Considering the ILO reporting 6.00% unemployment rate for the world in 2012 (ILO Report 2013), it is obvious that unemployment is a commonly observed phenomenon. Chart 1 displays the devel-opment of the unemployment rate for 20 OECD countries2 from 1955 until 2011. The average of all these countries in 2011 was 7.67%; of the EU 15 alone was 8.41%.
In order to explain why unemployment occurs, the first part of this essay will deal with the different general theories of unemployment. Following this, the specific issue of European unemployment will be treated in the second part. This essay will conclude then with the author´s estimation which theory explains European unemployment best.
Table of Contents
- Introduction
- Unemployment Theories
- Unemployment in Europe
Objectives and Key Themes
This essay aims to explain the phenomenon of unemployment, focusing specifically on the European context. It begins by exploring general theories of unemployment, differentiating between disequilibrium and equilibrium unemployment. The essay then shifts to analyze the specific factors contributing to unemployment in Europe.
- Different theories of unemployment (disequilibrium vs. equilibrium)
- The impact of institutional structures on unemployment
- The role of unions and wage determination in European unemployment
- The influence of unemployment benefits on job search behavior
- The concept of hysteresis and its long-term effects on unemployment
Chapter Summaries
Introduction: This introductory section establishes the prevalence of unemployment globally and in specific OECD countries, using data from 2012 and the preceding decades to illustrate the scope of the problem. It outlines the essay's structure, promising to examine general unemployment theories before focusing on the European case and concluding with the author's assessment of which theory best explains European unemployment.
Unemployment Theories: This chapter delves into various theories of unemployment. It distinguishes between disequilibrium unemployment (due to insufficient demand for labor) and equilibrium unemployment (existing even when the economy is producing at its potential). Equilibrium unemployment is further broken down into frictional, seasonal, and structural unemployment. The chapter also explores real wage unemployment (arising from wages remaining above equilibrium) and efficiency wage theory (where higher wages incentivize employee retention). The persistence of high unemployment is partly attributed to hysteresis – the idea that current high unemployment affects the future natural rate of unemployment.
Unemployment in Europe: This chapter focuses on the specific factors influencing unemployment in European OECD countries. It highlights the roles of supply and demand shocks, institutional structures, and the level and structure of unionization in shaping unemployment rates. The chapter contrasts the United States' low unemployment (due to low unionization) with the higher but still lower unemployment in Scandinavian countries (with centralized union structures) versus countries like Germany and France (with decentralized union structures). The impact of unemployment benefits on job search behavior and the role of relatively highly regulated labor markets are also discussed, emphasizing the contribution of these factors to persistently high European unemployment since the 1970s and the difficulties in recovering from these high levels due to hysteresis. The chapter concludes by mentioning governmental responses, such as Germany's 2003 reforms aimed at counteracting hysteresis.
Keywords
Unemployment, equilibrium unemployment, disequilibrium unemployment, frictional unemployment, seasonal unemployment, structural unemployment, real wage unemployment, efficiency wages, insider-outsider theory, unionization, wage determination, hysteresis, unemployment benefits, European unemployment, OECD countries.
Frequently Asked Questions: A Comprehensive Language Preview on Unemployment
What is the overall focus of this essay?
This essay analyzes the phenomenon of unemployment, with a particular emphasis on the European context. It explores various theories of unemployment, differentiating between disequilibrium and equilibrium unemployment, and examines the specific factors contributing to persistently high unemployment rates in Europe.
What are the main topics covered in the essay?
The essay covers several key areas: different theories of unemployment (including disequilibrium and equilibrium models, frictional, seasonal, structural, real wage, and efficiency wage theories), the impact of institutional structures on unemployment, the role of unions and wage determination in European unemployment, the influence of unemployment benefits on job search behavior, and the concept of hysteresis and its long-term effects on unemployment rates. It also provides a detailed comparison of unemployment across different European countries and contrasts these with the US experience.
What theories of unemployment are discussed?
The essay explores a range of unemployment theories. Disequilibrium unemployment, caused by insufficient demand for labor, is contrasted with equilibrium unemployment, which persists even at full economic capacity. Equilibrium unemployment is further categorized into frictional, seasonal, and structural types. Additionally, the essay examines real wage unemployment (due to wages exceeding equilibrium levels) and efficiency wage theory (where higher wages incentivize better employee performance and retention). The concept of hysteresis, where past unemployment influences future rates, is also discussed.
What is the role of institutions and unions in European unemployment?
The essay highlights the significant role of institutional structures, including unionization, in shaping European unemployment rates. It compares the US experience (characterized by low unionization and lower unemployment) with the varied experiences of European countries, noting the differences between Scandinavian countries (with centralized union structures) and countries like Germany and France (with decentralized structures). The impact of relatively highly regulated labor markets and unemployment benefits on job search behavior are also analyzed.
What is hysteresis, and how does it relate to European unemployment?
Hysteresis refers to the idea that high unemployment rates in the past can have a lasting impact on future unemployment rates, increasing the natural rate of unemployment. The essay argues that hysteresis partly explains the persistence of high unemployment in Europe since the 1970s and the challenges in reducing these rates, even with government interventions such as Germany's 2003 reforms.
What are the key findings or conclusions of the essay?
The essay concludes with an assessment of which theories best explain European unemployment, integrating the insights from the discussions on different theories and the role of various institutional factors. While not explicitly stating a singular conclusion, the essay strongly suggests that a combination of factors, including institutional rigidities and hysteresis, are critical in explaining persistent high unemployment in Europe.
What are the key chapters and their summaries?
The essay is structured into three main chapters: an introduction outlining the scope of the problem and the essay's structure; a chapter on unemployment theories, detailing various theoretical explanations; and a chapter focusing on unemployment in Europe, specifically analyzing contributing factors within the European context. Each chapter provides a detailed exploration of its respective topic, using data and comparisons to illustrate its points.
What are the keywords associated with this essay?
Keywords include: Unemployment, equilibrium unemployment, disequilibrium unemployment, frictional unemployment, seasonal unemployment, structural unemployment, real wage unemployment, efficiency wages, insider-outsider theory, unionization, wage determination, hysteresis, unemployment benefits, European unemployment, OECD countries.
- Citation du texte
- Ralph Strubbe (Auteur), 2013, Unemployment Theories and Unemployment in Europe, Munich, GRIN Verlag, https://www.grin.com/document/215308
