Beyond Eurosclerosis

Europe no longer suffers from Eurosclerosis. Unemployment, notably long-term unemployment, decreased substantially in the last decade. And mobility across labour market states increased in those countries where unemployment has been falling the most. Institutional reforms – such as declining employment protection for new entrants in the labor market and less generous unemployment benefits – account for this sea change. Focusing on these reforms, we rationalize why EU workers, including those with permanent contracts, are increasingly unhappy about labour market conditions in spite of the disappearance of mass unemployment in Europe. Due to these perceptions, policy reversals cannot be ruled out. Governments wishing to minimize the risk of going back to Eurosclerosis should move towards flexicurity configurations, compensating workers for higher risks of job loss, and introduce tenure tracks to the labour market, preventing the development of dual labour market structures.