Euro-zone governments should slash labour taxes to cut unemployment queues and reform labour markets to ensure ageing populations do not dent living standards, according to European Commission studies released yesterday.

One study said a one percentage point rise in labour taxes led to an increase of about 0.3 percentage point in structural unemployment with increases in such taxes since 1970 accounting for nearly half of the rise in long-term unemployment.

"This study gives support to the view that lowering labour taxes can help to reduce unemployment in continental Europe," the Commission said.

The study comes at a time when the euro-zone jobless rate is at a three-year high of 8.7 per cent and the ability of Germany and France, the trading bloc's two biggest economies, to cut taxes is limited by the need to rein in budget deficits that have broken European Union limits.

A separate study focused on the significant economic and financial market effects of ageing populations in the European Union, the Commission said.

"The study stresses that if current policies do not change, and especially if labour market reforms are not rapidly and systematically introduced, then the countries affected will experience a very sharp downturn in the growth of their living standards and in their underlying potential growth rates."

It said the paper therefore urged governments to press on with structural reforms and warned that pension reforms were no substitute for labour market reforms.

France is currently forging ahead with controversial reforms of the country's creaking pensions systems in the face of planned union protests. - (Reuters)