Unemployment In Europe: Its Impact In The Future Of Europe Essay, Research Paper

Unemployment is currently one of the biggest challenges facing the European Union. The fight against

unemployment is an essential question that the European Union has to encounter in the short term. Today?s

unemployment problem represents the most significant worry of the European Union citizen. Unemployment is the

greatest disturbance of the European economy. Approximately 18 million of its people are out of work, an average

unemployment rate of 10.6%. For instance, in France and Spain, the latest rates are 12.6% and 19.9% respectively.

More women are unemployed than men. Youth unemployment is twice as high as the average. Almost 6 million

people have been out of work for more than two years.

Employment initiatives of the EU

Because of the need to pursue solutions to the unemployment alarm, the European Commission called for a special

employment summit of heads of state in late November. The European Commission wants to adopt lots of targets

for the next five years. Under the form of “employment guidelines,” it wants to increase the employment rate from

60% to 65%; create 12 million new jobs; cut the unemployment rate to 7%; raise the proportion of the unemployed

who are offered training from the current EU average of 10% towards the average of the three best-performing

member states -that is, above 25%; and reduce the number of people who drop out of the education system by half

within a period of five years. The commission wants to switch some of the $221 billion spent every year on

unemployment benefits to active labor-market policies;

cutting the overhead and tax costs of employing workers; and encouraging more adaptable forms of contract.

Furthermore, the Commission is calling for a reversal of the long term trend towards higher taxes and charges on

labor, which have increased from 35% in 1985 to more than 42% in 1995. The commission considers the possibility

of increasing the growth of part-time work, which has been responsible for all of Europe?s net job gains in the past

six years and now accounts for 16% of the European Union?s total employment. At the same time, the commission

wants part-timer employees to enjoy the same security and benefits as full-time workers, a sure formula that has

reduced the number of part-time jobs created. Regarding taxation, the commission recommends reducing taxes on

labor, which have risen from an effective rate of 35% in 1981 to 42% today. Yet rather than just cutting the total tax

burden, which Europe badly needs, it suggests offsetting such reductions with higher taxes on energy and capital

that could well raise unemployment.

Germany?s unemployment trend compared to other EU members

In 1989, the then West Germany?s rate of unemployment was only 5.6 per cent. This was fractionally above the 5.2

per cent of the US. It was well below the European Union?s average of 8.7 per cent, the UK?s 7.2 per cent, the

French 9.4 per cent, Italy?s 10.9 per cent and Spain?s 16.9 per cent. In 1996, Germany?s unemployment rate was 9

percent. This was still below Italy?s 12 per cent, France?s 12.4 per cent and Spain?s

22.2 per cent. But it contrasts unfavorably with the 5.4 per cent of the US and even with the 8.2 per cent of the UK.

The German unemployment rate is recently at 11.2 per cent of the labor force. Western Germany jobless rate is

9.5% while in eastern Germany the rate is 18.2 per cent.

Because of the difficulties of German unification, Germany?s job performance seems to be appropriate. However a

justification, although probable, does not change the truth that the country needs more jobs, but has failed to provide

them. Following unification what Germany needed was a surge in labor-absorbing growth. Rather, what has

happened, has been a decline in employment in both eastern and western Germany. Blame for the eastern failure lies

with the decision to translate western labor practices into east Germany. For instance, pressure for wage equalization

has pushed compensation per employee to some 70 per cent of western levels. Given low productivity, unit labor

costs are 30 per cent higher in eastern manufacturing than in the west, making the east the most expensive location

in the world.

Common recommendations

As the German president, Roman Herzog, said at the European Forum in Berlin, Europe has to break out of the cycle

of sluggish economic growth and high unemployment by adopting policies that encourage entrepreneurial and

technological dynamism. that Europe should learn from the US experience of cutting spending and reducing taxes.

He claimed “We are too worry about our stability, and our possessions, than at unleashing economic dynamism.”

Rapid growth in the US, rooted on incentives to develop new technologies, demonstrated the capability for

generating higher growth and employment. Europe must stimulate knowledge-based industries, which requires a

good jump in education and research and development.

