A Policy Perspective on European Unemployment
| Date | 01 September 1999 |
| Author | Filip Abraham |
| Published date | 01 September 1999 |
| DOI | http://doi.org/10.1111/1467-9485.00138 |
{Journals}sjpe/sjpe46-4/q189/q189.3d
Scottish Journal of Political Economy, Vol. 46, No. 4, September 1999
#Scottish Economic Society 1999. Published by Blackwell PublishersLtd, 108 Cowley Road, Oxford OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
A POLICY PERSPECTIVE ON EUROPEAN
UNEMPLOYMENT
Filip Abraham
ABSTRACT
This paper focuses on three major themes in the policy debate on European
unemployment. A first issue concerns the causes of unemployment. We point to the
diversity of the unemployment performance in Europe and plead for a policy
approach which takes into account the interdependence between employment,
labour costs and social protection. As a second major theme, we evaluate existing
EU policies. While a EU social dimension is gradually developing, the European
level is far from providing a comprehensive policy framework at this stage. A third
issue relates to the national policy dimension and is linked to Europe's quest for a
third way. We compare the corporatist and competitive labour market approach.
II
NTRODUCTION
After the smooth start of the European Monetary Union (EMU) and with
inflation and budget deficits of most European countries under control,
attention is shifting to the causes of high unemployment in Europe. Of course,
the concern about European unemployment is not new. A rich body of academic
research provides a comprehensive theoretical and empirical analysis of the
disappointing labour market performance of many European economies (see for
instance Layard et al., 1991). Among decision-makers also, unemployment
occupies a top position on the policy agenda in the current climate of worsening
growth forecasts. The diagnosis of the unemployment problem by policy-makers
is more topical than the academic view. In this paper we focus on three major
themes in this policy debate.
A first issue concerns the causes of unemployment in Europe. In the policy
analysis, the high European unemployment rate is usually placed against the
burgeoning US labour market. The unfavourable European position is blamed
on rigid labour markets and high labour costs. In Section II of this paper, we
argue that the European unemployment picture is more complex than this
simple story suggests. We provide evidence that higher average unemployment
in the EU goes together with a great diversity of unemployment rates among
European economies. Likewise, labour costs differ sharply between European
economies so that the whole of Europe cannot be considered as a zone with
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University of Leuven, Belgium
{Journals}sjpe/sjpe46-4/q189/q189.3d
expensive labour. Finally, one should be cautious to oversell the impact of
labour costs on unemployment: several other factors matter as well.
The second topic relates to the significance of European integration for
(un)employment and social policy. Opinions are sharply divided. Pessimists like
the American economists Rudiger Dornbusch and Martin Feldstein view EMU
as an ill-fated attempt to reconcile the irreconcilable, which will result in even
higher unemployment and socio-political unrest in Europe. Others criticise the
development of a common European social and employment policy as a plot by
unelected Brussels bureaucrats to limit national sovereignty. At the other end of
the spectrum, Euro-enthusiasts applaud such policies as the ultimate solution to
all European unemployment problems. In Section III of this paper we assess
how the integration process shapes the policy discussion on employment and
labour costs. In Section IV, we then present a concise overview of EU policies in
those areas. We argue that a common European approach is gradually
developing but that policy framework is too fragmented at this stage to
substitute for national policies.
Turning to the national level, the third and final topic deals with what
politicians love to call the Third Way. Is there an alternative for the laissez-faire
individualism of a fully liberalised labour market that avoids the rigidity of
many high-unemployment economies in continental Europe? In Section V, we
distinguish between a competitive and corporate policy approach in Europe.
Both systems will keep unemployment and labour costs under control if they
cope successfully with the profound adjustments that are affecting labour
markets today. In doing so, each country will make decisions based on its social,
institutional and legal background. If the third way exists at all, it is a network
of country-specific paths of which some succeed while others lead nowhere.
II EU LABOUR MARKETS: SOME STYLISED FACTS
European labour markets share several common features but are also
characterised by a strong diversity. This is seen by looking at some key labour
market figures. In Table 1, we present information on the unemployment rates
of the US, the EU average and several EU member states in 1970, 1980, 1990
and 1998. Comparing the current US unemployment rate of 4.6% to the EU
average of 8.8%, points to a European unemployment problem. High
unemployment is a phenomenon of the last two decades. In 1970 and 1980,
the European average was actually below the US figure.
The sharp divergence in European unemployment rates is striking. In 1998
several countries suffered from high unemployment including Spain, Germany,
France and Finland. In contrast, the Netherlands, Austria, Denmark and the
United Kingdom perform well with unemployment rates that are close to the US
figure. Several of those countries achieved a remarkable turnaround in the last
couple of years to attain this favourable position. The radically different
experience of neighbouring European countries is quite remarkable. Apparently,
there is an unemployment problem of individual EU countries as much as there
is a European unemployment problem. As Demertzis and Hughes Hallet (1998)
A POLICY PERSPECTIVE ON EUROPEAN UNEMPLOYMENT 351
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