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1. Supply side measures
When we wrote the "Manifesto",1 in 1998, the EU unemployment rate was about 10%, the employment rate (15-64 years) 61%. Since then labour market performance has gradually improved, even during the years of stagnation 2002-03. The total employment growth rate was 0.5% on average, and the European Commission forecasts a further 1% improvement for 2005. The total employment rate reached 64.5% in 2004.
Not so good was performance on the rate of unemployment, which sagged to a minimum value of 7.4% in 2001 but since began to rise again, reaching 9% in 2004. On the whole, we can safely say that the situation of the European labour market has improved, but not spectacularly. In any case, unemployment still remains the most serious and urgent problem facing the EU, exactly as the situation described in the 1998 "Manifesto".
According to Franco Modigliani, the "Manifesto" was written to suggest to European policy makers the best policies to fight unemployment. Not only the co-authors, but also all 46 eminent economists (some of them Nobel Prize-winners) who expressed their support for the ideas of the "Manifesto" agree that unemployment must be attacked on two fronts: through a broad spectrum of supply side policies and demand management policy. Expansion of the aggregate demand is necessary to increase both investment and employment.
"However, unless supply side measures are also taken, demand expansion can result in more inflation instead of more employment, because of the mismatch between the demand and supply of labor. What is important to stress is that both demand and supply side policies must be adopted together by all European countries, in order both to avoid beggar-my-neighbor problems, and, at the same time, to catch all the possible complementary effects of these policies" ("Manifesto", p. 361).
By 7 years after we published the "Manifesto", some of the policies suggested therein had been adopted in various European countries, some had not. Specifically, many of the supply side suggestions were followed by European governments. In Italy, two reforms were approved by the Parliament: the first was the 'Treu act', passed in 1997, which began to produce positive effects in 1998, and more recently we saw the 'Biagi act' come into force.2 Both reforms extended the possibilities...