The Unemployment Problems In European Countries Economics Essay

Unemployment is still an important problem faced by developed and developing countries. This paper aims to make an analysis of the unemployment problems in European countries by following the article of Gilles Saint-Paul, “Why European countries diverging in their unemployment experience?” and Turkey’s unemployment problems. It will deliver theoretical definitions but also some similarities between European and Turkish unemployment and labor reforms. Furthermore, it will try to reach a conclusion about possible solutions to unemployment problem.

Introduction

In order to understand and to have better view about unemployment we must first define some terms.

Employed

Labor Force

Population

Unemployed

Not Labor Force

As seen in the chart above the population (P) includes the labor force (LF) and the not labor force (NLF). The labor force includes the employed (E) and unemployed (UE).

So P = LF + NLF

So P = E + UE + NLF

It is not possible to find a common definition for the terms above since each country has its own definition. However, labor force is by definition the sum of people who are employed and people who are looking for a job. While countries have different terminologies, the results might be confusion and not fair. For example, assume that country A accounts its labor force of people between the ages of 15 and 60 and country B accounts it between the ages of 18 and 60.

15-18

18-60

E

UE

LF

LF part. rate

A

5

15

20

12

32

62,5%

B

5

15

15

12

28

53,57%

If we assume that both countries have the same about of workers, country B do not account workers of 15-18 ages in the labor force, hence country B has lower labor force participation rate and normally higher unemployment rate.

Article of Saint-Paul

According to Saint-Paul, European countries faced high unemployment rates during the last 30 years, however in the 1990’s some countries succeeded to reduce the unemployment rate such as United Kingdom but some countries could not do so such as Germany and France. He has written some potential explanations like the oil shocks in 1973-1974 and 1979-1980 that were followed by contractionary monetary policies. But he mentions more about labor market rigidities that are about the increased bargaining power of workers. As they bargaining power increased, workers have asked higher minimum wages, stricter unemployment protection and better unemployment benefits… In some countries workers had high unemployment benefits that discouraged workers to work. One of these benefits can be high unemployment wage. If we assume that the mentioned wage is set at a level which is exactly enough to live at a minimum standard, and if we recall McGregor’s X Theory which states that people do not really like to work, and if combine these two ideas the result will be high unemployment rate. I will use the following graph for the economic explanation.

Assume that Wm is the unemployment wage and W* the wage while working, I an indifference curve. At point B, the worker gets Wm amount with no work, so the worker has 16 hours of leisure, at point A, the worker gets W* but works 8 hours and has less leisure time. Both points are on the indifference curve, hence the worker is better off at point B. however this is only an example, it cannot be applied to a whole society but actually it is better for some people not to work and to survive with the minimum wage (here Wm) and to spend all time for leisure.

Saint-Paul tries to explain divergence in many areas. One of them is the currency, Euro. He affirms that there is a positive correlation between having Euro currency and high unemployment rate. That means that countries such as Denmark, Sweden and United Kingdom do not hold Euro and have low unemployment rate. Switzerland, which is not EU country, also has a lower unemployment rate. He also mentions about Latin and Anglo-Saxon countries, he says that Latin countries have more unemployment since it is more acceptable in Latin countries’ cultures.

TURKEY

Turkey has been dealing for long time with high unemployment rate. It is mentioned as social problem. The high unemployment rate has an important relation with the latest crisis. Even people with high education are unemployed, which makes the thesis harder to explain. But also the high unemployment rate is not only due to no job available but also to the fast population growth.

Even though the latest growth rate, Turkey still has high unemployment rate. However, the growth did not create new job opportunities. The following graph shows us the evolution of the labor force participation rate and the GDP growth. We can see that even if there is an increase in the GDP, the labor force participation rate pursues a stable declining continuation.

Historically

As it is known, during the beginning of the 20th century, the Ottoman Empire’s economy was based on agriculture which was productive that the production was exported. However after the First World War and Turkish Ä°ndependence War, the agriculture lands were destroyed. At the period of collapse of the Ottoman Empire, the productivity in industry increased due to the dependence on capitalist countries. Since the establishment of the Turkish Republic, the government could not find a solution for economic issues and Turkey could not find stable and strong solutions for unemployment. However there is no such government that could find a permanent solution.

From the graph and data above we can see that the total unemployment in the 1990’s was quite normal. After the crisis that happened in 2001, the unemployment rate reached more than 10% and was stable up to 2010. People with primary education have the highest unemployment rate but even if people have good education and knowledge are unemployed.

With the decisions of January 24, 1980, Turkey entered a new period and made structural changes. Turgut Ã-zal, Prime Minister Counselor, had to prepare an economic stability program that was announced on January 24, 1980. The program includes:

32,7% of devaluation of currency and change to daily currency,

The government has less effect on economy,

Subsidies were abolished,

Free foreign trade,

Low interest credits, exemption of custom duties to exports, etc…

Followed by these decisions, Turkey faced high unemployment during these years since Turkey has opened its borders to foreign investors. As factories have stopped operating, many people became unemployed.

