In the last twenty to twenty-five years, Western Europe has suffered from a slowdown in rates of economic growth and from frequent spills of job destruction, leading to a surging increase in European unemployment rates. In recent years, the transition economies of Eastern Europe have started a growth process which eventually may lead to catch up with standards of living in the "West". However, despite or because of the transformation process, unemployment in these countries has reached record highs.

Since the economy can only operate properly within a functioning socio-economic system, economic activities are bound within these limits in order to be economically viable and thus sustainable. In the widely known report by the World Commission of Environment and Development (1987), sustainability was declared a political goal of high priority; such priority, e.g; was included in the Amsterdam Treaty and a substantial share of the funds of the EU’s Fifth Framework Program is to be allocated accordingly. Within this larger objective, economic development must be competitive combined with resource efficiency. Academic research and discourse on economic growth inescapably has to take into account both such considerations.

The Vienna University of Economics and Business Administration is certainly well positioned to address related questions; the regional affinity to both the European Union and the transformation economies of Central and Eastern Europe should be an additional asset. Its overall academic orientation and fields of specialization offer a broad specter of interdisciplinary expertise to effectively tackle the proposed project. Apart from the relevance of this research effort for the university internally, the results should be of interest also internationally and for EU policy formulation in particular. The project, thus, may both contribute to enhance the reputation of our university and satisfy the interests of the public sponsors of the research foundation as well.
 

2 Methods

The research area will build on the state of the art of methods in the social sciences. First, questions will be tackled theoretically by way of models for delineating relevant concepts to capture and derive testable hypotheses.

Empirical methods, both quantitative analysis from within sociological, economic and management science, as well as historical and institutional analysis of recent phenomena, shall be applied. Finally, on the basis of certain empirically confirmed models, policy analysis should focus on potential feasible suggestions to improve the well-being of the European society.
 

3 Research Topics

Already at the early stages in the development of the theory of economic growth, it has been recognized that interdependencies between the evolution of employment and the growth of real output may play a substantial role. First, labor is an input in the production process, hence a change in employment will ceteris paribus change the level of output. This effect depends crucially on the potential of the economy to intensify its use of resources (labor in particular). When the economy reaches its capacity frontier - or if rigidities impede full utilization of factors - this "quantitative" growth process will cease. At this point, the performance of the economy can only be enhanced "qualitatively" through a change in the capacity frontier itself.

Evidently, in a comprehensive approach, one may not only look at goods markets (for growth) and labor markets (for employment) alone. If there are interdependencies between these two markets, one may find interdependencies between other markets (e.g., as indicated below, international financial markets), too. Hence one should include these aspects within this WU field of research. Moreover, for theoretical clarity, it can be of interest in an intermediate approach to study the interdependencies between the labor or the goods market, and another market of interest. This shall explicitly not be ruled out.

This leads to several general questions, which should all be systematically addressed within this research area on "Competitive sustainable Growth and Employment in Europe". First, will a change in the efforts devoted to foster the growth rate of output exhibit effects on employment? The effect can be ambiguous. If the change in output is obtained through an increase in the use of resources, the effect is probably positive. Unemployment rates may rise nonetheless, if the influx into the labor market due to a better state of the economy would exceed the rate of job creation. If the change is achieved through a change in the industrial structure of the economy, structural unemployment will rise, and the resulting increase in job separation and the increase in job creation may lead to an increase in frictional unemployment. Second, will changes in employment have long-run effects on the evolution of the economy, beyond its evident quantitative effect? The hysteresis hypothesis suggests that workers lose part of their productivity as they enter the unemployment line, thus destroying resources (in form of human capital) leading to a further decline in output. Moreover, if income declines with employment, effective demand will be lower, adding another negative effect. By contrast, a larger pool of available employees might ease potential entry of new firms and industries, which may foster technical progress and ultimately economic growth. All of these issues lead to a large and heavily unexplored set of more specific theoretical questions:

A large number of scientists at the Vienna University of Economics and Business Administration has done research in this field. In the department of economics several academic units have separately addressed questions of economic growth and employment in Europe. The project coordinator Prof. Ewald Nowotny is himself heavily engaged in the area. In a recent publication, he claimed that a large part of both the growth slowdown and the tension on European labor markets is due to tight (German) monetary policy and high real interest rates. Prof. Herbert Walther currently works on potential adverse effects of faster structural change on structural unemployment, on regulation and employment and on the specifics of European labor market institutions inhibiting job creation. Prof. Werner Clement has made important contributions to the analysis of structural change and industrial policy measures to combine stronger growth with faster job creation.

Two recent habilitations at the department have focussed on research questions related to this proposal. Prof. Alfred Stiassny empirically analyzed structural unemployment in Austria, whilst Prof. Brigitte Unger investigated the room for manoeuvre for national economic policy to fight the growth slowdown and rising unemployment for an array of European economies. Both received the Senator Wilhelm Wilfling Award from the Vienna University of Economics and Business Administration for their research.

Several other researchers, from a variety of departments at the Vienna University of Economics and Business Administration, who will join this WU field of research, have made contributions to the topic (see list of members). That list may and should vary in the course of the WU field of research, for three reasons. First, fluctuations within the involved personnel may require the exit of some researchers and the entry of others, yielding additional dynamics to this WU field of research. Then, for reasons of a binding time constraint to submit the proposal, members of other departments - especially focusing on interdisciplinary items - within the Vienna University of Economics and Business Administration should actively be invited and integrated to participate. Last, the evolution of the project may require additional experts, as novel features of the interdependence between economic growth and employment are being discovered.

As this list impressively demonstrates, research has been going on intensively in the field, well exceeding the critical number necessary for a WU field of research. Institutionally not embodied, there has been a lack of coordination, which this proposal explicitly attempts to broach. A first step is to encourage and subsidize both intradisciplinary and interdisciplinary research between the above researchers, exploiting substantial synergy effects. A second step is to intensify coordination between individual researchers. This shall be achieved by a steady seminar on the topic, where advances within the project shall be discussed, and where we can offer a forum to renowned scholars from outside the university to present their ideas on the topic. As already mentioned, the issue is been given increasing interest by the public, and the coordination of efforts will enable the Vienna University of Economics and Business Administration to better and coordinately communicate its research results to a general audience.
 

5 Intended Output and Required Resources

Results achieved within this WU priority research area shall be disseminated and communicated to the academic profession through publications in relevant journals, books, working papers and conference presentations as well as to the general public through media and the press. Due to the complexity and potentially intensive interdisciplinarity of the project, up to two full time research assistants should provide the necessary support for efficient implementation.