OPEN ECONOMY MACROECONOMICS

A. The Source of the Article:

The Guardian is a British national daily newspaper founded in 1821 and published by
Guardian Media Group. Generally considered one of the United Kingdoms leading
newspapers. Officially a "centre-left, liberal" newspaper. Guardian since the twenties
has pursued exclusively cultural and journalistic goals and not commercial.
link:
http://www.theguardian.com/world/2013/jul/02/angela-merkel-youthunemployment-europe
date: Tuesday 2 July 2013
B. The Abstract of the Article:
Angela Merkel: youth unemployment is most pressing problem facing Europe
The article treats about the interview with German chancellor Angela Merkel in British newspapers
The Guardian. The topic is aimed at the problem of youth unemployment that, according to words of
German leader authority, is probably the most pressing problem that Europe is facing. She presented
the opinion that there is a real possibility that the young generation will end up worse off
materially, professionally and socially than their parents because of the evaporation of jobs in
Europe.
There is mentioned that at the first summit, connected with the solving a problem of youth
unemployment, European leaders earmarked an extra 6 billion Euros to tackles this problem. In
connection with this fact she also observed that it will be necessary to make intelligent reforms.
She promotes merits of Germanys dual system of schooling and work experience. Merkel urged other
states and governments to follow or to create very similar system which will be focused not only on
make people more academic but also on obtaining practical experience during education process. In
different countries there are also different industries which are successful, so she mentioned that
there could be also different ways how to successfully solve this problem in various Europeans
countries.
Merkel is supporter of idea of better labour mobility. She exhorted young people and employers to
become more flexible, calling for greater mobility in Europe which can help to erase differences and
barriers, such as for example language barrier. This is the way how Europe can compete with other
economies. Nowadays, in many areas where Europe used to dominate, it is competing with China,
India and with many other countries, because of the fact that the world is always changing and it is
necessary to be in step with improving and developing in various areas.
C. Questions:
1. Who are actors in the article?
German chancellor Angela Merkel, young people in European Union (under 25), all states of European
Union facing the problem of youth unemployment.

2. Which country and who is bearing economic consequences of processes,

developments or actions described in the article?
Young people in European Union under 25 those are not in employment, education or training, those
are unable to find jobs (almost 6 million), in general all countries in EU but especially countries from
southern Europe Greece, Spain, Portugal or Italy.
3. Which country and who and how is trying to achieve improvements for the target
group (which one)?
To deal with the problem there are summits of twenty European Union heads of government and of
all of the 28 labour ministers who tried to find out possible solutions. The article refers about the first
youth summit that was held in July in Berlin and the result of discussions was that Europe earmarked
an additional 6 billion to tackle with youth unemployment. Germany has tried and tested the dual
system, that means a mix of classroom learning and on-the-shop-floor work experience. Through this
way they are trying to inspire other countries facing the problem of high unemployment of young
people to improve and to develop the education system and to focus it more on apprenticeships and
not simply for academic study.
In the article Angela Merkel also pointed to the necessity of the fact to become more flexible, to call
for better labour mobility in Europe. However, the first option of every employer or country is to
employ the native skilled workers, sometimes the demand cannot be met only by labour from home
market. On the other side language barriers are often in the way of this mobility, that is why she was
also talking about opening of the Erasmus exchange programme to include vocational training.
4. Which part and which section of lecture and literature consulted does the article
refer to?
The article refers to lecture: The story of open economy macroeconomics from the European
perspective. It is connected with competitiveness between EU and the other big economies in the
world such as USA, Japan or China. Better labour and labour mobility also helps to better integrations
and together with development of technologies is the key to improve the position of European Union
between the biggest economies in the world.
5. How are issues and solutions preserved in the article discussed at lecture and in the
literature consulted?
Unemployment occurs when a person who is actively searching for employment is unable to find
work. Unemployment is often used as a measure of the health of the economy. The most frequently
cited measure of unemployment is the unemployment rate.
The unemployment rate is defined as the number of unemployed youth (typically 18-24 years) divided
by the youth labour force (employment + unemployment).
The unemployment rate is probably the best-known and most used labour market indicator. It
provides the broadest indicator of labour market performance. Specifically, the unemployment rate is
a measure of the inability of an economy to generate employment for those persons who are not
employed but are available and actively seeking work.

On lecture we discussed the situation of European Union in comparison with the USA and China in
facts and potentials through the function of Y =F (L(labour),K(capital),A(technology
development),E(environment),INT (integration)). China reached the best result and on the other side
European Union was the last one in this comparison. We discussed that EU could significantly improve
its position only in areas of technology development and in integration.
One of the reasons why the EU is behind its rivals is the heterogeneousness of European countries in
many fields. Very good example is an unemployment rate in various countries which is connected to
living standard of these countries. The most pressing problem in area of unemployment the Europe is
facing now is youth unemployment.
That is why it is necessary to find out the way for better integration. A possible concept to reach this
target is improvement of labour mobility. From literature we know that according to neoclassical
models, wage and unemployment differentials are the driving forces for labour mobility. The
liberalisation of labour mobility among regions will release a relocation of production factors among
regions marked by disparities in labour market conditions. Labour will move from low wage regions to
high wage areas. The relocation of production factors leads to declining disparities in factor
remuneration. According to traditional neoclassical approaches, there will be migration equilibrium if
wage disparities for workers with the same qualification have vanished between two regions A and B.
Thus integration will support the convergence of wage levels between regions if labour markets are
liberalised and border impediments decline.
Improved labour mobility is needed, because of increasing numbers of young unemployed people
gives rise to the so-called lost generation, that eventually will not be able to provide their life but also
they will gradually lose work habits, which this generation will not be able to pass to the followers.
This also endangers the future ability of European Union to compete with powerful economies in the
world.
6. Which is your personal critical comment on the article or on actors actions as
described in the article?
As was mentioned in article, to earmark money alone will not be enough. It will be necessary to make
an intelligent reform. Personally I agree with spreading the idea of Germanys model of dual system
of education as well as with the idea of better labour mobility. In my opinion, by opening up
opportunities beyond home countries, the European employment market offers young people
opportunities to find the right job. But the barriers to working abroad are still very high - especially for
18 to 25 years old. It is not always easy to move to a faraway country with a different language and
culture. And this is something that no amount of money from Brussels is likely to change.
7. What should be done so as to improve the situation presented in the article?
Here, Germany's highly regarded dual education and training system, in which apprentices continue
their education while gaining hands-on experience, could serve as a model. There are several ways
the money can be spent to fight youth unemployment. For example, it can be used to subsidize
employee wages or social-security costs. Start-up entrepreneurs could be supported with credits and
consultation. Or the money could be invested in better vocational training, an area in which some
countries are weak.