading researchers who have debated on this
issue include two American economists, Olivier Blanchard of Massachusetts Institute of
Technology and Lawrence Summers of Harvard University. They argue that, particularly in
the 1980s, unemployment rates in Europe would increase during economic crisis but would not
decrease to original levels even after the end of the crisis. This interesting phenomenon in the
European labour market is called “unemployment hysteresis” (Blanchard and Summers, 1986).

By contrast, unemployment in Asia is typically low. A distinctive feature of the Asian
unemployment pattern is that unemployment rates are quite stable and do not appear to be
affected by economic conditions (The Economist, 2018a). This contrasts with the situation in
Europe, where unemployment rates are much more volatile and react sensitively to the ups and
downs of the economy.

12

10

8

6

4

2

0
1980 1985 1990 1995 2000 2005 2010 2015

GERMANY THAILAND
Figure 1: Unemployment rates in Germany and Thailand (1980-2015)
Source: World Bank (2018)

For a typical example, the unemployment rates for the period of 1980-2015 in Germany and
Thailand are depicted in Figure 1. These countries are chosen because pattern of the
unemployment rates are different. In other words, Germany is a typical European country with
relatively high unemployment rate and Thailand is a typical Asian country with relatively lower
unemployment rate. As the graph clearly indicates, the unemployment rates for Germany are
much higher and more volatile than for Thailand. In Germany, the unemployment rates in the

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