That means that there is less reason for Europeans to get off the dole and go back to work -- this has a detrimental impact on productivity.
Protectionism is higher in Europe. Europe averages higher import tariffs and non-tariff barriers in Europe than in the United States. As a result, protected industries from steel to agricultural products have less incentive to move productivity to world levels. (Stokes)
How can "traditional Europe" turn around these disadvantages and increase productivity? Some clues are given by Tony Blair and Margaret Thatcher's policies in Great Britain, and by Nicolas Sarkozy's current campaign for change in France. In both cases, there is a substantial impetus for change. Great Britain reduced top taxes and social welfare benefits in the 1980's, and the country now enjoys higher employment and per capita wages than the other countries studied here.
France has a significant problem with some of the highest government burdens in Europe. Over 50% of GDP goes to the State in the form of direct and indirect taxes. As a result of this high social welfare spending, France is lagging other major countries in productivity growth. Sarkozy is pulling France back from the 35-hour work week, retirement at age 50 for some public workers (transport, coal mining) and attempting to reduce top income tax rates. This will be a wrenching change for France, but the cure should improve the country's overall chances of increasing growth.
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