Why Unemployment Is High In Europe

May 1, 1996

Despite economic growth, unemployment has been high in Western Europe for the past 15 years compared to both the United States and to Europe's own employment rates following World War II.

  • Currently, more than 10 percent of the workforce in the European Union is unemployed -- almost 20 million people.
  • In most countries, well over half of the unemployed have been out of work at least six months, and a third for more than a year.
  • In contrast , the unemployment rate in the United States is about half of Europe's, and the unemployed usually stay that way for only a short term.

Among the causes of Europe's persistent unemployment are overly generous welfare state benefits, the high marginal cost of employing each additional worker and the power of unions. To reduce unemployment, critics recommend:

  • Restructuring unemployment insurance to remove perverse incentives that make it rewarding for low-paid partners of the unemployed to give up their own jobs.
  • Ending labor policies that allow the employed to act as a cartel, increasing their own pay and benefits at the expense of more opportunities for the unemployed.
  • Reducing the cost of employing workers by cutting payroll taxes and government mandates on business -- such as paid family leave and long vacations.
  • Cutting taxes and public spending and reducing interest rates.

Researchers have found that large-scale government training programs for unemployed workers don't significantly increase the rate at which they find jobs, because there isn't a shortage of skilled, experienced workers.

However, programs such as Restart in the United Kingdom, which gives job-search and placement assistance, are successful because the jobs unemployed workers are most likely to fill depend more on motivation and personal skills than training.

Source: J.R. Shackleton, editor, "Symposium: Labor Markets," Economic Affairs, Spring 1996, Institute for Economic Affairs, 2 Lord North Street, London SW1P 3LB, U.K., (0171) 799-3745.

 

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