January 16, 2008
Europe is caught mid-river in labour reforms
By Tito Boeri
European unemployment has fallen to a level not seen for more than 25 years. Long-term unemployment has been declining even more: Europe is no longer a place where half of all job-seekers have been on the dole for more than 12 months, as in the mid-1990s.
The disappearance of mass unemployment is not the result of a shrinking pool of labour; in fact the average employment rate in the European Union has increased by more than 6 per cent in 10 years. This is the only area in which Europe is approaching the ambitious economic targets set at the Lisbon summit in 2000.
These developments are the result of reforms that have reduced employment protection and increased the rewards attached to participating in the labour market. Larger immigration to countries with the biggest regional unemployment differentials, Italy and Spain, has also been important. It has contributed to remarkable wage moderation in Europe, by preventing the overheating of local labour markets where there is a shortage of native workers. Governments, however, are not capitalising on these successes.
The remainder of this column can be read here. Debate from our panel of economists appears below.
