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The natural rate of unemployment in europe

By the standards of other high-income economies, the natural rate of unemployment in the U.S. economy appears relatively low. Through good economic years and bad, many European economies have had unemployment rates hovering near 10%, or even higher, since the 1970s. European rates of unemployment have been higher not because recessions in Europe have been deeper, but rather because the conditions underlying supply and demand for labor have been different in Europe, in a way that has created a much higher natural rate of unemployment.

Many European countries have a combination of generous welfare and unemployment benefits, together with nests of rules that impose additional costs on businesses when they hire. In addition, many countries have laws that require firms to give workers months of notice before laying them off and to provide substantial severance or retraining packages after laying them off. The legally required notice before laying off a worker can be more than three months in Spain, Germany, Denmark, and Belgium, and the legally required severance package can be as high as a year’s salary or more in Austria, Spain, Portugal, Italy, and Greece. Such laws will surely discourage laying off or firing current workers. But when companies know that it will be difficult to fire or lay off workers, they also become hesitant about hiring in the first place.

The typically higher levels of unemployment in many European countries in recent years, which have prevailed even when economies are growing at a solid pace, are attributable to the fact that the sorts of laws and regulations that lead to a high natural rate of unemployment are much more prevalent in Europe than in the United States.

A preview of policies to fight unemployment

The Government Budgets and Fiscal Policy and Macroeconomic Policy Around the World chapters provide a detailed discussion of how to fight unemployment, when these policies can be discussed in the context of the full array of macroeconomic goals and frameworks for analysis. But even at this preliminary stage, it is useful to preview the main issues concerning policies to fight unemployment.

The remedy for unemployment will depend on the diagnosis. Cyclical unemployment is a short-term problem, caused because the economy is in a recession. Thus, the preferred solution will be to avoid or minimize recessions. As Government Budgets and Fiscal Policy discusses, this policy can be enacted by stimulating the overall buying power in the economy, so that firms perceive that sales and profits are possible, which makes them eager to hire.

Dealing with the natural rate of unemployment is trickier. There is not much to be done about the fact that in a market-oriented economy, firms will hire and fire workers. Nor is there much to be done about how the evolving age structure of the economy, or unexpected shifts in productivity, will affect the natural rate of unemployment for a time. However, as the example of high ongoing unemployment rates for many European countries illustrates, government policy clearly can affect the natural rate of unemployment that will persist even when GDP is growing.

When a government enacts policies that will affect workers or employers, it must examine how these policies will affect the information and incentives employees and employers have to seek each other out. For example, the government may have a role to play in helping some of the unemployed with job searches. The design of government programs that offer assistance to unemployed workers and protections to employed workers may need to be rethought so that they will not unduly discourage the supply of labor. Similarly, rules that make it difficult for businesses to begin or to expand may need to be redesigned so that they will not unduly discourage the demand for labor. The message is not that all laws affecting labor markets should be repealed, but only that when such laws are enacted, a society that cares about unemployment will need to consider the tradeoffs involved.

The mysterious case of the missing candidates

After reading the chapter you might think the current unemployment conundrum may be due to structural unemployment. Indeed, there is a mismatch between the skills employers are seeking and the skills the unemployed possess. But Peter Cappelli has a slightly different view on this—it is called the purple squirrel. The what?

In human resource parlance, a purple squirrel is a job candidate who is a perfect fit for all of the many different responsibilities of a position. A purple squirrel candidate could step into a multi-faceted position with no training and permit the firm to higher fewer people because the worker is so versatile. During the Great Recession, Human Resources (HR) positions were reduced. This means today’s hiring managers are drafting job descriptions and requirements without much, if any HR feedback. “It turns out it's typically the case that employers' requirements are crazy, they're not paying enough, or their applicant screening is so rigid that nobody gets through,” Cappelli stated in a 2012 Knowledge@Wharton interview about the findings in his book, Why Good People Can’t Find Jobs: Chasing After the Purple Squirrel . In short, managers are searching for “purple squirrels” when what they really need are just versatile workers. There really is not a shortage of “normal squirrels”—candidates who are versatile workers. The managers just cannot find them because their requirements, screening processes, and compensation will filter out all but the “purple” ones.

Key concepts and summary

The natural rate of unemployment is the rate of unemployment that would be caused by the economic, social, and political forces in the economy even when the economy is not in a recession. These factors include the frictional unemployment that occurs when people are put out of work for a time by the shifts of a dynamic and changing economy and any laws concerning conditions of hiring and firing have the undesired side effect of discouraging job formation. They also include structural unemployment, which occurs when demand shifts permanently away from a certain type of job skill.

Problems

As the baby boomer generation retires, what should happen to wages and employment? Can you show this graphically?

Got questions? Get instant answers now!

References

Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. Accessed March 6, 2015 http://data.bls.gov/timeseries/LNS14000000.