In order to reduce unemployment, radical action by European governments to remove state-imposed constraints on

investment and risk-taking must take place. Some of the solutions suggested by Hans Werner Sinn, a member of the

German government?s council of economic advisers, are a change in the tax burden on capital accumulation towards

consumption, and a move from pay-as-you-go state pensions towards full-funded programs. For instance, Germany

needs also to develop its stock market to promote greater entrepreneurial risk-taking, given that of the half a million

companies in the nation, only 3,000 of them were joint stock companies and only 600 of these were traded.

Directors of German industrial companies complain about the government?s over-regulation on business while

carrying it with high social costs. They claim that Germany?s public spending, a share of 50 per cent of national

income, results in a state-run economy only with a few private companies.

Employment dispute

Although, the European Commission is calling for several measures to be accepted, some countries, still have

reservations about European measures that would undercut national responsibility for employment. Germany and

Britain, for instance, oppose this European Union target that could enlarge the Commission?s reach into areas which

are the shelter of states. Even France, whose unemployment concerns proposed the summit, is thought to be cautious

of targets. Wary of potential opposition from member states, Jacques Santer, Commission President, and Padraid

Flynn, social affairs commissioner, have avoided setting numerical targets for individual countries. They are leaving

governments to draw up actions plans implementing the broad recommendations which will emerge from the

November 20-21 summit.

The Spanish Unemployment Situation

If all the people looking for work in Spain were to stand in a single straight line, the line would stretch lengthwise

from Gibraltar to Stockholm, spanning 1,700 miles. Every time unemployment figures are released, the Spanish

press is sensitive of pointing out that even “solid and stable” economic recovery will be able to shorten this

imaginary line of almost 3.5m people, or 21.8 percent of the workforce. As a matter of fact, economic growth of

between 2 and 3 percent over the last three years has not been able to create significant employment to absorb the

long line of unemployed. Although Spain is currently meeting the strict Maastricht convergence criteria, it will be

trailing along the highest rate of unemployment in Europe, about double the average of the EU. Unemployment for

women and young people -29.9 percent and 35.2 percent respectively, also doubles the corresponding average rates

for EU countries. The paradox plaguing all Spanish governments is that economic gro!

wth and favorable macroeconomic indicators have not been able to reduce the unemployment rate.

Government, labor and management agree that the nation?s endemic unemployment can be connected to historical,

sociological, and demographic conditions unique to Spain. However, analysts recognize that the rough

unemployment figures may not accurately reflect the real situation or are eased by cultural components.

Despite high unemployment there is less social unrest in Spain and fewer visible homeless than in other European

countries due to the close Spanish family structure, which takes in its unemployed. Because of a high index of youth

unemployment, the average age of “emancipation” in Spain is 28. Growing children can not leave home because

they are either jobless, or helping to support their laid-off parents.

The underground economy in Spain

The volume of the underground economy is unknown and cannot be estimated because of the difficulty to

understand the real structure of the labor market. In any Spanish city on weekend nights, you can see thousands of

young people one-third of whom will claim they are unemployed and living at home although they are spending

money on drinks, clothes, or entertainment. Some analysts believe that Spaniards do not consider jobs not in the

field in which one is trained, or temporary jobs, as real jobs. They will declare that they are unemployed if they are

not working in their chosen profession.

Is employment really going to improve?

The decisive countries in the employment debate are, as always, Germany and France, which happen also to be two

in which unemployment is still rising. Nonetheless, instead of accelerating deregulation and cutting taxes, both are

increasing subsidies to industry. In France, Lionel Jospin, the prime minister, has recognized that for all his promises

of huge job generation, unemployment may decline by only 70,000 or so a year over the next five years. In

Germany, the government remains linked to a corporatist approach and has been obligated to abandon its tax

reforms. France and Germany are among a group of EU member states where unemployment has reached new

record highs, with 12.5 percent and 11.2 percent of the workforce looking for jobs respectively.

In order to obtain the full benefits of monetary union, the European Union must further liberalize its economy. The

labor market in particular must be liberalized as to introduce greater wage flexibility and worker mobility, therefore

decreasing the overall rate of unemployment. Deregulation, privatization and fiscal reform would also add flexibility

to the economy. The new monetary union could be attracted to compensate for weak internal demand with larger

external demand, resolving the unemployment problem through a low-valued currency or even trade protectionism.

It is believed by many that monetary union would improve the odds of successful reform in Europe. Thus, in order

to increase employment in Europe, member states must cut government spending, reduce labor taxes imposed on

business, and improve their educational systems.