The Fight against Unemployment: Macroeconomic Analysis from the Centre for European Policy Studies

Abstract

This second CEPS annual addresses the crucial problem of persistent high unemployment in Europe, despite recent years of economic recovery. Recurring themes in the discussion of possible solutions are the relative importance of aggregate demand, labor-market flexibility, capital formation, and the organization of work-time in order to achieve work-sharing.The report of the CEPS Macroeconomic Policy Group included in this volume identifies a mix of macroeconomic strategies that could gradually boost output while containing inflation, bringing it back to the five percent level of the late 1970s. Contributors are Franco Modigliani (MIT), Marie Monti (Bocconi University), Jacques Dreze, Herbert Giersch (Kiel), and Richard Layard.Wolfgang Franz (University of Stuttgart) provides strong evidence that contractionary policies aimed at combating inflation will mean higher unemployment in the long run. David Metcalf (London School of Economics) surveys the recent literature on labor-market rigidities in the European economies, focusing on problems of aggregate and relative wage flexibility and analyzing the relations to bargaining structure, the degree of cooperativism and labor-market legislation.The issue of work-sharing as a means of promoting employment is discussed by Jacques Dreze (Universite Catholique de Louvain), who sees this as a method of achieving a more efficient allocation of regular jobs between insiders in the labor market and new entrants. He points out various ways - such as trading jobs between workers of different ages, sharing jobs, and trading hours for jobs - that work might realistically be shared.Richard Layard is Professor of Economics at the London School of Economics, Head of the Centre for Labour Economics, and Chairman of the Executive Committee of the Employment Institute. Lars Calmfors is Associate Professor of Economics at the Institute for International Economic Studies, University of Stockholm. The Centre for European Policy Studies, based in Brussels, is an independent research institution which focuses on the major medium- and long-term issues facing the European community and Western Europe internally and internationally.