Using the experience of any one European economy, explain how policymakers have tackled unemployment and the sources of unemployment.Example of Spain
...ll because there were too old. Many of them had been introduced by Franco (from 1936 to 1974). The corporatist philosophy, very important in Spain until the 60’s, is the cause of the adoption in the 40’s and in the 50’s of certain laws and regulations concerning the labour market. There was very limited freedom of association, even in the companies. That model lasted until the early 1970s. During the political transition, freedom of association and trade union rights were given out but labour laws were not reformed. So regulations on Spanish labour market were almost the strictest among OECD Member countries. It was very difficult to fire a permanent worker. In this situation and because of economic uncertainty, companies were quite reluctant to hire people. Another cause of unemployment in Spain was the poor education. For example, in 1977, 80 percent of the workforce had less than upper secondary education and of course the problems of outdated product markets and labour laws were aggravated in such a context. Skilled workers were rare and employers were reluctant to employ poor-educated people. They reduced the level of employment to the minimum or they employed skilled workers from other countries. The poor education constituted an important source of unemployment during the 80’s and the early 90’s. II. Government policies to tackle unemployment The Spanish government started to fight against unemployment only in the early 1980s, by adopting many reforms to modernize the labour market but also the products market. We saw that it was the main sources of unemployment in Spain. In the run to the accession to the European Union, the government undertook a major programmme of trade liberalization: import barriers were reduced quite dramatically, export subsidies were suppressed, obstacles to foreign direct investment were suppressed, and in general, product markets were liberalized. Spain joined the EU in 1986. First, the trade liberalization had negative effects on unemployment: during 10 years unemployment level was still high, mainly because Spanish companies suffered the competition with other countries. As Spanish economy was highly protected, the sudden competition was a big shock and they had difficulties to adapt. But the trade opportunities offered by the EU tackled the crisis and unemployment level started to decrease. In combination with the product market reforms, labour market measures were also adopted, mainly to motivate the supply-side of the market. One of the most important measures was the liberalization of fixed-term contracts. This was very successful to reduce unemployment. Before 1984, very few employees were hired under fixed-term contracts, as it was quite difficult. Thanks to the reform, it was possible to hire someone with a fixed term contract and to renew the contract for periods of six months with a maximum of three years. The problem of ending high unemployment was also resolved by absorbing large numbers of people into the public sector, linking training to job creation and creating thousands of temporary and casual jobs both in the public and private sectors. Employment Promotion Programs for instance, led to the hiring of more than 1 million people in 1987. This also has produced the present exceptional levels of temporary and casual contracts that exist today. In Spain, 31.6 percent of the working population are employed under these types of contracts compared to 13.8 percent in the European Union as a whole. Spain has the highest incidence of temporary work in the EU (second Portugal and third Ireland). Employment protection legislation was also adopted. Since 1994, cost of dismissal has been reduced from 45 days to 33 days, and the maximum severance pay was cut by almost half (from 42 months to 24 months). It means that before, to dismiss a worker even for a fair reason, firms had to provide up to four years’ salary for the worker. This explains why employers were reluctant to create permanent jobs. Employers fired people but employees went to the labour court even if the dismissal was fair. Employers often tried to avoid that and provided the severance pay straight away. Strict laws to protect the workers could be seen as good for the employment but it is actually very dangerous. Another good element of the reform is the reduction of the social security contributions by almost half. This reform was particularly attractive for the companies as it decreased labour’s cost. The Classical approach of unemployment shows that if labour cost is too high, demand of labour decrease. Spanish government used this approach to consider unemployment and decreased labour cost. The effects were very positive for the market. In addition, obstacles to part-time work have been removed. Before 1995 – 96 part-time jobs were not treated as fulltime jobs (in respect to pension rights for instance). Very few people took part-time jobs. Since the adoption of the new law, part-time employment has increased. This is extremely important because in Spain traditionally the labour market participation of women has been low. Part-time work was a good way to mix work with family responsibility and integrate more women in the labour market. In more detail, the government wishes to mobilise the supply side of the labour market through a number of strict measures: In order to receive unemployment benefit, unemployed people must make a written commitment to accept all proposals that help them to find jobs, The Royal Decree provides for penalties...