Unemployment: Is Switzerland an Exception?
Perspectives on Business & Economics, Forthcoming
10 Pages Posted: 21 May 2007
Of the recent economic developments in Switzerland, the increased unemployment level deserves special attention. In the 1990s Switzerland's long tradition of low (almost nonexistent) unemployment was broken. Although still below the levels experienced in most industrialized countries, Switzerland's recent higher unemployment rate has caused speculation about the causes of this unusual (for Switzerland) economic phenomenon.
The objective of this paper is to investigate the behavior of the unemployment rate in Switzerland by utilizing the simplified Phillips curve relationship. This concept illustrates the tradeoff between unemployment and inflation. The rate of unemployment (or the rate of change of unemployment) and the rate of change of wages are negatively related. When unemployment is low, employers tend to bid up wages in an effort to attract qualified workers. During periods of high unemployment, this type of bidding is unnecessary; and therefore the rate of growth of money wages is lower. Observing how well the model explains the jobless rate allows us to speculate about the causes of increased unemployment in Switzerland. It can also be determined whether increased unemployment represents a structural change in Switzerland's economic environment or if it is the effect of a temporary change in the growth rate of aggregate demand, or perhaps a change in the behavioral patterns of the economic agents.
Keywords: Switzerland, unemployment, Phillips curve, labor relations, unemployment rate
JEL Classification: A10, E24, J00, J21, J30, J40, J50, J60, J61, J62
Suggested Citation: Suggested Citation