What model for Europe?

An unemployment rate of nearly 11 percent has plagued Western Europe generally and economists in particular in recent years. This book evaluates whether or in what degree Europe's extensive social welfare programs and strict employment laws stand in the way of a major improvement in the employment situation. It outlines a viable model for Europe that differs in important and desirable respects from the American model, containing carefully crafted reforms designed to preserve the fundamentals of the social security system that assures basic health, education, retirement, and income maintenance benefits. In a concise and readable fashion, the book summarizes the considerable recent work done on both sides of the Atlantic, comparing the key features of the European model of the welfare state with those of the United States and, to a lesser extent, Japan. It identifies what is good and bad in the European model and recommends an ambitious policy package designed to recreate a high employment society by the early 1990s. The author's goals include a reduction in unemployment from 11 percent to 5 percent and an increase in labor force participation from around 65 percent to 70 percent. The latter would alleviate increasingly severe financing problems for national pension schemes. Surprisingly, as many as 10 to 15 percent of the labor force has been prematurely retired or classified as "disabled" in several European countries in an effort to ease the unemployment problem. But this strategy, Emerson points out, has been counterproductive and needs to be reversed. The "self-financing" growth program Emerson proposes offsets massive social security tax cuts by a drastic reduction in transferpayments to people of working age, coupled with reforms to increase the flexibility of European labor markets. Michael Emerson is Director at the Directorate-General for Economic and Financial Affairs of the Commission of the European Communities in Brussels.