Discussion: Burda/Hunt

1. Discussion: Burda/Hunt Helge Berger

2. In a nutshell • A very good and comprehensive paper that takes a look at data, model, and institutions • Miracle decomposition 40 percent = expectations 20 percent = wage moderation 40 percent = other • private sector working time accounts • public sector short time work • ?

3. Questions • Too narrow look at stylized facts? • Asking a lot of expectations? • Stress sectoral nature of shock enough? • Missing a longer term trend? • Coherent story including all relevant institutions?

4. Only DEU vs. US?

5. Boom/bust countries vs. others!

6. (Some qualifications…) Source: Schindler (2011).

7. Expectations over-stressed? • Firms first underestimate the resilience of the German economy (explaining ‘underhiring’ prior to the crisis)… • …but then are firmly convinced that the “great recession” will be quite short (explaining ‘underfiring’ during the crisis) • Too strong assumptions?

8. Sectoral shock under-stressed? • For DEU, shock was very specific • Would expectations have mattered as much in services sector? • Manufacturing • Longer planning horizon • Larger skilled worker constraint • Higher capacity for time accounts

9. Missing an improving trend… Simulations* Source: Schindler (2011), Lam (2011) *Search model: u_t+1 = u_t (1-a) + (1-u_t) d (w/ d=1/2; u_ss; a)

10. …missing employment impact? • Counterfactual would be “better” than actual employment figures, leading to a larger notional loss during ‘grand recession’ • Estimates: • Pre-crisis unemployment = 7.2 percent • Crisis peak (so far): 7.6 percent • Simulated: about 8.2 percent

11. Missing institutions? • Fiscal policy, unions,… • Labor courts (B/Danninger 2006; B/Neugart 2011a/b)