This Book Examines how the dynamic interactions among labor market activities—employment, wage setting, and labor force participation—have contributed to the high levels of unemployment in five European countries—France, Germany, Italy, Spain, and the United Kingdom. It also investigates how labor market policies have affected the resilience of these countries’ labor markets.
Unemployment IN (WEST) Germany remains low compared with that in other European countries. Nevertheless, as elsewhere, it has risen considerably since the 1970s, because employment growth has failed to keep pace with a steady rise in the labor force (Chart 1). Much of the literature has focused on the possible rise in the “equilibrium” rate of unemployment that may underlie this increase. This paper takes a rather different approach, focusing instead on adjustment dynamics in the labor market. Slow adjustment of the labor market means that the effects of temporary shocks will be persistent and the effects of permanent shocks will be delayed. An understanding of why adjustment is slow should point to policies that could speed it up—a particularly important question in Germany in light of the danger of persistent high unemployment in the new Länder.
As in many other member countries of the Organization for Economic Cooperation and Development (OECD), the unemployment rate in France has risen during each cyclical downturn, but has not returned to its prerecession levels during the subsequent recoveries. As a result, unemployment has gradually increased over the last 30 years, from about 2 percent of the labor force in the 1960s to about 12 percent in 1993 and 1994 (Table 1 and Chart 1).1
The Substantial And persistent rise in Italian unemployment since the mid-1970s has prompted attempts by academics and policymakers to characterize its causes and provide possible policy responses. The research approach followed in this paper relies on two insights that appear not to have been fully explored to date either in Italy or in any other European economy that has experienced persistent unemployment. The main insight is that lags in labor market behavior are important and may reinforce one another. Thus, the full effects of a labor market shock on unemployment may take much longer to appear than the length of any simple lag, and unemployment may even overshoot its long-run equilibrium in response to either temporary or permanent shocks.
The United Kingdom adopted far-reaching labor market reforms in the 1980s. The aim of the reforms was not just to raise the employment level and reduce the unemployment rate; they were intended primarily to change the nature of industrial relations prevailing in the United Kingdom, decentralize wage bargaining, and make the labor market more flexible and more resilient in the aftermath of adverse shocks. This paper evaluates the dynamic behavior of the U.K. labor market and the extent to which it was altered by the policy changes of the 1980s, using the methods described in Chapter 1 of this volume. The U.K. labor market is particularly suited for an analysis of policy change.
No country in Europe has as great an unemployment problem as Spain. From less than 5 percent in the mid-1970s, the unemployment rate has peaked at more than 20 percent in each of the last two economic slowdowns, without dropping below 15 percent in times of strong growth. From an analytical standpoint, the Spanish case is a fascinating, extreme example of the pan-European unemployment problem. From the policy perspective, it is essential to understand and attack labor market problems successfully in Spain if the unemployment crisis of the European Union (EU) is to be tackled, especially since the number of jobless in Spain in 1995 was higher than in the much larger EU countries of France, Italy, and the United Kingdom, and nearly as high as in Germany.
Mr. R. B. Johnston, Mrs. Piroska M Nagy, Mr. Roy Pepper, Mr. Mauro Mecagni, Ms. Ratna Sahay, Mr. Mario I. Bléjer, and Mr. Richard J Hides
This study reviews Albania's historical and political background, as well as economic developments in 1991. It describes the centrally planned economic system up to the onset of reform and analyzes economic performance in the 1980s.