Monday, December 6, 2010

The United States as a Job Creation Machine- IMF in 1997

The United States as a Job Creation Machine: an Example for Germany?
Characteristics of the U.S. Labor Market compared with Germany
Comparing the German and U.S. labor markets will shed some light on the large differences in job creation, despite similar technology and external conditions. In the United States enterprises and workers respond directly to market incentives:

-the government and union presence in the labor market is more limited
-wage determination is less centralized and developments are guided by market forces; there is little emphasis on incomes policies
-social welfare benefits are not as generous, they are available for relatively short periods, and they are designed to give incentives for recipients to search for new and better job opportunities
-and the wedge between gross wages and take-home-pay, caused by income taxes and social security contributions, is much smaller.

In the tradeoff between allocative efficiency and distributional equality, the United States has emphasized allocative efficiency, while Germany has placed more stress on equity as a cornerstone of the Soziale Marktwirtschaft model. But the U.S. system provides both firms and individuals equal access to the market place and the economic opportunities that are available. The U.S. system stresses the incentives for individual initiative and responsibility for one's economic well-being--that is, rewards to innovation, risk taking, and investment in oneself (i.e., human capital). The social safety net attempts to limit the downside risks associated with this system but not to eliminate inequality of outcomes. From a European perspective, it is interesting that the vast majority of Americans do not question their economic system.

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