The UK and the Netherlands are often said to have a lower long-term unemployed figure because they shunt them off onto the disability benefit rolls.
Indeed, it is worth noting that anecdotally in areas of the North of England the labour market has simply peformed a social about face. Where once few women worked and most of the men did, the trend is reversed. I'm not sure how this magic is reflected in the figures.
Some also say that in the US the long-term unemployed are shunted into the black economy (and often, eventually into prison) when their benefits period ends.
It calls into question the facile appeals to the "Anglo-Saxon" model (whatever that means) as the only way to deal with unemployment. It might also mean that the "Dutch miracle" was not all it was cracked up to be (Jerome has argued that it also depended on a real estate bubble, now where have we heard that before).
But I don't think that necessarily invalidates anything that Blanchard says in his paper.
The shocks to the global economy of the 1970s - slow productivity growth, commodity price shocks, and I would add globalization and increased international competition to the list - were real, and they affected the whole world, not just Europe.
In the US , what happened was that the economic problems discredited Keynesian economics and much of the New Deal/Great Society industrial, labor and financial regulatory structure and social welfare programs. Especially those that helped the most marginalized people - the poor, the unemployed, etc. Something similar happened in Britain under Thatcher, but to a lesser extent than here in the US.
The result of the loss of these social supports has been more inequality and poverty in the US, but less of an unemployment problem. The economic problems are here (it's not like there aren't any "outsiders" in the US, for God's sake) they just show up differently than on the continent. There are more Walmart low-wage service jobs or black market jobs or prison cells for our socially excluded.
On the continent these things didn't happen so much, since labor is stronger and liberal ideology is much weaker there. So they have more protections for the poor and unemployed, and less poverty and inequality, but more unemployment.
Of course, the problem that remains is political.
"Unemployment" (long term unemployed listed in France or Germany) is seen as the terrible curse of sclerottic socialist states, whilst "poverty and inequality" (the US arrangement) are simply the necessity for functioning efficiently in a modern globalised economy.
Now having seen long-term unemployment close up I don't wish to sound like I am minimising it, but I am groping towards a conclusion (which I hope to diarise with reference to Jerome's diary on the Chinese labour force) that we have entered the fabled era of plenty.
Frankly, productivity has, as a whole, moved beyond consumer desire. You could quite convincingly supply the whole world (yes, including all the starving in Africa, etc.) with all the material goods they really have time to consume from pretty much the existing labour force in Asia and the US (for example).
Of course, in this case capital shortages perhaps merely reflect energy shortages.
Anyway, that is a long discussion point and there are lots of holes that need covering, so again, let's just say that given this possibility we need to realise that:
Given the possibility that our economic system massively undervalues services unless they are provided to the ultra-rich (e.g. no economic weight at all to a local community football club, whilst the Fillipino maid working at the CEO's wife is part of increased GDP) it should be realised that we may have a systematic inability to employ people. They will not be needed in manufacturing and we don't have the psychology/economics to be able to justify various non-material economic activities on a large scale.
Thus, arranging society to look after those who do not have the privilege of formal work is going to be an increasing concern.
This connects back to the question. Paying people to do nothing can be terrible for their morale and their mental health etc. Thus, it is not a good solution. However, I do have to question whether being stuck in genuine poverty, working in a semi-legal manner or going to prison are better ways of managing the problem of excess labour.
The scale of hidden long-term unemployment in the UK suggests the true unemployment rate is 7%-8%.
Incapacity or sickness benefit rates are also relatively high in a number of countries cited here as apparently successful in reducing unemployment, while they are low in countries generally considered to have failed. (See the diary I link to in previous paragraph for OECD figures).
I realize I may be adding yet another layer of blueness to ET faces by going back over this yet again, but it does seem to me:
I would reiterate that the shocks of the 1970s were real, and they affected the whole industrialized world. Different countries responded to them in different ways: Continental Europe by beefing up unemployment insurance and job protection, the US by partially dismantling the regulatory and welfare state.
In the US unemployment went up too, by the way - it averaged 7% during the 1980s through the early 1990s, compared maybe 4-5% during the 50s and 60s. Just not as much as in Europe, which enjoyed unemployment rates of 1-2% during the 50s and 60s. The shocks hit everybody.
As for the persistence mechanisms of the 1980s - the slowdown in investment is clearly something that happened, even in the US investment was far lower in the 1980s and early 1990s than it had been before.
The thing that the US (and the UK) has that France and Germany don't is a low-wage service sector that serves as "employer of last resort." This is one point that is also implicit in Blanchard's analysis.
Scandinavia has the large state-funded social service sector as its' employer of last resort.
Much of the continent has neither. Their welfare states emphasize income transfers rather than state provision of social services. The combination of high minimum wages, "tax wedge" and generous protection for the unemployed price low-skilled low-productivity service jobs out of the market.
So perhaps part of the solution is to remove labor market rigidities that prevent firms from offering and workers from taking low-wage jobs, but then compensate the workers through a "negative income tax" or "basic income" to bring their total incomes up to or beyond the poverty level (as Blanchard recommends).
As for the little "miracle countries" - Ireland, Nehterlands, Austria - they all have the centralized wahe bargaining institutions which allows them to hold down wages (usually in return for more generous state benefits. James Galbraith argues that these countries use these institutions to strategically undercut labor in bigger neighboring countries (the UK in the case of Ireland, or Germany in the case of Austria or the Netherlands).
