The Governor explains the limited contribution that macroeconomic policy can make to resolving the problem of unemployment. He describes the experience of unemployment in OECD countries in the post-war period and the differences between the experiences in the United States, Japan, the United Kingdom and the rest of Europe. He examines the development of theories of unemployment and points out that, by almost any reckoning, a large element of unemployment at present is structural, and so beyond the immediate reach of macroeconomic policy.
He examines the causes of structural unemployment, exploring in particular two commonly emphasised influences—technology and international trade. Both exert powerful commercial pressures on countries to adapt their types and processes of production; in so doing, they affect the pattern of the demand for labour. The level of structural unemployment, he suggests, depends on the interaction of these pressures and an economy’s flexibility to respond, which is constrained in a number of ways.
Although there may be little direct contribution that monetary policy can make to alleviating structural unemployment, central banks do have a small but direct role, through helping to improve the supply-side functioning of the economy—and particularly by trying to ensure that the financial sector gives effective support to the wider economy.
Macroeconomic management and structural unemployment