Will The French Always be Lazy?

European countries are diverse nations offering different traits, policy directions and macro-economic positions. However, there is a general trend for European countries to have higher unemployment in comparison to the USA. This essay will attempt to explain the different courses of unemployment, the possible macroeconomic reasons for high unemployment, the significance, if any, of labour market rigidity as a course of high unemployment and if labour market reform can offer an effective solution. It will also briefly consider the validity of high rates in employment as a policy preference. In order to achieve these goals it will be necessary to analyse the differing stands of classical and Keynesian theory and to examine their relevance to the ‘real world’.

Primarily it is important that we consider what is meant by unemployment and the different forms that it take. Although it may seem rather simplistic to consider the meaning of unemployment, in economic terms it is a rather specific thing: ‘ those of working age who are without work, but who are available for work at current wage rates’ (’Economics Sloman, John Fifth edition Prentice Hall 2003). It is important to note, therefore, that we can not consider the problem of European unemployment to be one of people being unable to work, as inherently these will not be counted. Secondarily we must consider if Europe does in fact have an unemployment problem. If we examine the statistics then we can clearly see that whilst from 1964-2001 US unemployment has moved from 4.6% to 5.5% European union average unemployment has risen from 2.7% to 9.7%. This clearly suggests that there is an issue with unemployment in Europe. If we are to consider if labour market rigidity is a cause of this unemployment then we must consider the possible theoretical causes of this unemployment. The courses of unemployment may we broadly categorised as follows: disequilibrium unemployment and equilibrium employment. Disequilibrium employment occurs when labour supply and labour demand are not in equilibrium, this can occur in two main circumstance, ‘real-wage unemployment’ where the wage is held at an artificially high level, thus creating a decrease in demand for labour, and demand deficient or cyclical unemployment, which follows the business cycle and is a result of decreased demand. Equilibrium (natural) unemployment is the level of unemployment that would be expected even if demand for jobs is equal to supply. He types of unemployment are known as frictional, where people have left one job and are searching for another with potentially great pay or better conditions and structural unemployment, where there is a change in the pattern of demand or a change in the technology used in a company. Regional and seasonal unemployment are also significant, however they should not effect the long-term national unemployment statistics which are our concern. If Labour market rigidity is having an adverse effect on European labour markets then it should be effecting ‘disequilibrium’ employment. Therefore we must firstly consider what labour market rigidity may entail, how this can effect unemployment, and if equilibrium employment unemployment, or other factors could be coursing higher unemployment.