INTRODUCTION: DOES THE WELFARE STATE HURT EMPLOYMENT?

Abstract

The employment performance of European economies has not fared particularly well in recent years. In most countries unemployment has risen to historically unprecedented levels, in some cases surpassing in relative terms the level of unemployment experienced during the Great Depression. In addition to unemployment, other labor market indicators also show signs of troublesome deterioration. Labor force participation rates of elderly workers have continued to decline in many countries despite policy makers' efforts to reverse the trend toward “early exit” from the labor market. Young workers and first-time job seekers have experienced disproportionately high levels of unemployment, and most policy efforts to integrate this group into the labor market have remained unsuccessful. Long-term unemployment as a percentage of total unemployment has been on the rise in many countries, transforming the long-term unemployed into a group permanently excluded from the labor market. In addition, overall labor force participation rates have stagnated or declined in several economies, despite an increase in the labor force participation rates of women. In troubled times such as these, it can be hard to distinguish good news from bad news. Even sudden economic recoveries in the midst of decade-long recessions have frequently been characterized by jobless growth. The slow real growth experienced in the mid-1990s did not result in increased employment; unemployment levels continued to rise after each economic recovery. Thus, in the first decade of a new century, it appears that current levels of high unemployment are here to stay.