European Perspectives on the Recession
New Thinking in Political Economy series
Edited by David Howden
Chapter 4: Europe’s Unemployment Crisis: Some Hidden Relief?
David Howden The European continent has long been plagued with what Americans may consider high rates of unemployment. This high natural level of unemployment has for some time been attributed to several elements of Europeantype social assistance schemes. More generous unemployment insurance benefits remove an important incentive for European workers to find new jobs compared to their American counterparts. The average Frenchman receives 58 percent of his former wages, and the average Belgian 51 percent, when they find themselves freshly unemployed. By comparison the average Americans will enjoy an average of only 25–29 percent of their former salary upon job separation (Conerly, 2004). Despite Congress lengthening the duration of American unemployment benefits during the current recession, European workers have in contrast regularly seen these benefits extending for two to three years after unemployment, with some countries extending them indefinitely. Stephen Nickell finds that the greatest effect on European unemployment comes from ‘generous unemployment benefits that are allowed to run on indefinitely, combined with little or no pressure on the unemployed to obtain work’ (1997, p. 72). Indeed, individual unemployment durations are substantially longer, and the flows of workers finding and being separated from jobs substantially lower than in the US (Blanchard, 2004a; Blanchard and Portugal, 2001). Exogenous to the labor market, Edward Prescott (2004) argues that the higher European natural rate of unemployment is due to differences in tax systems relative to the US. Europeans face both higher tax rates than Americans, and these tax rates have risen more...
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