In the last 25 years, Europe has experienced a change of regime: growth has slowed down significantly in comparison with the postwar period, marking the apparent end of the 'catch-up process' with the USA; unemployment has grown tremendously in many European countries; today, the welfare state, symbol of the 'European model', is under threat due to the economic situation which reinforces the ageing problem. Simultaneously, Europe takes part in the worldwide trend of globalization, deregulation and privatization. Part of it results from global negotiations (under GATT and the WTO); part of it is engineered at the European level (Single Market Single Currency); and all these institutional changes partly originate from technological developments and cuts in transport costs that enhance increasing returns to scale.
These challenges to the 'European social model' can be discussed first in terms of the assessment of the problem, then in terms of policy responses:
What are the Facts?
The first issue concerns the relative importance of trade, technology, demographics and domestic policies in causing the European unemployment problem. These issues are hard to disentangle since several factors seem to contribute to raising unemployment, at least temporarily: labour force trends (rise in female participation, slowdown in the long-term decrease in the length of the workweek), the rise in the burden of tax-financed pensions, a technology that reduces the need for unskilled workers, even in services, deregulation policies that lead to employment reductions in the public sector and, finally, the emergence of a number of Third World competitors that gain market shares in the manufacturing sector. The main goal of this book is to try and assess the relative importance of this last factor in contributing to Europe's unemployment problem.
What should be the Policy Response?
To a number of observers, the above trends are unavoidable, and the only solution is to adapt the set of domestic policies that cause European unemployment:
