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Here's an interesting perspective that argues that the type of welfare state a country has affects job growth (the article is 8 years old so the labor market stats may be somewhat different now):

European Distinctions

Fritz W. Scharpf
Boston Review
Summer 1997

. . . To compare the employment performance of two groups of countries the best available measure in my view is the "employment/population ratio." This ratio is defined by the number of persons actually working compared to the working-age population between 15 and 64. Taking the latest available OECD data for 1995, both groups of countries are quite heterogeneous.

  • The United States, it is true, is doing very well indeed, providing jobs for 73.5 percent of the working-age population. But the other members of that club (which is defined by flexible labor markets, low levels of welfare support, and great inequality) are not nearly as successful in employment terms--69 percent in Australia, 67.8 percent in the UK, and 67.7 percent in Canada.

  • On the other side, it is true that some European welfare states have still much lower employment/population ratios: 55.7 percent in Belgium, 59.5 percent in France, 64.3 percent in the Netherlands, 65.1 percent in Germany.

  • However, the European group also includes Sweden, with an employment level of 71.1. percent; Denmark, which at 73.4 percent practically equals the U.S. record; and Norway, which at 74 percent is even ahead of the United States in terms of employment. . . .

Moreover, it is precisely in these high-performing countries where the factors . . . that . . . should explain the European job deficit [are most manifest]: extremely high taxes, very generous welfare states, strong unions, and highly regulated labor markets.

So what gives? The answer is to be found in different structures of employment and in different types of generous welfare states. . . . High-employment countries are countries with a large number of jobs in service sectors that are sheltered from international competition. The most successful countries, however, seem to achieve their success in radically different ways:

  • In America, low levels of taxation, weak or nonexistent unions, and low or nonexistent social assistance allow large numbers of rich consumers to buy in the private market the services of large numbers of poor workers who must offer their services at very low wages. The unsolved American problem . . . is poverty.

  • In Scandinavia, by contrast, very high levels of taxation, strong unions, and generous social assistance have prevented the expansion of private services. High levels of employment are nevertheless achieved because Scandinavian-type welfare states are service-intensive, providing large numbers of public-service jobs in child care, education, health care, care for the elderly, and other social services--including jobs that do not require very high levels of formal training. The unsolved problem, as Sweden has found out in the 1990s, is taxpayer resistance that leads to large public-sector deficits and to an increasing need for fiscal retrenchment--which in turn explains rising levels of unemployment.

  • The continental welfare states, then, have the worst of both worlds: Public sector employment is as low in Germany as it is in the United States, and employment in private services is almost as low as it is in Sweden. The reason is straightforward: While taxes are not quite as high in Germany as in Sweden (but still much higher than in the United States), the welfare state is mainly financed through payroll taxes, rather than from the general tax revenue. At the same time, unions are strong and wage inequality is nearly as low as it is in the Scandinavian countries. Thus, private service jobs with low skill requirements (and low labor productivity) are as effectively priced out of the market as they are in Sweden. But in contrast to Scandinavia, continental welfare states are "transfer intensive," rather than "service intensive"--providing generous levels of income support in case of sickness, old age, disability, and unemployment, but not much in the way of child care, family, and social services. The result is a very low level of service employment, high taxes and welfare burdens that are rising as unemployment increases, and a growing underclass of welfare recipients without any realistic prospect of ever finding gainful employment.

Thus, we have . . . three [tracks]: American, Scandinavian, and continental European. All have their characteristic difficulties. . . .  
by TGeraghty on Wed Jun 22nd, 2005 at 02:54:44 AM EST
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