I Introduction

While the global financial crisis in was not solved completely, a debt crisis was brewing
in Europe, which is proved as devastating as the last one. Both of recessions has had
a heavy impact on labor market of Europe despite the considerable degree of cross-
country heterogeneity. This article analyses: 1) the impacts of the crisis as the whole
on European economy and labor market; 2) the labor market reforms and policy
measures in different countries and the success of the Hartz reform in Germany.
Besides the reforms related to labor market, Germany stimulated aggregate demand
by Cash for Clunkers program. Although Germanys reform can be a good example,
other countries should find suitable policies based on their institutional settings and
economic conditions.

II- Content
1. European economy after Great Recession
The global crisis hit Europe twice. The first began inside the United State in summer
of 2007 and then it spread to Europe rapidly and affected most countries in EU. The
Eurozone recession has been dated from the first quarter of 2008 to the second
quarter of 2009. And few years later, a second crisis erupted in the euro area. Years
of unsustainable government policies had caused deficits and debt burdens to
mushroom and bloated pre-crisis wages and housing prices.

The ongoing recession is thus likely to leave deep and long-lasting traces on economic
performance and
entail social
hardship of many
kinds. Since the
start of the
economic and
financial crisis in
2008, the
situation in euro
area labor
markets has
worsened dramatically, with a loss of almost 4 million jobs and a concomitant sizeable
increase in the unemployment rate, which reached 11.3% in July 2012.

Because of strongly affected by the financial market stress, Italy, Greece, Spain, Italy,
Cyrus, Portugal and Slovenia stand out as having seen particularly large and
persistent increases in their unemployment rates since the start of crisis. However,
there were four countries (Germany, Estonia, Ireland and Latvia) that their
unemployment rates were not changed or reduced after the second recession. In
Estonia, Latvia and Ireland, these declines reflect the increased spending on active
labor market polices on retain a reintegrate the unemployed. In Latvia, the declines is
the result of sharply cutting in public sector wages. In Germany, the ongoing
improvements to labor market flexibility leads them to reduce unemployment rates.

Besides, impacts of recession are different between sectors, demographics and

employment types.

In February 2009, The Economist claimed that the financial crisis had produced a
"manufacturing crisis", with the strongest declines in industrial production occurring in
export-based economies. Therefore, the decrease in global trade lead to the downturn
in the industry-dependent. In addition, the construction was hit by credit crunch. These
lead to the sharply decrease of employment rate in both industry and constructions
sectors. Meanwhile, the employment of market services and non-market services
were not changed much in stressed economies or increased slightly in other
economies of euro area.

Based on the statistic, the low-skilled workers and medium-skilled workers were
affected strongly with the continuously negative employment developments since
2009. Whereas, the employment of high-skilled workers kept on increasing despite of
the worst affected economies. Besides, the crisis affected strongly to the young
workers (aged under 25) and prime age workers (aged from 25 to 54), whereas the
older workers still increase slightly.
2. Labor market reforms and policy measures
2.1 Labor market reforms and policy measures adopted in Europe
Following the start of the crisis in 2008 policy measures focused on supporting
aggregate demand and boosted employment in Europe. There are remarkable
differences across euro area countries.

Measures taken to combat the crisis

On the supply side, countries aimed at improving the chances of matching process
between the unemployed and job vacancies, either by training for the unemployed or
by assisting them in searching jobs. Some countries offered in-work benefits. For
example, Austria provides wage subsidy programs for the young and long-term
unemployed.

On the demand side, a flexible response of wages to labor market conditions is a key
priority and short-time working (STW) was applied. Under these schemes, working
hours per employee are reduced. However, STW can put a heavy burden on public
finances. Although it is successful in mitigating employment losses in some countries
in the current crisis, it might hinder the reallocation of the labor force from declining
sectors towards growing ones if they are maintained for too long. Therefore, some
countries doubt about this policy. In order to improve profits for employers to hire
workers, some countries implements hiring subsidies or reducing non-wage labor
costs. Some countries introduce public work and investment programs.

Regarding to those countries under burden of high sovereign debt including Greece,
Ireland and Portugal, the reforms can be very comprehensive and welfare reforms,
public sector reforms and privatization programs. Moreover, in order to solve labor
market problems, it is extremely important to strengthen public budgets to provide
security for employees unemployed.

2.1 Labor market reforms and policy measures adopted in Germany

The labour market reforms introduced in Germany in the early 2000s (the Hartz
reforms) appear to constitute a good example of successful reforms contributing to a
better labor market performance in the current crisis. By the time the crisis affected
the German economy this new institutional reform was already in place, and was not
modified despite a massive decline in economic growth and rising unemployment in
2009. As it turned out, in 2010 the economy actually improved steadily and by early
2011 unemployment had fallen to a level below what is was prior to the crisis.
Moreover, while elsewhere in Europe unemployment climbed again in 2011, in
Germany employment continued to rise and unemployment to fall, reaching 5.5% in
October 2011.

Part of the labor market adjustment was achieved by reducing hours worked per
person employed or short-time working. STW accounted for 25% of decline in hours
worked per employed between 2008 and 2009. There are other ways of reducing
hours including: running down "time-saving accounts" (21%); working-time corridors,
job-preservation agreements, and similar arrangements (25%); and less overtime
(25%). Companies affected by lower demand adjusted the number of working hours
rather than dismissing workers, and investigated all possible alternatives before public
short-time working support was applied for.

Another part of the reforms is to provide allowance for non-work hours. Therefore, in
order to promote wage restraint, there are some measures including stricter sanctions
and monitoring, back-to-work incentives and promoting low paid part-time
employment (mini-jobs, midi-jobs, one-euro jobs). These reforms play a role in
maintaining employment level by reducing early retirement options and bringing more
chance for youth. For workers aged 55-64, the unemployment rate declined and the
employment rate rose during the crisis period.

Short-time working can be used for training subsidized by the Federal Employment
Office (BA). The BA covers social security contributions for reduced working hours, as
an incentive to encourage employers and employees to take advantage of training
opportunities during periods of non-work hours. This was one of several anti-crisis
measures to support employees qualification enhancement, partly to counteract an
anticipated lack of skilled labour and partly to foster firms competitiveness.

In order to fully reap the benefits of labor market reforms, they must also be
accompanied by wide-ranging product market reforms. One of the greatest reform in
Germany is cash for clunkers program, which aims at boosting auto sales, save
factory jobs and encourage people to replace gas-guzzling. Car holders willing to buy
a new car in exchange for their at least 9yearold car would receive a subsidy of
2,500. In total, 2 million cars have been bought under this program, which
corresponds to the limit of the subsidy (5 billion) while this sector had already suffered
from overcapacities for many years. Moreover, the program helps to offset a
catastrophic 40 percent decline in export sales and German automakers avoid major
layoffs.
http://www.spiegel.de/international/business/cash-for-clunkers-car-scrapping-plans-
germany-s-lessons-a-623362.html