EU’s Persistent Joblessness : Structural Problems and Weak Labour Market Legislation

Written by | Friday, May 2nd, 2014
Prof. Joanna Tyrowicz

Exclusive Interview with Professor Joanna Tyrowicz (Senior Economist at National Bank of Poland)

EUBULLETIN has spoken to Professor Joanna Tyrowicz, a Senior Economist at the Polish National Bank, who has also worked with a number of prestigious universities and research institutes, including with Faculty of Economics at the University of Warsaw, Katholieke Universiteit Leuven, University of Warsaw, Columbia University, the Netherlands Institute for Advanced Studies and IZA in Bonn. On top of that, she also cooperates with the EU Commission (DG Employment) and the World Bank.
By virtue of being one of the top experts in labour economics, with an emphasis on Europe, Professor Tyrowicz has shared with EUBULLETIN her views on Europe’s inability to effectively decrease joblessness and promote job creation, while highlighting the most problematic parts of the EU’s labour market legislation and the lack of general economic recovery in both the EU and US.

EUBULLETIN: Europe’s southern economies like Spain or Greece are facing dangerously high joblessness with unemployment rate around 25 percent, while the average for the Eurozone has been approximately 12 percent since December last year. Why cannot Europe still effectively decrease joblessness and promote job creation?
J.Tyrowicz: Job creation depends largely on demand and clearly most of EU economies are not yet on a vivid growth path. I would not be as worried about the cyclical unemployment, as I would be about structural issues, including persistent difficulties in school-to-work transitions in many European countries, still low employment rates and the insufficient use of instruments facilitating work-life balance.
EUBULLETIN: Most of the unemployed are young people and fresh graduates. For instance, in Spain about 40 percent of the young are without a job. What could be done about it?
J.Tyrowicz: I am not sure if it is true that the majority of unemployed individuals are young. Indeed, the relatively high unemployment rates among young people are related to low participation rates due to increased tertiary enrolment. Also, there seems to persist a magical thinking about numbers, as if recessionary 40 percent was bad enough, but the regular 10-20% was not a problem to be addressed. In fact, when growth is lax and job creation lags, labour market entry remains a challenge for everyone. The real problem is the school-to-work transition, which – I believe – is a problem in all economies across the world.
Indeed, some countries seem to experience it less severely, but it is not that solutions that work well in Germany can be easily transferred to Italy or Spain, because production mix is different, and thus demand for skills has a different structure. Also, I guess that high and increasing tertiary enrolment implies redefining the role of education – it is not so much about employment per se, but becomes more of a way to fulfil aspirations in ways that would not inhibit future employment opportunities. Neither the solutions, nor the public debate have recognized this change yet.
EUBULLETIN: What are, in your opinion, the most problematic parts of the EU’s labour market legislation and why?
J.Tyrowicz: Being an economist, I tend to marginalise the role of legislation. Not because it does not matter, but because when there is a will, there usually is also a way. Each solution degenerates gradually and it is true for all legal arrangements as well. We have learnt that any asymmetry in legislation implies segmentation in practice. Yet, most stakeholders prefer fighting to promote new silver-bullet-type solutions to revising the previous ones and their continuous adaptation and improvement. There are few notable exceptions in Europe – e.g. the Netherlands – but usually a talk about labour market legislation is a shallow and evidence-less discussion among few poorly informed stakeholders, so I tend to leave it to them.
What we do need, though, is recognition that we cannot continue the same way. But that sort of recognition is fairly individual. Each firm separately needs to rethink what they would (prefer to) do should a new crisis arrive. Each person needs to rethink what alternative strategy for life would make them better off. High quality advice is indispensable, but the responsibility is and will continue to be ours.
EUBULLETIN: What European country has, in your view, the most efficient labour market and the related legislation?
J.Tyrowicz: If I were to choose one, I would obviously say: the Netherlands. Having said that, the unique set of solutions that works in the Netherlands cannot be mechanically replicated anywhere else. On top of this, the Dutch themselves recognize some of the adverse effects of the solutions they have been developing and will eventually work on refinements. If one wants perfect solutions, I am afraid they are only available in locations such as heaven, but even in such a case, odds are it doesn’t even exist.
EUBULLETIN: A lot has been discussed about the recovery from the recent and perhaps still ongoing crisis. It seems that the crisis is safely over in the United States while it is slowly coming towards the end in Europe. Do you think that the speed of the recovery between the US and the EU depends on some underlying differences between their respective labour markets?
J.Tyrowicz: US economy indeed seems to be on a recovery path, but the question on whether it is the same growth path remains open. More and more doubts persist in both theoretical literature and in policy debates. I believe it is really too early to discuss the speed of recovery and the recovery itself. Also, as much as there is no such “thing” as in the EU, there is also no such thing as a general recovery in the US. In many of the US states – as in the case of some EU countries – the level of GDP per capita remains short of the pre-crisis level, whereas the opposite is true for the unemployment. Also, the US is only now learning what the EU has known for a long time – the problem of inactivity also known as NEETs, i.e. people able to work, not in employment, education or training. All these topics will continue to shape the speed and form of recovery on both sides of the Atlantic.

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