How to Reduce Unemployment in Europe

By Elsner, Wolfram | Journal of Economic Issues, December 2004 | Go to article overview

How to Reduce Unemployment in Europe


Elsner, Wolfram, Journal of Economic Issues


How to Reduce Unemployment in Europe, edited by Mario Baldassarri. Central Issues in Contemporary Economic Theory and Policy Series. Houndmills, Basingstoke, U.K., and New York: Palgrave, in association with Rivista di Politica Economica, Rome. 2003. Cloth, ISBN 1403908044, $69.95. 164 pages.

The topic of this volume is Europe's high and "hysteretic" (i.e., persistent and "reform"-resistant) unemployment. Compared with the USA, Europe appears to perform worse in terms of employment. This issue has been a persistent topic of transatlantic discussion among certain groups of economists who seek to help "old" Europe with injections of Anglo-Saxon remedies. A similar discussion took place in the 1980s under the heading of"Barriers to European Growth" (see my review of R. Z. Lawrence's and C. L. Schultze's edited Brookings volume with that title in the JEI, no. 3, 1989, 912-16, where I argued that Europe might live quite well in transatlantic competition with the "rigidities" and labor market "hysteresis").

This volume, published in 2003, is a 1998(!) memorandum by a group of American and Italian economists whose representation centers around MIT and Rome's La Sapienza. One of the initiators of "A Manifesto for Employment" was the late Franco Modigliani (MIT). Among the Italians are Paolo Sylos Labini and Fiorella Padoa-Schioppa, two former EU advisors. In sum, there appear some thirty-five names. The list of MIT authors includes Modigliani, Robert Solow (as writers), Paul Samuelson, and others. Finally, the contributors include not so "mainstream" authors such as the late James Tobin and Luigi Pasinetti.

The volume is a collection of short individual contributions. For instance, Lester Thurow has contributed a piece on increasing the industrial flexibility in which he pleads for a European program to support the formation and growth of new companies. Ireland's deputy prime minister contributed four pages on "Ireland's Recipe." Finally, some fifty pages contain the Italian discussion with contributions by an entrepreneur and representatives of industry associations, trade unions, and public administration. By and large the international reader is well advised to enter straight into the manifesto's text itself to learn about the argument of this group.

The manifesto does not attempt to provide a balance sheet of the comparative performances of the Anglo-Saxon culture relative to the "Rheinian" capitalism. An interesting literature emerged on this in the last decade, since the publication of Michel Albert's Capitalisme contre capitalisme (1991), which has provided detailed balance sheets on the relative performances of the different systems at the "stability" and "flexibility" ends of the institutional spectrum. Interesting issues have been examined there. For instance, why is it that the Anglo-Saxon culture exhibits superior performance in "highest-tech" areas, while the Rheinian variant traditionally performs better in a broad range of high tech manufacturing, with a strong trade balance vis-a-vis the USA, with larger human capital investment and higher levels of worker commitment that foster broader learning processes. The discussion of national and regional systems of innovation has also widely contributed to a systemic understanding of the different performances of various institutional arrangements, cultures, and socio-technical paradigms.

The present memorandum confines itself to saying the following. First, yes, we are aware that the USA and ("old") Europe have different cultures. Second, no, we do not intend to plainly impose the USA model onto the EU. Third, the labor market success of the USA, however, appears so overwhelming that we do want to strongly recommend that some of their measures, rules, and principles be adopted by the EU members. There is no discussion of whether the measures, rules, and principles can be transferred from one institutional culture to another without doing harm in other areas or for lengthier periods than is intended. …

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