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EU unemployment is a problem. | 70 comments (70 topical, editorial, 0 hidden)
Re: EU unemployment is a problem. (none / 0)
To find with what we need to do, we might start with what we know. What causes high unemployment?

A starting point is that most of western Europe had much less unemployment in the 60ies, almost non-existant if the elders around here are to be trusted. (Or was this the case in most of western Europe? It certainly was the case in Sweden, but then Sweden was a very wealthy country. Eastern europe had of course a much different economical system.) I am going to assume this starting point until someone shows me how wrong I am.

So we went from having low unemployment to high unemployment. If we understand this process should we not get closer to understanding how to reverse it?

A question pops up: Was the percentage working for a wage higher when unemployment was low (60ies) or do we today simply count more people as unemployed?

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by A swedish kind of death on Tue Mar 28th, 2006 at 10:14:14 AM EST
Re: EU unemployment is a problem. (none / 1)
The Blanchard document puts it down to the oil shocks combined with some other shocks: that's his pet theory. The idea, if I understand it properly from my skimming, is that the institutions were set-up for one world then the world changed and the institutions didn't adapt.

The key thing is that we don't really know what causes high unemployment. You can't really blame labour law except in combination with other factors, not all of which have been identified.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:21:12 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
It probably is important to examine participation rates. Instinctively I would assume that there are more people staying in the working arena around 65 than in the 60's (but I might be wrong about that.) I'd equally suspect that the number of women participating in the workforce has changed as well.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 10:27:03 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
Absolutely. I'm trying to get into the literature on this, at least superficially. I have a sense that you really need to look at a group of statistics rather than just one.

I'd nominate:

  1. Standard Unemployment rate. It's not a great measure but it's a start.
  2. Unemployment rate  + discouraged workers + underutilised workers (US BLS U-6) rate. This tells you something about the quality of the jobs as well as the
  3. Labour participation rate. Changes in this have to be related to the other measures. This can go down because people give up or because people don't need to work.
  4. Real wage levels: if unemployment seems low and real wage levels aren't rising something is probably wrong.
  5. Some mix of productivity rates and hours worked.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:33:28 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Yes, the oil shocks certainly coincides in time with the unemployment rise in most of western Europe.

In Sweden we had almost full employment and high inflation until 1990. Then we switched to low inflation high unemployment. This can of course be taken as an argument for that inverse relationship between inflation and unemployment theory (someone or another s curve), but my guess is other conclusions can also be drawn. However in the early 90ies in Sweden there was much talk about NAIRU - non-accelerating inflation rate of unemployment - suggesting that the rates were set to keep inflation down and thus unemployment up.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Mar 28th, 2006 at 10:51:43 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
In the 60s most women didn't work. They can't have been included in the unemployment numbers, otherwise they would be higher than the current ones.
by Wolke on Tue Mar 28th, 2006 at 10:21:50 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
No, they wouldn't count as they wouldn't have been looking for work.

You're generally counted as unemployed if you're available for and actively searching for work but don't have any.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:26:49 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Right, so a direct comparison of the unemployment rates is problematic.
by Wolke on Tue Mar 28th, 2006 at 10:29:24 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Why? Unemployment measures the number of people looking for work. If you mean that the labour participation has risen from (guessing) 45% to 70% that's true but not directly relevant. It's one factor certainly: there are far more people in work now than in the 60s.

Welcome aboard by the way,

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:36:17 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I have seen discussion of the dangers of comparing unemployment stats over time somewhere on the OECD or ILO site. I can't remember where ... I came across it searching for "discouraged workers" I think.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:25:49 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
See my post below, the article I cite is precisely about "discouraged workers" and what exactly they find discouraging.

Here it is again:

http://utip.gov.utexas.edu/abstract.html#UTIP25

by KB on Tue Mar 28th, 2006 at 08:01:59 PM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
I've only had time to scroll through it, but that looks like an interesting contribution to the discussion.

