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Economic growth and the labor markets: Europe's challenge

  • Charles Wyplosz

    ()

    (Graduate Institute of International Studies, Geneva
    CEPR)

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    This paper reviews the accumulated theory and evidence on the sources of European underperformance in terms of economic growth and unemployment. It takes the view that the main problem lies with labor market institutions, ranging from negotiation structures to hiring and firing costs, unemployment benefits, minimum wages and taxation. It adopts the view that undesirable labor market structures have interacted with adverse shocks. An important question concerns the reasons behind reluctance in some countries to undertake reforms. The paper's thesis is that such reforms are not Pareto improving: a majority of the population stands to lose while a minority would benefit. The largest countries, where co-operation does not come naturally, are particularly vulnerable to a no-reform outcome. This observation is next used to outline possible scenarios. The paper concludes with a discussion of what could be the ECB contributions to either make reforms more acceptable or to cope with a separation of Europe in two groups of countries, those which have managed to implement reforms and those that will continue to operate with a high rate of equilibrium unemployment.

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    File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp08.pdf
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    Paper provided by National Bank of Belgium in its series Working Paper Research with number 08.

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    Length: 30 pages
    Date of creation: May 2000
    Date of revision:
    Handle: RePEc:nbb:reswpp:200005-4
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    1. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
    2. Gilles Saint-Paul, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 527-550.
    3. John M. Abowd & Francis Kramarz & Thomas Lemieux & David Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00354400, HAL.
    4. repec:hal:journl:halshs-00353896 is not listed on IDEAS
    5. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    6. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
    7. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September.
    8. Juan Dolado & Francis Kramarz & Steven Machin & Alan Manning & David Margolis & Coen Teulings, 1996. "The Economic Impact of Minimum Wages in Europe," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00353896, HAL.
    9. van Ours, J.C. & Nickell, S.J., 2000. "The Netherlands and the United Kingdom : A European unemployment miracle?," Other publications TiSEM 8dc4101d-6e72-44dd-9ab0-4, Tilburg University, School of Economics and Management.
    10. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, September.
    11. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
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