Policy influences on unemployment: The European experience

Abstract

This paper considers the implications of four kinds of labour market policies for the 1980s rise in European unemployment: unemployment compensation, active labour market policies, employment protection legislation and taxation. It finds evidence that all have played a role in the determination of unemployment and discusses the mechanisms involved, the extent of the influence of each and the lessons learned from this experience. One of the main findings is that there is a trade-off between wage inequality and unemployment. Policy has played a role in determining how a country responded to the negative macroeconomic shocks of the 1980s but policy alone cannot explain the full rise in European unemployment and North American wage inequality.