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Unemployment in the European union Introduction Unemployment provides one of the most important challenges for economic policymakers in Europe over the next ten years. The question is – how should they respond to the challenge? Should there be a co-ordinated strategy within Europe to reduce unemployment? Or should the problem be left to the micro and macroeconomic policy decisions of individual governments? Persistently high unemployment threatens the economic and social cohesion of the EU. European countries now have targets for raising employment and the participation ratio in the European labour market – but the most significant problems appear to be structural in nature and may take several years to resolve. Europe’s labour market shows clear signs of market failure and this threatens living standards for millions of people in the years ahead. At the 2000 EU Summit at Lisbon in Portugal, the EU agreed to take concerted action to reduce unemployment. However progress so far has been limited. The recent slowdown in the Euro Zone economy has seen unemployment rising above 8.5% in the summer of 2003. How bad is unemployment in the EU? The fall in unemployment in the European Union during the late 1990s was steeper than that experienced in the USA over the same period. However, it served mainly to narrow what appeared to have become a permanent gap in jobless rates between the two areas. Unemployment in the EU as a whole has not fallen below 8% of the labour force since 1990. The latest data shows unemployment edging up to 8.6%, some 2.5% above that in the United States and over 3% higher than the UK. Unemployment is a lagging indicator of the economic cycle – the slowdown in real GDP growth in the European Union over the last two years will continue to push unemployment higher. The evidence is that the more deregulated labour market in the United States has reduced the time lag between changes in real output and employment for the USA. Notice from the above chart for example, how quickly the US unemployment rate started to pick up once the cyclical boom experienced in the US came to an abrupt end from the 2nd half of 2000 onwards. There are large differences between EU countries and also within nations. Some economists have questioned whether there is in fact a “European unemployment problem” at all. According to Professor Stephen Nickell from the London School of Economics (www.lse.ac.uk) "Unemployment is high in the four largest economies of Continental Western Europe, namely France, Germany, Italy and Spain. Exclude these four countries and the famous European unemployment problem more or less disappears” |