Open labor markets "more resilient" to crisis
The negative impact of the economic crisis on employment and earnings was smaller for countries with more open labor markets, according to a new report.
A European Commission review of employment and social policies shows that European Union (EU) member states which had reformed their labor markets and invested in human capital were more "resilient" during the economic crisis.
Structural reforms which reduced labor costs for low-skilled workers and young people proved to have a positive effect on job creation.
Countries which invested in early childhood education, such as Malta, Luxemburg, and the Netherlands, have also seen their employment rates significantly increase.
The report also cites comparatively resilient countries such as Denmark, Austria, and Sweden, which boast less segmented labor markets than other EU states. Unemployment benefits in these countries are widely available, and are responsive to economic signs.
The EU’s Commissioner for Employment, Social Affairs, Skills, and Labour Mobility Marianne Thyssen said: "This review finds that it is necessary to implement structural reforms as well as measures to support consumption and demand. We need further investment in people to even better educate, train, and activate Europeans for the labor market."
Edward P. Lazear discusses when structural economic reforms are necessary. He argues that unemployment policy during recessions should depend on the nature of the economic shock: cyclic recessions will respond well to monetary policies, but structural recessions need more detailed analysis to design targeted policies. However, this distinction is not always apparent while the recession is underway.
Meanwhile, Torben M. Andersen has written for us on the subject of unemployment insurance, stating that insurance generosity should be adjusted according to the business cycle. He advocates a flexible system which provides more generous insurance when unemployment is high, and less generous insurance in good economic times to incentivize job search.
Read more here.