1 - UNEMPLOYMENT, JOB CREATION, AND ECONOMIC AND MONETARY UNION  pp. 7-51

UNEMPLOYMENT, JOB CREATION, AND ECONOMIC AND MONETARY UNION

By David Cameron

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There once was a time, not long ago, when Europe was close to full employment. In the 1960s and early 1970s, after the completion of the postwar recoveries and before the demise of the Bretton Woods exchange rate regime, unemployment rates throughout Europe were generally in the range of 2 to 3 percent or lower (European Commission 1998b: 224–53). It appeared, as Andrew Shonfield proclaimed in Modern Capitalism, that, with few exceptions, governments had – through indicative planning; increased cooperation between business, government, and labor; and the application of Keynesian principles to macroeconomic policy – overcome the job-destroying effects of business cycles and recessions (Shonfield 1969).

Now, some three decades later and in the wake of the major recessions of 1974–75, 1980–84, and 1991–94, Europe is afflicted with enduring high levels of unemployment. Throughout the 1990s, the fifteen member states of the European Union (EU) experienced an average rate of unemployment of about 10 percent, an almost fivefold increase from the average for the fifteen states in the 1960s. Even some half-dozen years after the end of the last major recession, and despite the sustained recovery in much of Europe in the last half of the 1990s, the rate of unemployment remained close to double digits in the EU as a whole and in double digits in the eleven member states that formed the euro-zone, and it was expected to remain at or close to those levels in the foreseeable future.

What makes the long-term deterioration in employment in Europe especially notable, of course, is the fact that it has been far more severe than in other advanced economies (see Table 1.1).