Academic journal article International Labour Review

Coping with the Unemployment Crisis in Europe

Academic journal article International Labour Review

Coping with the Unemployment Crisis in Europe

Article excerpt


Since the 1970s, Europe has been plagued by a chronic unemployment crisis, which has escalated with the current Great Recession. The author discusses a number of relevant elements in this regard, including the extent to which social dialogue and social pacts have been successful in reforming labour markets and pension systems, the effect of active labour market policies and the characteristics of "resilient" economies. She concludes with the need to rethink social dialogue, social safety nets, the granting of loans - especially to SMEs - and the coordination of macroeconomic policies to increase labour demand.

Well before the Great Recession - the recent world financial and economic crisis, which began in the United States in 2007 - labour markets and European social protection systems were required to be flexible. Deregulation of employment protection legislation and the "activation" of those who were unemployed or out of the labour force have probably been the two driving elements of reform over the last two decades.

The reasons for this double-edged policy included the mediocre performance of the labour market in the wake of the 1970s oil crises, after which unemployment trebled. The "stagflation" that followed in the 1980s brought an end to the post-war boom years, which had seen a combination of growth and almost full employment. This coincided with far-reaching changes in the labour market and in society, the transformation of Europe's political and economic structures, the rapid spread of globalization and major technological advances. Following these developments, there was pressure to reform labour markets and welfare schemes, contain labour costs and reduce the scope of employment protection and social protection. These initial reforms, as well as measures taken in response to the recent crisis, called into question the rights of business and trade unions, with whom a consensus was sought to share the cost of transition and adaptation to the new global context. This gave way to the conclusion of bipartite or tripartite social pacts, the aim of which was to obtain concessions from workers concerning the deregulation and flexibilization of employment in exchange for maintaining or creating jobs.1 Similar efforts were made recently in response to the current crisis and the way in which austerity policies were being implemented, but with almost nothing given to workers in exchange.2

At the same time, from a purely microeconomic point of view - in other words, taking into account the individual behaviour of economic agents, particularly the unemployed - active labour market policies (ALMPs) were introduced. The idea was, on the one hand, to replace job security with workers' employability, i.e. their ability to find another job if they became unemployed and, on the other hand, to avoid falling into the "benefits trap", considering that long-term unemployment was the result of overgenerous unemployment benefits, with the unemployed preferring to depend on social benefits rather than take poorly paid work. This link between job flexibility and increased employability has been called "flexicurity".

Certain socio-economic models have proved to be more resilient than others during economic crises, whether in terms of employment, welfare or economic performance. Today, even these models are suffering from the limitations imposed by austerity policies and weak global demand.3

This paper will assess the role played by social dialogue and social pacts in addressing labour market and welfare reforms, before going on to consider ALMPs followed by the characteristics of "resilient" economies. The paper will conclude with the future outlook with regard to social safety nets, the granting of loans, social dialogue and macroeconomic policy implications.

The role of social dialogue and social pacts in addressing labour market and welfare reforms in economic downturns

The magnitude of the European job crisis in the 1970s provoked strong opposition from unions to top-down reforms that adversely affected members' rights and benefits, and from employers concerned by the rising cost of social contributions. …

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