Cappelli, P. (20 June 2012). “Why Good People Can’t Get Jobs: Chasing After the Purple Squirrel.” http://knowledge.wharton.upenn.edu/article.cfm?articleid=3027.

Questions & Answers

it can can be described as when the demand is insufficient
Amaan Reply
high Dublin divino through Higginbotham
Shubham Reply
How does exchange rate affect the demand and supply?
austine
You mean demand and supply of currency ?
Jahangir
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Hann
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Jahangir
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Hann
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Jahangir
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Ogunsola
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Jahangir
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Ogunsola
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Mudassar
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Hann
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Mudassar
Ogunsola
are you help for your country of economy leavel
Mutha
hi
Hammed
Hello
Assan
hi
Pranshi
Hello
Kamal
hi
Pranshi
hi
Abbas
hi
Abdirazak
ki sah botine
Neyshawn
1.it allows producers to learn and invent 2.it allows agent to take advantage of economic scale 3.it allow agents to focus in areas of
oyebola Reply
can someone explain the motive of money to me?
Alemogho Reply
ask the question you don't know
ojo
opportunity cost
Sylvo
the motive of money is to pay for goods or services. it's also for transaction purposes bet it ordinary or unforseen
Silke
Money helps to reduce our scarcity problems. It can satisfy your wants to an extent
Okwori
How dose economics use science methods to explains it problems
Edmond Reply
according to Jhon Robinson the main problem of economics is what to produce? how to produce? whom to produce? economics tries to solve these problem scientifically by using its theories which are scientific in nature,basically micro and macro theories which just explain what the problem is...
Lavkesh
and now the solving techinique is also changed. only theories or its matematical +statistical version is not sufficient so the economist had developed Econometrics which includes economic theory+mathematical economics+statistics, for solving economic problem. This method treats economics as a pure
Lavkesh
..pure science so this technique is based on pure scientific methods.
Lavkesh
Economics is the scientific study of human behavior so there for science is used to solve economics problems using economics theories
Florence
economic is not higly subject of taminadu ...
Mutha
measurement of elasticity of demand
John Reply
Price elasticity of demand= Percentage change in quantity demanded/ Percentage change in price
Jale
For example, suppose that a 10 percent increase in the price of an ice-cream cone causes the amount of ice cream you buy to fall by 20 percent. We calculate your elasticity of demand as
Jale
Price elasticity of demand =20 percent /10 percent = 2
Jale
In this example, the elasticity is 2, reflecting that the change in the quantity demanded is proportionately twice as large as the change in the price.
Jale
what is economic
Samuel Reply
economics is a social science that studies the relationship of human behavior between ends and scare...
Lawrence
Why is economics as a subject is so important to human being?
austine
it's significant in study of managing available resources to satisfy human needs and wants
mohamed
economics is the science of wealth
Aamir
it is also said that it is the science of scarcity
Aamir
why study economic
Neo
Economic helps to meet our needs and wants nd to make choices.
Abraham
careers or jobs associated with economics
Neo
Economics is more than choices, scarcity, resources etc. It has a lot to do with psychology, social psychology. Understand motivation for consumer decisons.
TOM
okey
Neo
I what to study economic understand education what subject will I take in my jamb
DIRIOHA
English.mathematics.economics and one other social science subject
Ogunsola
economic is life start to end
Mutha
Plz help in lectures job for economics
Mudassar
acc to robbin . "Economics is a science that studies human behaviour as a relationship between scarce means and ends which have alternative uses"
Jahangir
Economics is important to man "human wants are insatiable
Hann
How does commercial banks create credit
Penda Reply
what is equilibrium price?
Stella Reply
happen when demand curve and supply curve meet
Enockz
intersection point of demand and supply curve
Sarjeel
the equilibrium price is that price at which the quantity demanded is equal to the quantity supplied... i.e the price at which what people want to buy is equal to what the sellers want to sell.
Che
what is difference between demand and quantity demand
Sarjeel
the price which is prevailing in the market ,it is the price at which the consumer is getting maximum satisfaction and the producer is getting maximum profit.
Rather
at equilibrium price demand for commodity is equal to supply of commodity..
Rather
dear sareel, quantity demand means the quantity of commodity which is demanded at a particular price e,g , your demand is for 4 oranges when price of orange is 5,, on the other hand demand means the whole quantity price relationship, quantity demand is shown on a particular point on demand curve,
Rather
sarjeel sbb, reply please...
Rather
what is elasticity of demand
Evans
what is Economics?
Ahmed
Economics can be defined as a social sciences that study human behavior as a relationship between end and scarce mean which have alternative use
Azeez
What is taxation
Azeez
economics is the study of scarcity
