Unemployment, the ‘new economy’ and EU economic performance

In this paper we review the recent performance of the European economy, focusing upon the Eurozone area, but also draw comparisons with the performance of the UK, US and other OECD economies. The prospects of recovery from the recent recession are considered and so too is the medium-term growth performance of the European economy. Two features of the European economy are likely to affect the future performance of the European economy. The first is the threat to economic performance of an inflexible, or inefficient, labour market. Unlike the US and the UK, many countries within the EU have suffered from persistently high unemployment rates, and so we consider the sources of this persistence. Also, since the UK is regarded as something of a ‘miracle’ with respect to its unemployment performance, we take a detailed look at the policies that have been introduced and evaluate their effectiveness. The econometric evidence on the causes of unemployment is also reviewed. Second, we examine the potential opportunities that the so-called ‘new economy’ may offer. Falling transport and communication costs and improvements in information and communication technology (ICT) could have a major positive effect on the growth of the European economy. These changes have led to claims of a so-called ‘new economy’, which may have social and political consequences as well as economic effects on the European economy. We therefore review the impact of the ICT sector on the Eurozone and other economies. In the next section we focus attention on the short and medium-term performance of the European economy. This provides the context for the next two sections. Section III analyses the European unemployment and labour market inflexibility problem, whereas Section IV reviews the impact of the ICT sector on GDP growth. Section V contains our concluding comments.