EU: EUROPE ON THE MOVE - UNEMPLOYMENT. - But high social security benefits impede job creation.

Last Updated: 31 Aug 2010

But high social security benefits impede job creation.

Europe is on the move again, with activity across the Continent rising sharply in the first half of the year. An improvement in business confidence and orders indicates that recovery should continue, and most forecasters are looking for European growth to average 2% this year before accelerating to 2.5% in 1995. However, any such advance is not expected to make much impact on unemployment, which is forecast to rise further as companies use the increase in demand to take up the slack created by the recession, rather than to create new jobs. Pressures on productivity remain strong, particularly in Germany.

Overall, EU unemployment is expected to remain above 10% of the workforce, compared with 6% in the US and 3% in Japan. Against this background, unemployment will remain on the policy agenda says Schroder Economics, and governments are likely to focus on some of the structural differences between Europe and the rest of the world. The most striking of these is the tax and benefit system, where relatively high levels of social security contributions in Europe discourage employers from taking on workers, while more generous benefits reduce the attraction of paid employment (see chart). These differences help to account for Europe's poor record on job creation. One exception is the UK, which is closer to the US and Japan on tax and benefits. With UK unemployment running below the EU average, this may be one difference with the rest of Europe that the Chancellor will want to reinforce in his forthcoming budget.

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