Suleiman
dear Suleiman how?
Enockz
economics is a subject matter that studies different economic activities as directed towards maximization of income at level of individual and maximization of social welfare at the level of society as a whole
Rather
economics studies us how to allocate scarce resources to full fill the maximum human wants as the resources have alternative uses..and r very scare to fullfill the human wants as the wants of humans are unlimited
Rather
demand is what a buyer is able and willing to buy at a specific price where by quantity demanded is amount of demand the buyer is able and willing to buy at a specific price.
daudi
thanks che..
Stella
how does commercial banks create credit
Penda
write models of Aggregate Supply?
abdi Reply
models of aggregate supply?
abdi
Then what's the law of elasticity?
austine
wat happen if money circulation failed to be controlled in any county?
Enockz Reply
the amount of money in circulation increases and cause aggregate demand to rise. Thus, hyperinflation.
Che
what's heteroscandacity
Crowther
price mechanism refers to the manner which price of goods and services affect the demand and supply of goods and services
Abaide
heteroscandacity: Is the circumstance where there is unequal variances across the observations.
Enockz
what is price mechanisms?
Che Reply
price mechanism refers to the manner which price of goods and services affect the demand and supply of goods and services
Abaide
what is demand
kabeer Reply
desire and ability to pay for a commodity is called demand.
Rather
i desire to become Prime Minister of India , is it demand ?please answer---
Rather
demand refers to the quantity demanded of a commodity that consumers are willing and able to buy at a particular price over a given period of time
Abigail
or the willingness power of a commoditythat is backed up by the ability to pay
Abigail
u r 100% right..
Rather
is ability to purchase a perticular goods at any price at a given time.
Neema
tanz Rather
Abigail
ur desire to become a prime minister of lndia is nt demand because u have nt made any efforts or willingness, it is called mere wish or lets say mere desire
Abigail
Thank you so much dear Abigail Mante for giving answer to my question..
Rather
U are welcome
Abigail
it's ok,dear..
Rather
The term ceteris paribus implies that
Oyelekan
Demand is the quantity demanded of a commodity at which a consumer is willing and able to purchase at various prices over a given period of time.
Suleman
ceteris parbus explains the law of demand,which states that at a higher price quantity demanded of a commodity is low and at a lower price quantity demanded of a commodity is high all other things being equal.
Abigail
U know right girl
Suleman
kk
Abigail
ceteris paribus is an economics terms used in situations where we considered other factors to remain unchanged
Ndeh
Thanks for the answer
Oyelekan
please how does disposable income affect demand?
Che
hell. somebody must tell me what is the meaning if cetrasparibus
Darling
plz. guys
Darling
the quantity of a commodity that a consumer ready willing and able to purchase at a particular price and in a particular period of time is known as demand
The
ceterusparibus means constant i,e,(other things do not change or other things remains constant)
Rather
wht
Bilal
right answer yawer saab
Sarjeel
things like what@Rather
Oyelekan
bilal sheikh why u has been written what
Sarjeel
e,g demand is determined by various factors like price of commodity, uses of good, expected changes in near future, nature of commodity , but when we learn price elasticity of demand , we keep other determinants of demand constant(i,e , we do not expect any change in price of good in near future,etc
Rather
i think u understand the term ceterus paribus..
Rather
bcz I can not understand
Bilal
what
Sarjeel
ok bro
Bilal
wht is other factors
Bilal
income of consumer, taste,
Sarjeel
Gold. Medlist in economics and. Lecturer of economics
HAZRAT
hello..what's are the factors affecting cross elasticity of demand.? at least five factors
Elzevery
The time it takes to get a product to market. That time limit has a name call "Just in Time."
William
thanks guys
kabeer
hey guys what is inelastic demand
Abaide
when there is no change in quantity demanded due to change in price then elasticity of demand is inelastic
Rather
Hi sucker how are you...
HAZRAT
thanks for the answer
Abaide
Any question about economics
HAZRAT
yes. what is the main cause of Heteroscedasticity
Abaide
hi
Habib
waht is elasticity of demand
Sarparah
elasticity of demand means change in quantity demanded divided by change in any of its determinent ,e,g , price ed= % change in quantity demanded/ % change in price.
Rather
elasticity of demand is the degree of responsiveness of quantity demanded of a commodity to a change in price of the commodity in question ,price of other related commodity n the consumers income
Abigail
yes
Kumako
ok
Abigail
guys what is monopoly
kabeer
A single seller in the market.
Tahir
what are the importance of economics
Eric Reply
what causes the demand curve to shift.
Stephen
other factors except price.it include test of a consumer fashen presence of substitute advatisment
Neema
factors other than price
Rather
Its helps to determine the price
Mavis
state three factors that affect demand and supply
VICENT Reply
1,price of the product 2,expectations in near future 3,uses of product
Rather
1.advertisement 2. expectation of future change in price 3.consumers income
Abigail
1.alternative products on market. 2.changes on price 3.consumer's expectations
Anusia

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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