Unemployment in the European Union. Do we need a labour market reform?

Reform is nearly always associated with the term deregulation – but this does not have to be the case. Indeed within the European Union there is widespread support for greater regulation in some areas – for example the boom in people working for agencies whose employment protection is extremely weak.
Measures are also being developed for bringing into the formal economy the millions of people who currently earn their income in the informal (shadow economy).
The major risk with wholesale labour market deregulation is that it will serve to widen inequalities in the European economy, by pushing more people into relatively badly-paid and precarious jobs in the informal sector, where there is a near total lack of unemployment or social security (welfare) protection.
It is highly unlikely that the European economy will switch to the deregulated, flexible labour market that has emerged in the United States. But some labour market reforms can provide support to the aim of increasing total employment and reducing economic inactivity.
Around 77 million working-age adults are estimated to be inactive in the EU; almost a third of the working-age population. Even excluding the 15-19 year old age group, many of whom are in education or training, this still leaves 53 million.
Possible Reforms:
• Reducing direct tax rates for low-wage households in a bid to increase incentives to look for and then accept work
• Reforms to welfare (benefit) systems so as to make work pay and encourage the job search – perhaps introducing tighter conditions for claiming benefits; reducing the duration over which benefits can be claimed; expanding the availability of in-work benefits, tax credits
• Continued high levels of investment in education and training designed to raise the stock of human capital and reduce occupational immobility – the European economy suffers from a training deficit which adversely affects productivity and competitiveness in the long run.
• Specific labour market policies aimed to raising employment among certain high-risk groups – such as younger workers, single-parent households and females. This may require fiscal incentives such as those provided within the UK Welfare to Work strategy – examples of which include employment subsidies for the long-term unemployed
• Encouraging further decentralisation of wage bargaining within the European economy so that wages are determined with more account taken of local economic conditions affecting the demand for and supply of labour. A move towards decentralisation of pay negotiations will indirectly cause a reduction in trade union influence since it is a move away from nationally-determined collective pay bargaining
The onus is very much on individual countries to introduce the labour market reforms they fell are appropriate to their own specific problems and priorities. In the UK, the emphasis in recent years has been on raising employment among the long-term unemployed and in improving work incentives for low-wage households through the expansion of schemes such as the Working Families Tax Credit and the introduction of the National Minimum Wage. The effectiveness and financial cost of such policies is often questioned. For the UK, the labour market reforms of the last ten years have yet to be fully tested by the effects of a full-blown recession.

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3 thoughts on “Unemployment in the European Union. Do we need a labour market reform?

  1. It will be proably necessary to introduce some of the mentioned reforms to reduce unemployment in der European Union. But I think it would be very important in this case, that each membercountry of the E.U. can select a own strategy with the aim to reduce unemployment. The countries and its structures are so different, that there is no recipe for all E.U.-countries!

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  2. From one side I totally agree that we need labour market reform in European Union, but from the other side – how we will do that? Who will decide what to do and how!? There are a lot of countries that has much bigger problems than high developed European countries. For example, talking about education – in Baltic States the level of education is really high and there are even to many people who could work as engineers, lawyers, economists etc, but there is lack in producing industry.
    Overall the idea is good, but it’s impossible to make the same reforms in all Europe, we need to evaluate every country separately and then decide how to improve it’s conditions.

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  3. I agree that EU needs reform to reduce unemployment. Reforms which are showed above are general and they don’t show concrete solutions of concrete problems. Also i think each country should resolve this problem within their own and stabilize situation, and then the European Union should take action on a wider area. If some reform works in one country it’s possible it will work in other, which has similiar labour economy. Countries should learn from each other, cooperate together.

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