NCPA - National Center for Policy Analysis

Joblessness In Europe

April 8, 1996

European social welfare policies, financed by high taxes and costly mandates on business, have resulted in the enormous increase in European unemployment over the past 15 years.

  • In the late 1970s, unemployment was under 5 percent in France, Germany and most other Western European nations.
  • It is now closer to 12 percent in France and Germany and about 20 percent in Spain -- and the average unemployment rate for those under age 25 exceeds 20 percent in almost all European Union nations.
  • One-third of the unemployed have been out of work for more than a year.

Europe's problem isn't competition from cheap third-world labor; if it were, one would expect similar unemployment rates in the U.S., which faces the same competition. But the rate here is only 5.5 percent at present, and about 12 percent for young workers.

The problem is high wage rates and other labor costs. About half of average labor costs in Germany and France result from social security, health, unemployment compensation, disability and other taxes. Regulations restricting layoffs and mandating numerous vacation days and paid leaves also raise costs.

Government-imposed burdens have spurred the growth of the underground economy. It is estimated that 25 percent of all Italian and Spanish workers earn at least some income off the books, as do 10 percent of those in Belgium, France, Germany and Sweden.

Source: Gary S. Becker (Hoover Institution), "Why Europe is Drowning in Joblessness," Business Week, April 8, 1996.


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