Question

Topic: Why is unemployment so high in Europe? Briefly discuss. Optional reading: You can use any Web browser to search for the words "European unemployment." Just by scanning the headlines, see how many possible explanations you can list. Why Is Unemployment So High in Europe? Between World War II and the mid-1970s, unemployment in Western Europe was low. From 1960 to 1974, for example, the unemployment rate in France never got as high as 4 percent. The worldwide recession of the mid- 1970s, however, jacked up unemployment rates. But unemployment continued to climb in Continental Europe long after the recession ended, topping 10 percent during the 1990s, and was still 8 percent to 9 percent in 2007. Some observers claim that the natural rate of unemployment has increased in these countries. Economists have borrowed a term from physics, hysteresis (pronounced his-ter-ee-sis), to argue that the natural rate of unemployment depends in part on the recent history of unemployment. The longer the actual unemployment rate remains above what had been the natural rate, the more the natural rate itself increases. For example, those unemployed can lose valuable job skills, such as the computer programmer who loses touch with the latest developments. As weeks of unemployment stretch into months and years, the shock and stigma may diminish, so the work ethic weakens. What's more, some European countries offer generous unemployment benefits indefinitely reducing the hardship of unemployment. Some Europeans have collected unemployment benefits for more than a decade. No consensus exists regarding the validity of hysteresis. The theory seems to be less relevant in the United States and Great Britain, wherd unemployment fell from 10 percent in 1982 to 4.5 and 5.5, respectively, in 2007. An alternative explanation for high unemployment in Continental Europe is that legislation introduced there in the 1970s made it more difficult to lay off workers. In most European countries, job dismissals must be approved by worker councils, which consider such factors as the worker's health, marital status, and number of dependents. Severance pay has also become mandatory and can amount to a year's pay or more. With layoffs difficult and costly, hiring became almost an irreversible decision for the employer, so firms have become reluctant to add workers, particularly untested workers with little experience. Also, high minimum wages throughout Europe, high payroll taxes, and an expanded list of worker rights have increased labor costs. For example, in Sweden, women are guaranteed a year's paid leave on having a child and the right to work no more than six hours a day until the child reaches grade school. Swedish workers are also guaranteed at least five weeks of vacation a year; French workers get at least six weeks (Americans have no minimum vacation guarantees). Regardless of the explanation, the result is high unemployment in Continental Europe, particularly among young workers. As noted in an earlier chapter, 60 percent of those unemployed in Germany in 2006 had been out of work more than a year, versus less than 10 percent of those unemployed in the United States. Few private sector jobs have been created there since 1980. If Continental Europe had the same unemployment rate and the same labor participation rate as the United States, about 30 million more people there would be working there.

Answer 1

The rate of unemployment in European countries is very high. The major reasons behind the high rate of unemployment are as :

• Recession in mid 1970s : The major reason behind the high level of unemployment in Europe is recession which took place in 1970's. Although the economy recovered from recession, but the rate of unemployment remains high only.
• Hysteresis (Longer the actual unemployment rate remains above the natural rate, the more the natural rate of unemployment increases : As the people remain out of job for long period of time, they started liking remaining unemployed only and thus the natural rate of unemployment increases. As the people remain unemployed for long time, they lose the touch with the latest job skills and never remain updated with the expertise required to excel in a particular job. Thus the companies do not hire them and also the shock of being unemployed also diminishes. Thus the people prefer remaining unemployed only even if the economy comes out of the recession and job market improves.
• Offering generous unemployment benefits to the citizens : Offering generous unemployment benefits to the citizens make them more lethargic and make them lose the zeal of searching for employment. As a result, generous unemployment benefits cause a big hindrance in improving the rate of unemployment.
• Strict legislation for laying off workers in 1970's : As European government has come up with strict legislation for laying off workers in 1970's, so the employers became quite reluctant to hire untested new employees and the rate of unemployment rises. The lay offs of workers need to be approved by worker council, which consider the factors like health of the employee, number of dependents, marital status and thus the lay off becomes quite difficult.
• High minimum wages, High payroll taxes and long list of worker rights : The rising of minimum wages, high payroll taxes also adds burden on the employers side and thus they became less interested in hiring new employees. There was a long list of worker rights , like one year paid maternity leaves to female employees, only 6 hours working unless the child clears the school studies, mandate 5 weeks vacation leave for the employees and so on whcih has made the employer reluctant to hire new untested employees, thus rising the unemployment rates in Europe.

The above mentioned factors are major cause of high level of unemployment in Europe.