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.
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.
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.