Economic Integration

“Intricate workings”--Jun 15th 2006, The Economist

• “Intricate workings”--Jun 15th 2006, The Economist
• Tackling unemployment requires a careful mixture of policies.
• OECD 2006 Jobs Strategy (mainly in Europe) to reduce high and persistent unemployment rates.--“There is no single road to better labor markets.”
• France, Germany and southern & central Europe, too few people work.
• People aged 55 or over--70% of Swedes and 61% of Americans aged 55 to 64 work; only 32% of Austrians, Belgians and Italians
• Too many countries have allowed or even encouraged older workers to drop out early.

Reasons for unemployment:

• Reasons for unemployment:
• Highly regulated labor markets
• No job creation
• Generous unemployment benefits
• High minimum wages and tight job-protection laws can make employers unwilling to take on new employees, especially young ones who are untrained and untried.
• A thick wedge of taxes between what workers take home and what it costs to employ them can both discourage people from working and make firms reluctant to hire them.
• The tax wedge is the difference between workers take home pay and what it costs to employ them (consists of income tax and the social security contributions of employers and employees)
• In Germany, Belgium, Sweden, employment taxes exceed the take home pay
• People without jobs may lack the education/ skills that employers require.
• Policies to raise employment
• Deregulating the labor markets—flexible labor mkt with weaker job protection
• Job creation
• Depends on deregulation of labor mkt, and introduction of more competition
• Trimming marginal tax rates
• Making benefits less generous.

A tale of two Frances--Mar 30th 2006 The Economist

• A tale of two Frances--Mar 30th 2006 The Economist
• New labor rule --to encourage employers to create jobs, particularly for ill-qualified youngsters by giving them a two-year trial period, after which full job protection comes in, i.e. to loosen the firing rules for the young.
• Young French people:
• Face a high unemployment rate
• They also find it difficult to break out of a cycle of back-to-back short-term contracts.
• Over 64% of French 15-24-year-olds in work are on temporary contracts one year after leaving education.
• The reason that these jobs are the best on offer is that permanent jobs are so protected that employers hesitate to hire.
• The potential trade-off—between less security and more jobs—is not the way the students see it.
• “Today's protests are based on the defensive, the fear of insecurity and of change.”