Labor markets and social security

John T. Addison and Paul J. J. Welfens highlight the shift in policy focus from inflation to unemployment in OECD countries during the 1990s, as unemployment rates surged, particularly affecting unskilled and young workers in continental EU nations. While the U.S. experienced low inflation and full employment in the late 1990s, the EU faced record unemployment despite low inflation levels. Since the 1980s, economists have increasingly recognized structural unemployment as a significant issue in Europe, with high labour costs—comprising wage and non-wage components—contributing to the problem. Many EU countries operate under a pay-as-you-go public pension system, leading to rising contribution rates during a period of declining young worker participation and increasing life expectancy. These non-wage costs are a crucial aspect of Europe's labour market challenges. Additionally, the dynamics of labour markets, including new entries, turnover, and changing employment characteristics, necessitate an exploration of other factors contributing to persistent unemployment. The situation remains critical for EU countries, which have seen few positive developments since 1975.