European Labour Markets: From Low to High Labour Demand Elasticities

Unemployment has always been a topic of economic concern. It became of particular interest from the late 1980s on, when most OECD countries were hit by high and growing unemployment rates, which, in addition, turned out to be persistent. Part of the decline in employment was due to changing economic structures, i.e. the transition from traditional manufacturing industries to services (see e.g. Blanchard 2004). Increasingly globalisation, understood as the international integration of the goods and capital markets, is claimed to be one source of the evil, with the primary losers the low and unskilled workers. They may either lose their jobs more easily due to foreign competition, or their jobs may be exported with greater ease. Over the past decades, the worldwide integration of markets has indeed proceeded at a great pace, bringing about a wellknown range of economic advantages and disadvantages. Empirical studies document that the real-wage gap between low-skilled and high-skilled workers has widened over the past decades and keeps on widening. There is a skill premium that comes along with a substitution process between skilled and unskilled workers. But what if the skill premium no longer pays? A recent phenomenon is that white-collar employees, too, increasingly fear losing their jobs in an internationally integrated world.