Squandering European labour: Social safety nets in times of economic turbulence

This paper reviews the argument that high long-term unemployment in Europe is caused by generous social safety nets in times of economic turbulence, W e report on the empirical evidence of a move turbulent economic environment and present the theoretical arguments that establish a link between turbul ence and high unemployment. We conclude that a cure to the European unemplo yment problem must entail a reform of the unemployment insurance system so that benefits decline over the unemployment spell. If the social consensus in Europe makes it difficult to implement declining benefits, we suggest th at a complementary way of providing incentives for the unemployed would be to reduce their leisure by imposing work requirements.