Unemployment and Labor Market Rigidities - Theory, Empirical Evidence and Recent Labor Market Reforms

Many European countries have experienced a significant increase of unemploymentin recent years. This publication reviews several theoretical modelsthat try to explain this phenomenon. Predominantly, these models claim alink between the poor performance of European labor markets and the highlevel of market regulation. Commonly referred to as the Eurosclerosis debate,prominent approaches consider insider-outsider relationships, search-models,and the influence of hiring and firing costs on equilibrium employment. Thepublication presents empirical evidence of each model and studies the relevanceof the identified rigidities as a determinant of high unemployment inEurope. Furthermore, a case study analyzes high unemployment rates inGermany and critically discusses recent reform efforts.This study provides a sober and unprejudiced analysis of the European labormarket and its weaknesses. According to the author's convincing argument,substantial efforts are still needed in the areas of institutional reform andincentive-based labor market policy. The book is a must read for political andeconomic decision-makers. Prof. Dr. Klaus F. Zimmermann; Director; Institutefor the Study of Labor (IZA), Germany.A superb piece, well documented, comprehensive and with many usefulinsights and policy recommendations, on one of the most important topics inEurope. A must for all those interested in unemployment and labor marketissues. Javier Santiso; Acting Director and Chief Economist; OECD DevelopmentCentre, France.