Saturday, February 12, 1994
Schools Brief: Labour pains
UNEMPLOYMENT is costly in many ways. Apart from
the human suffering, the economy as a whole suffers
through loss of output and the cost to taxpayers of
welfare benefits. Yet despite such waste and despite
reams of learned economic articles, governments have
failed to solve the problem.
Few people remember when unemployment in OECD
countries averaged a modest 2-3% of the labour force
during the 1950s and 1960s. Today, a record 35m people,
or 8.5%, are on the dole, up from 25m as recently as 1990.
Some countries have been hit harder than others: Japan's
official jobless rate is only 2.9%, Spain's is a horrendous
Indeed, Europe as a whole is an unemployment black
spot: the average jobless rate in the European Union (EU)
is expected to hit 12% this year, almost double America's
6.5%. It was not always so. In the 1960s and 1970s
America's unemployment rate was twice Western
Europe's (see chart 1). (chart 1 omitted) It is only since the
early 1980s that Europe has had a higher rate than
America. While America's current jobless rate is slightly
lower than in 1980, Europe's dole queues have lengthened
unremittingly over the past two decades, from 2.4% in
1970, to 6% in 1980, to almost 12% now.
Movements in unemployment reflect the difference
between the growth in the labour force--ie, people who
are looking for jobs--and the change in employment. The
size of the labour force depends on the growth in the
population of working age and the proportion who want
to work. More women, for example, have joined the labour
force over the past few decades.
The faster the growth in the labour force, the faster
employment must grow simply to hold unemployment
steady. Demographic changes are therefore sometimes
blamed for the rise in European unemployment over the
past decade. Europe's labour-force growth did accelerate
in the 1980s as the baby boomers of the 1960s became
job-seekers. But this does not explain the different paths
of unemployment in different countries: the labour force
in the EU actually grew more slowly in the 1980s (0.8% a
year) than in America (1.7%).
Europe's big problem has been its failure to create jobs.
Since 1960 employment has risen by 84% in America and
by 46% in Japan; over the same period, European
employment has risen by a paltry 6% (see chart 2). (Chart
Countries measure unemployment in different ways, so
national jobless rates are not always strictly comparable.
One method of compiling the figures, used in America, is