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An Economists’ Manifesto on Unemployment in the European Union 219
another, with the demand side policies creating a need for the new jobs that the
supply side policies make available.
The failure to exploit policy complementarities may be an important reason
why so many of the partial, piecemeal labour market reforms implemented in EU
member states have done little to reduce Europe’s unemployment problem. In
Spain, for example, a labor market reform has been introduced in 1984, whose
main aim was to achieve a greater flexibility in labor contracts. Among other
things, this reform introduced fixed-term labor contracts with low firing costs. As
a result, fixed-term labor contracts have grown quickly and Spanish firms have
used them to buffer fluctuations in demand by changing the number of fixed-term
employees. But, at the same time, this policy reduced the risk of unemployment
for workers with permanent contracts, which reinforced the bargaining strength
of the insiders. Since wage bargaining agreements mainly reflect the interests of
the latter, this reform has turned out to cause more rigidity rather than more flexibility
of the wage rate. To mitigate this unwanted effect, Spain has recently reintroduced
some restrictions on fixed term contracts and has reduced firing costs
for all workers.
In France, several acts have been passed aimed at introducing a greater flexibility
in the labor market and at preventing the negative effects of both minimum
wages and the highest payroll taxes among OECD countries. Moreover, restrictions
on part time work have been eased, and work-sharing has been encouraged.
But nothing has been done in this country to reduce the stringency of job protection
legislation and the bargaining power of insiders.
In Italy, a reform of the labor market was first passed in 1991, which allowed
small- and medium-size firms to dismiss redundant workers, but only with the
agreement of the unions, The so-called “mobilità lunga” (long mobility) was also
introduced, which consists in the possibility to put the unwanted workers in the
social security system (thus aggravating its operating costs) before giving these
workers the right to definitely retire. A second reform has been recently introduced
in 1997, which permits firms to hire workers temporarily from appropriate
employment agencies. 3
Also in Sweden, some reforms have been approved in order to increase labor
market flexibility. In this country, unemployment benefits are of comparatively
short duration, but the replacement ratios are high. Thus, jobless people can move
from unemployment benefits to training programs and back, while generous
welfare state entitlements encourage leisure relative to employment. In general,
the welfare benefits in this country are so generous to render the condition of
inactivity, especially for medium-aged people, more appealing than employment.
The United Kingdom and the Netherlands are the only two European countries
that have witnessed appreciable reductions in unemployment from their labor