THE FRENCH government's recent withdrawal of a new employment contract for young people following a wave of demonstrations and strikes has once again focused attention on the problem of unemployment in Europe.
The first employment contract for people under the age of 26 was intended to make hiring and firing young employees easier, in the hope that this would help them get a foothold on the employment ladder.
In France, youth unemployment is a particularly serious problem. The overall rate of youth unemployment is more than 20 per cent and in some deprived areas it is believed to be as high as 50 per cent. As the wave of riots in cities across France last year showed, this is not just an economic problem.
The high levels of unemployment in some European countries are widely considered to be the result of failed economic policies. Many economists argue that one of the key problems is the lack of labour market flexibility in countries such as France and Germany, where hiring and firing is difficult. This discourages employers from recruiting new workers because of the bureaucracy involved in hiring. Employers also face high hiring costs as they have to factor in social security charges along with salaries and consider the tight restrictions on firing workers, especially in the case of mass redundancies. Hiring new employees is almost the last resort for many companies and many often prefer to invest in machines.
The debate on this issue has often focused on the difference between the continental European social market typified by France and Germany and the liberal economics of the Anglo-Saxon model followed by Britain and the United States. Many economists argue that the flexibility provided by lower levels of worker protection boost growth and helps keep unemployment low. But, as the French example shows, governments in some European countries have found it very difficult to challenge existing employment protection and welfare benefits.
One way out of this impasse is the flexisecurity system that the so-called Nordic model offers. This alternative has been widely debated in Europe recently, and even in France, where analysts have recognised that the existing system cannot be maintained.