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Spain has the most serious and persistent unemployment problem in Europe, with an unemployment rate that reached 24.6 percent in early 1994. This paper explores the characteristics of this unemployment problem, its causes, and provides a brief discussion of recent labor market reform measures and their likely impact. A demographic shift in recent years has produced a large rise in female labor force participation and a decrease in agricultural jobs to which the economy has been unable to adjust. The effects of generous unemployment benefits and the large underground economy may explain 6-12 percentage points of the resulting unemployment, but the remainder must be explained by failures and rigidities in the labor market. The paper presents econometric evidence that unemployment displays hysteresis, and that wages are not responsive to changes in the unemployment rate. This evidence supports the claim that insider-outsider factors and rigidities in the legal structure of the labor market are responsible for much of the high unemployment rate. Recent reforms have improved the functioning of the labor market, but they are unlikely to be sufficient to reduce unemployment to single digit rates without further action.

This paper develops a matching model of the labor market under wage rigidity when hiring decisions are irreversible. There are two types of workers, the skilled and the unskilled. The model is used to analyze whether technological advances may have increased unemployment. It is shown that it is likely to be so if they are associated with an increase in the productivity and/or the supply of skilled workers relative to unskilled workers. These effects are stronger when hiring decisions are more irreversible.

The paper analyzes the wage-employment effects of replacing unemployment benefits by negative income taxes. It first surveys the major equity and efficiency effects of unemployment benefits versus negative income taxes, and summarizes the salient features of many European unemployment benefit systems in this light. Second, it presents a simple theoretical model that focuses on the relative wage-employment effects of unemployment benefits versus negative income taxes. Finally, it provides some empirical groundwork for assessing this relative effect.

This paper examines the potential contribution of unemployment hysteresis theories to the understanding of the Belgian labor market. It estimates models of wage determination using aggregate and firm-level panel data. Two main conclusions emerge: (i) the long-term unemployed do not exert a negative impact on wages; and (ii) there is some evidence that the incumbent workers, the \"insiders,\" exercise market power in wage determination, taking greater account of their own interests than those of the unemployed \"outsiders.\" In addition, it is argued that the automatic indexation of wages to prices in Belgium can cause a downward rigidity in real wages, given the multi-tier real wage bargaining process. Recent initiatives, including the introduction of a competitiveness norm for indexation, and labor market programs aimed at the long-term unemployed and the young, such as the \"plan d'accompagnement\" and the \"plan d'embauche des jeunes,\" are appropriate in view of the existence of insider power in wage determination.

The Greek unemployment rate rose from 2 percent in the 1960s to 9-10 percent in the 1990s. This reflected the increase in female participation rates, the slowdown in growth, the restructuring of production, and the increased mismatch between jobs and job seekers. But the most crucial factor was the persistence of real wage aspirations. The paper develops and tests a model that attributes this to the rapid expansion in the number of easy, life-time government jobs and the increase in the public/private wage differential during the 1980s.

This paper examines recent developments in the Canadian labor market. Using disaggregated labor market data, various hypotheses concerning the slow employment growth and rise in unemployment since 1990 are evaluated. The analysis indicates that a large part of the recent rise in the unemployment rate may reflect an increase in the structural rather than the cyclical component of unemployment. Various sources of labor market rigidities that may have contributed to the increase in structural unemployment are examined. In particular, the role of the unemployment insurance system in contributing to labor market rigidity and measures for reforming this system, including the recent proposals of the government, are discussed. Finally, this paper examines active labor market policies that could help to alleviate structural unemployment.

This paper argues that an important group of labor market policies are complementary in the sense that the effect of each policy is greater when implemented in conjunction with the other policies than in isolation. This may explain why the diverse, piecemeal labor market reforms in many European countries in recent years have had so little success in reducing unemployment. What is required instead is deeper labor market reforms across a broader range of complementary policies and institutions. To be politically feasible, these reforms must be combined with measures to address distributional issues.

This study assesses the potential for job creation through infrastructure investment in the Middle East and North Africa. The region has experience in making the most of infrastructure investments, but maintaining and spreading the momentum in infrastructure will be important to support future growth and job creation. To do so, policymakers will have to recognize that there are large differences in initial conditions across the region in terms of starting stock, needs, fiscal commitments, private sector participation and job creation potential. Overall, the region’s infrastructure needs through 2020 are quite large and estimated at about 106 billion dollars per year or 6.9 percent of the annual regional GDP. The differences in infrastructure and maintenance needs across sub-regions are also impressive, with developing oil exporters expected to require almost 11 percent of their GDP annually, while the oil importing countries and the GCC oil exporters expected to need approximately 6 and 5 percent of their GDP, respectively. Investment and rehabilitation needs are likely to be especially high in the electricity and transport sectors, particularly roads. Rehabilitation needs are expected to account for slightly more than half of total infrastructure needs. While oil exporters will be able to meet their national infrastructure needs if they maintain investment spending at rates prevailing in the 2000s, oil importers will fall short. The infrastructure sector has the potential to contribute to employment creation in MENA. The region could generate 2.0 million direct jobs and 2.5 million direct, indirect and induced infrastructure-related jobs just by meeting estimated, annual investment needs. However, the potential varies greatly across countries, and infrastructure alone will not resolve MENA’s unemployment problem. Going forward, decisions on what types of public spending to expand and what to downsize in order to achieve balanced budgets will have important implications for jobs. In designing country specific solutions, governments will have to tackle predictable challenges: the governance of job creation, the proper targeting and fiscal costs assessment of subsidies needed to create jobs, the design and fiscal costs of the (re)training programs needed and the expectations on the job creation effects of infrastructure.

Youth employment issues are a major concern for many countries because they have negative effects on the welfare of young people, and may also adversely affect economic performance and social stability. This is the first Independent Evaluation Group (IEG) evaluation of the World Bank Group's support to countries trying to address youth employment issues. The World Bank lending portfolio for youth employment is relatively small, although components of programs appear in 57 countries. Most projects include interventions in skills development and school-to-work transition. Half of the projects include interventions to foster job creation and work opportunities for youth. International Finance Corporation (IFC) has a broad approach to job creation. Between FY01 and FY11 youth employment has not been specifically targeted, except in the Middle East and North Africa region and in a small number of other interventions. IFC invested

This paper assesses the responsiveness of wages and labor force movements to employment shocks across British and U.S regions and across Europe using a multivariate vector autoregression technique. The paper finds inflexible real wages in all three areas in that each area's real wage responds very little to employment shocks. However, the response of the labor force to employment shocks is much greater in the United States compared to Europe. The strong labor force response in the United States prevents any persistence in relative regional unemployment rates whereas the lack of mobility in Europe results in persistent unemployment rate differentials across British regions and European nations. Europe must therefore adopt measures to reduce barriers to immobility if it is to succeed in moderating the persistence in relative unemployment rates.