Urope ’ S Labor ?

Europe’s labor is not competitiveness taking unemployment as the relevant indicator. The paper looks at other indicators such as job creation, productivity and unit labor costs and skills. It analyzes the reasons for the lack of competitiveness including a low degree of wage differentiation, the impact of the welfare state on the reservation wage and high labor costs to finance the social security system. J.E.L.-Classification: J00 Europe’s labor is not competitive. This holds for the 10 percent who are unemployed in the European Union (1998). In addition, it holds for the unemployed who are in governmental schemes and early retirement and who let the unemployment rate jump to 20 percent and more for quite a few EU countries (Table 1). Standardized OECD unemployment rates vary from the low levels of 3.8 in the Netherlands and 6.3 in the United Kingdom to 18.9 in Spain (1998). The three larger continental countries, Germany, France and Italy, have unemployment rates of 10 percent and more, and this in spite of the fact, that the three countries are not in a recession. When unemployment in labor market schemes and in early retirement is added, the unemployment rate reaches 15 percent, 23 percent and 14.7 percent, respectively for the three countries. Table 1 — Unemployment rates Officiallya unemployed 1998 Including labor market schemes and early retirement 1996 Austria 4.4 6.9c Belgium 8.8 21.4 Denmark 5.1 20.5 Finland 11.8 24.0 France 11.9 23.0 Germany 9.7 15.0 Greece n.a. 20.9 Ireland 7.8 18.4b Italy 12.3d 14.7c Luxembourg 2.2 12.2 Netherlands 3.8d 15.6 Portugal 4.9 16.6 Spain 18.9 23.3 Sweden 8.2 14.8c United Kingdom 6.3d 12.9 EU 15 10.0 n.a. for comparison: US 4.5 n.a. aOECD standardized rates. — bNot including early retirement. — cIncomplete. — dPartly estimated. Source: OECD (1998b), Europäische Kommission (1998a, p. 7).