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Is Europe's Labor Market Getting Better?


The Economist reports that in the European Union as a whole--including Britain--the unemployment rate is now 7.6%, not far above the U.S.'s 6.0%. It reports that today European firms "...have more incentive to hire new workers than they did, thanks to the loosening of rules on hiring part-time and temporary workers, and a reduction in employers' social-security taxes in some countries."

All this may well be true. Admittedly, whether it is hangs in the balance--Germany's IG Metall just won a 4% pay rise for this year; Italian workers staged a one-day general strike against reforms that would make firing workers easier, and there will soon be a general strike in Spain to oppose reductions in unemployment insurance--but there is reason to think that labor-market blockages to European growth in the past may be much alleviated in the future.

Economists Olivier Blanchard and Francesco Giavazzi argue that the future is bright. They see the sharp fall in the labor share of income in Europe and the fall in unemployment over the twenty years since 1980. They believe that this si the result of a movement toward better labor market performance and successful labor market deregulation. They anticipate that the next twenty years in Europe may well see a boom in both employment and in real wages, as the more competitive labor market creates more jobs, and as the labor share of income recovers to its long-run equilibrium value.

Previous Handouts

2002-05-22: Industrial Production--May
2002-05-15: Accounting and Profits
2002-05-08: Unemployment and Productivity: First Quarter, 2002
2002-05-01: Industrial Production Release...
2002-04-24: Productivity Discrepancies
2002-04-17: The Course of the Recession and What It Tells Us About the New Economy
2002-04-10: Productivity Growth
2002-03-27: America's Rebound from Recession
2002-03-20: World Economic Forecasts
2002-03-13: Population Growth (Chapter 5: Growth Facts)
2002-03-06: Capacity Utilization (Chapter 2: Economic Data)
2002-02-27: U.S. Household Incomes (Chapter 2: Economic Data; Chapter 5: Growth Facts)
2002-02-20: Unemployment in the 1990s (Chapter 2: Economic Data)
2002-02-06: U.S. Monetary Policy (Chapter 13: Stabilization Policy)
2002-01-28: GDP in 2000 and 2001 (Chapter 13: Stabilization Policy. Chapter 2: Economic Data)
2002-01-21: The Course of the U.S. Recession (Chapter 13: Stabilization Policy)
2002-01-07: Argentina's Crisis (Chapter 15: Exchange Rate Regimes)
2001-12-10: The U.S. Recession (Chapter 2: Principal Macroeconomic Variables)
2001-12-03: The Overvalued Euro (Chapter 3: Exchange Rates; Chapter 15: Exchange Rate Regimes)
2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)

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