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Students Zone - Answers to Case Study Questions

CASE STUDY 9.1: BACK TO BREAD AND BUTTER FOR EUROPE

1. Why is the European Union worried about its employment growth?

The US is seen by a number of EU countries as one of the world's most dynamic economies where participation rates of both men and women are much higher than in the EU and where economic growth and productivity outperform that which exists in the EU. Greater participation by workers in the EU would aid equality and improve the overall growth performance of the EU and help it catch up the US. Employment growth in Europe would improve social inclusion and greater social cohesion. For some of the new member countries unemployment is much greater than that which exists in the EU15 and employment growth would help to embed these countries more into the EU. Higher levels of unemployment can also lead to bigger labour migratory flows and this can prove problematic both for recipient countries and for those countries who are losing labour. In addition higher levels of unemployment can be seen as a waste of valuable labour resources and an increased cost on individual state's social security systems.

2. Is making EU labour markets more flexible the way to improve employment growth prospects?

There is no clear answer to this question. There are a group of countries within the EU (led by the UK and Spain) who would like to see increased labour market flexibility. These countries consider that there are too many constraints on EU labour markets that result in higher costs of labour and that levels of red tape need to be reduced. These countries often consider that trade unions are too powerful and this restricts the natural flow of the labour market. They might also point to a variety of supply-side constraints that have impacted on labour markets such as high income tax, high non-wage costs of labour, poor levels of training, poor levels of labour market flexibility etc. The need for training, the giving of incentives to get people off the unemployment register and improvements in education would also be seen as ways of increasing labour market flexibility. However, there are countries such as France and Germany along with a number of continental trade unions who consider that labour market flexibility is very one-sided placing most of the flexibility on labour and not on employers. In this respect the balance of power is shifted from employees to employers and there is the fear of social dumping. In these countries' view a better solution would be for the state to work with employers and for there to be no erosion of the social packages that have been agreed with the labour force.

Finally improving labour force productivity is only one of many factors that can be used to improve the EU's growth prospects. Other factors include, improving education and training, improving R&D, increasing the level of business investment, and the opening up world markets to more trade in both manufacturing goods and services.

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