Why Is Unemployment in Europe So High?
• Several European economies have had high rates of unemployment in the past several years, even before their recessions. • In 2000:France, 9.7 percent; Italy, 10.7 percent; Germany, 8.3 percent. • These rates compare to a 4.0 percent unemployment rate at the same time in U.S. • Reasons for high European unemployment rates: • High natural rates of unemployment exist due to frictional and structural unemployment.This results from government policies and union contracts, which increase the costs of hiring and reduce the cost of being unemployed. • High minimum wages exist. • Generous welfare benefits exist for unemployed. • Restrictions against firings discourage employment. • Thirty to forty days of paid vacation and holidays boost the cost of hiring. • High worker absenteeism reduces productivity. • High employer cost of fringe benefits discourages hiring. • 2. Deficient aggregate demand may also be a cause as shown in Figure 11-7b. European governments have feared inflation and have n
