Essay Question: On West European Unemployment
Overview
The concept of the natural1 rate of unemployment has been influential in macroeconomics for about 40 years. At the end of the 1960s, Friedman and Phelps broke with Keynesian orthodoxy and argued that government efforts to keep unemployment below the natural rate by aggregate demand management would be ineffective in the longer term. Their ideas, and the concept of a natural rate of unemployment in particular, played a major role in shifting policy-makers towards thinking about the treatment of the unemployed and job-seekers in general, for instance by promoting ?active labour market policies? (see 1994 OECD Jobs Strategy and OECD 2006).
Your essay should (1) outline the textbook explanation of unemployment and what determines the natural rate of unemployment. (2) illustrate any long-standing international differences in unemployment rates and related statistics among countries of the region, and (3) explain the main policy variables that are considered to determine these long-standing international differences.
One obvious possibility is to try to understand the argument that, as The Economist put it last week (True Progressivism, October 13), Europe?s labour laws create inequality (by excluding the unemployed from work). See Blanchard, section 9.3 as a starting point. Possible title: ?Is it true that Europe more stringent employment protection create higher unemployment??