Abstract
Today, Europe is a continent of low participation, low employment labor markets. Many observers would like to blame poor employment outcomes on the Euro or on austerity. But these are dangerous distractions from real problems that constitute imperatives for structural reform. There are differences across countries, but there is a model of work: almost every European economy has more stringent employment protection and more generous social benefits than peers in North America, Oceania, and East Asia. This has led to low labor force participation and high unemployment, especially among young Europeans. Layered on top of these weak labor markets is the rapid onset of aging; if policies are not changed, Europe will lose about a million workers every year for the next five decades, especially in the 2030s. In short, Europe has to increase both the demand for and supply of labor. To do so, Europeans have to begin viewing competition as a necessary good, not an unnecessary evil. Restructuring unemployment and pension benefits will help to increase participation and reverse the decline of the workforce, but policies that promote competition for jobs and mobility of job-seekers are needed to increase the demand for labor. To get to full employment, Europe has to alter the employment protection laws that give too much power to those with jobs while marginalizing others to the fringes of the economy. Europeans will have to reduce and restructure the generous social benefits that simultaneously discourage young people from searching seriously for work and encourage older workers to quit work too early. Europeans will have to view mobility of workers as a prerequisite of European integration, not just a possible consequence of it. If all this is augmented by reforms to reduce public debt, encourage enterprise and innovation, and stabilize finance, Europe will have a vibrant economy, with high participation and full employment.
Highlights
1 Introduction In February 2000, the world watched as France instituted the 35-hour workweek, down from the hours expected of French workers, and the over in most developed countries
If participation rates in all countries were to converge to those seen in Northern Europe or if work lives were to expand by 10 years across the board, the European labor force would increase by 2060
The fall will be especially severe for the European Union and EFTA countries
Summary
In February 2000, the world watched as France instituted the 35-hour workweek, down from the hours expected of French workers, and the over in most developed countries. As people reduce the years they work in most of Europe, populations in all European countries are aging. The percentage of working-age people who participate in the labor market has fallen at a faster pace in several large European economies than in other member countries of the OECD (Figure 3).
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