European labour-market reform

How do we resolve worryingly high unemployment across Europe? In a time of crisis, would reform actually intensify unemployment? If we are to break the back of slow labour markets, policymakers need to learn from Europe’s success stories. Labour markets especially in southern Europe have to be reformed – presenting policy prescriptions to that effect.

Unemployment continues to rise in the Eurozone. There is a lasting suspicion that these markets are not flexible enough; that wage growth does not respond sufficiently to unemployment. Labour market reform has featured prominently in the bailout agreements reached between the Troika and Greece, Portugal, and Ireland. Reform surely must be a good thing? But what is it meant to achieve? What should and can be done? Are we ready?

Recent European Commission estimates of structural unemployment rates in 2013 are 6% for Germany and Denmark, 8% for Italy, 13% for Portugal, 15% for Ireland, and 18% for Spain (Orlandi 2012); versus actual unemployment of 5.4% in Germany (November 2012), 7.9% in Denmark, 11.1% in Italy, 16.3% in Portugal, 14.6% in Ireland and 26.6% in Spain. The most recent unemployment figure for Greece was 26% in September 2012.

The estimated structural rates are obtained by smoothing the actual unemployment rate series, so they have followed the recent rises to some extent, and may exaggerate the structural component and under-represent the demand-deficient component. In fact, it would seem that not only is demand in the doldrums but the structural unemployment rate is also very high in many countries.

The difficulty in proposing a programme of reforms to labour markets is that of striking the right balance. We are operating in world of the second best. How far should reforms go in the direction of liberalisation? What are the trade-offs between – and what is the right combination of – security for the employed, income inequality and higher average real incomes?

 

References

Draghi, Mario (2012), “The future of the euro: stability through change”, European Central Bank, published in Die Zeit, 29 August.

EEAG (2013), EEAG Annual Report on the European Economy, Munich, CESifo.

Orlandi, Fabrice (2012), “Structural unemployment and its determinants in the EU countries”, European Economy, Economic Papers, 455, May.

 

5 thoughts on “European labour-market reform

  1. Rising unemployment is a big problem of the European Union. In most EU countries, unemployment affects mainly young people. The main reason is certainly a crisis. Let’s hope that the situation will improve.
    Certainly, labor market reforms are necessary. I think that the most important thing is to create conditions for employment growth, particularly an increase in employment among young people. What is more very important are also changes in the regulation of the labor market. Furthermore, in my opinion, nowadays temporary work is not only flexible form of employment, but also an effective solution in the fight against unemployment.

    Reply
  2. Unfortunately, more and more countries struggle with rising unemployment. It is very disturbing. Many university graduates are worried about their future, because when they’re going to university they believe that after will be easier to find a job. However, nowadays it is becoming increasingly difficult. The government should introduce reforms to solve the problem as fast as they can and we have to believe that they will succeed.

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  3. In a time of crisis reforms in labour market is nearly always associated with the working places or salary cutting, but I think than that is not the only way how to reduce the expenses of country economics. Governments also have to think about measures for bringing into the formal economy the millions of people who currently earn their income in the informal (shadow economy). Also have to form the working place, especially for the high-risk groups – such as younger workers, single-parent households and females.

    Reply
  4. It easy to say that the crisis which prevail in Europe, is also guilty of unemployment. It is more difficult to find the right ways to fight it. Many people loudly talking about what needs to be done, what have to be changed or improved. Personally, I think that getting rid of unemployment is not that easy and certainly requires time and dedication of a few things. For example in Spain – we could be a witnessed of strikes unemployed people who are demanding a change of government and reform. However, whether these changes will give something? Only time will tell us.

    Reply
  5. It’s a sad thing that unemployment is rising so rapidly.This fact can ruin the youth’s future plan,because they are learning for something ,which is unreachable or maybe for a very low percentage of them can get the job for they were struggeling so much.The government should create more job vacancies,but in most of the countries they are just rising taxes and decreasing wages,which will never solve the problem of the unemployment.
    Also the expanding unemployment rate has a big influence on security system,because ,who looses his/her job has to do something for a living,because from the aids it is impossible to live on normal living conditions so they will rob and steal which will generate more fear in the people.
    So all in all somebody should find a solution for this problem,because otherwise the situation will get worse.

    Reply

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