These decisions targeted to make good relations between Turkish economy and foreign countries’ economies. Especially the banking sector has been targeted to make changes. Followed by the decision in 1989, the Turkish currency has been convertible. However the banking system was not ready for the convertibility of the currency. Turkish Central Bank and the secretariat of treasury failed to adopt a new system which led banks to seek for foreign currency and led to the crisis of 1994 that was the ground for the crisis in 2000-2001. At the basis, the reason of these crises was the failure and mismanage of financial system due to the freer economy market.

The global crisis of 2008 showed its effects in Turkey as well. We observed 14% of unemployment rate in 2009. We must bear in mind that this is only official unemployment rate that does not include unregistered unemployed. Even though the Turkish government insisted that the crisis was not so powerful, the negative effects of the crisis were felt in the middle and middle-lower classes. In order to boost the economy, many economists made a new campaign1 which targeted people to spend money in order to have money in circulation.

1 “Alın verin, ekonomiye can verin kampanyası”

Results

With the urbanization in the 1950’s the unemployment issue gain importance. As people started to move to big cities in order to find source of income, the supply of labor increased but the demand for labor remained the same which created a surplus of labor. One of the most important factor of the urbanization if the improvement of the technology that led to a lower labor demand in the agriculture. Agriculture become more capital intensive, thus the rural population faced unemployment and moved to big cities to find new marginal job opportunities. The female labor force participation rate declined as female population was more active in the rural areas and faced difficulties to find a job in the urban areas. These unemployed people that migrated from the rural to the urban areas have lower education background, skills and abilities which are also another reason for high unemployment in the urban regions of Turkey. So the education gained importance among the young population. However, being graduated from a university was not still enough to find a job. With the increased opportunities of education both in national and international lanes, some people made their choice in foreign countries. After accomplishing master and doctoral degrees most of them were not again able to find a job due to being over qualified. As a result Turkey faced a brain drain. The young unemployment issue might push people to commit crimes and push the crime rate higher.

Also, the unemployment insurance was not common in the past years. Hence not that many people benefited from it. If we assume that unemployment rises, unemployment insurance and benefits should be more common in order to prevent the negative effects on people and society mentioned above.

The globalization of Turkey changed some of the traditions. This includes the change of way of consumption. Prior to the globalization, people used to shop from small grocery shops which are now replaced by chain stores. Small shops, factories, firms are all replaced by bigger factories, importance of brand and so forth.

TEPAV, has suggested some possible solutions which includes the increase of labor demand by opening small workplaces, governmental support to those who want to work in their own business by giving monetary and policy supports. Non-monetary help and supports can be listed as job searching advisors and employment services. However it is also important for a country to move together to the solution, such case happened in Korea when the government opened data communication courses for 200.000 women but more than 10 million of women applied. There is also the importance of female labor force participation, females should be more active in the labor force. The increase in the culture of part time job in Turkey decreased slightly the unemployment rate.

Conclusion

Turkey has been learning from its history and tries to avoid possible problems and to find somehow solution for unemployment issue by making economic reforms in national and international areas. Turkey is member of many international economic organizations such as G-20, IMF, OECD, etc… As we know, the negative impacts of the 2008 crisis are still in force which led the Euro zone to a recession.

With its political force and foreign policies, Turkey has made huge contribution during 2012. Turkey was the term Chairmanship of the Black Sea Economic Cooperation (BSEC) and established some reforms that might boost the economy. These reforms include the abolishment of visa among BSEC member countries, customs union (facilitation of good transportation and laboratory analysis). With the abolishment of visa, people are freer to move but this might cause a brain drain with the export of skills and technology to other member countries but might increase the import of new skills and technology to Turkey that might create new job opportunities. Turkey’s main goal was to settle a free market economy such as the European Union. However the EU was an advisor to BSEC.

The revolts of people that started two years ago in Northern Africa and Middle East has made new dimensions in the relations of Turkey and those countries. These revolts affected Turkey’s international economic policies since there was an important trade volume with Arab countries.

At the national level, Turkey has established new reforms. With a decision made on June 30, 2012, each workplace and apartment should employ a labor safety expert and a doctor even if the workplace is being operated by only one worker. This reform targets to increase the employment but has brought some worries. The government announced to place a monetary support for firms that might not be able to employ the required labor. People think that the support will be insufficient and the physical conditions might not be supplied properly.

The unemployment problem has always been a serious problem for every country and none of the countries could find a fixed solution and could not decrease the unemployment to zero. Thus the target of Turkey should be to increase the labor force participation by supplying new job opportunities that will fulfill the skills and knowledge of the labor supply. After the Second World War, Japan has been specialized in the production of steel, maybe Turkey can specialize itself in the production of some specific sectors or production.