Examining regional data, Galbraith and Garcilazo found a correlation between wage inequality and unemployment. They also point to monetary considerations post-Maastricht as aggravating European unemployment.

Both points seem to me worth considering here.

Thanks for the link, KB.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Mar 29th, 2006 at 04:49:08 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I'd like to flag this (p. 12)
Targeted measures that provide pre-labor market opportunities for European youth would appear to help on the suppy-side (and may already be doing so). Such opportunities would enable young people to time their entry into paid employment so as to escape being tarred as either relatively unproductive, or as having started working life with a long stretch of unemployment. It may perhaps be noted that the United States does this very effectively, with hight levels of university enrollment, military enlistment — and unfortunately also incarceration — all targeted to keeping youth off the streets. As a result, youth unemployment is not (except for certain relatively small populations) nearly as serious a social problem as it is in Europe.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 04:58:26 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
I'm dubitative about that. How are college/military/prison (in the example of the US) to be considered as "pre-labor market opportunities"?

On that score, France (high student enrolment) would be doing better than the US (yet it has been suggested here that this may just be a way of masking youth unemployment).

OTOH, "pre-labor market opportunities" might be sought in two types of government intervention:

  1. creation of public-sector jobs for first-job seekers, giving them activity, an income, and experience over a sufficient length of time for it to count (the French programme, under the previous left government, gave these jobs a five-year duration);

  2. funding "alternating" systems of work and study to obtain professional qualifications. Particularly if the student is hired by a company that will receive payment to cover the loss of work during training periods/ or to cover training administered within the company by competent people. There is a French system of this kind that works quite well (though I haven't heard much about it since the right got back in in 2002...)
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Mar 29th, 2006 at 06:48:35 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
At least for Germany it was not common for mothers to work.
Other than that, I would say unemployment results from ever increasing productivity.
by Wolke on Tue Mar 28th, 2006 at 10:27:37 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
My mother certainly gave up work when she had children. In London.

Other than that, I would say unemployment results from ever increasing productivity.

Justify that please? I'm not sure it's true.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:37:05 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Well, I don't know that I want to be said to be arguing for the assertion, but it comes to mind that demand is quite limited:

a) There's only so many people on the Earth, so that's a limit to demand anyway.

b) In fact, lots of those people (e.g. parts of Africa, etc.) have next to no money, so they don't represent anything like the average level of demand for goods and services.

Thus, as productivity grows you can actually supply the needs of the entire interested world with less people. Effectively this is what has happened in the car industry. There are ongoing shakeouts because the viable market is saturated. Sure, there is a large potential market in China and India which could reverse this trend, but:

  1. They don't have any money right now, so at this point in time the trend holds.

  2. It's not a given that they will actually get hold of all that much money, is it?
by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 10:49:52 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I'll accept it as  a contributory factor without argument. Though it sounds like support for a 35hr week rather than anything else.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 10:52:08 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Well, absolutely, the problem is:

At the same time, the sheer cheapness of labour means many cannot make a satisfactory living out of a 35 hour week.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 10:57:21 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
But demand per person can increase. My parents demanded neither computers nor mp3-players.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Mar 28th, 2006 at 10:53:36 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
The other part of the theory is of course that demand shifts, so cars may be saturated, but other markets take over.

The problems there are:

a) Whilst "new" products and services are continually created, "old" ones are continually destroyed. It's not clear that the new ones are keeping up.

b) There is an employment mismatch. Old industries employed thousands of people. New industries are generally created to be more efficient from the get go, but that leaves an employment gap.

c) The concentration of capital means that a lot of "new" industries are in "personal services." There are mostly social, rather than economic problems with that, but the social problems at least cause "lag."

by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 10:55:45 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Productivity is only going to decrease hiring if businesses are not willing to invest in increased capacity in the given country, despite those productivity gains.  So it's difficult to say, one way or the other, that productivity produces a change in employment.  The problem is that, to answer that question properly, we would have to consider an untold number of factors.

The statement, in my opinion, can't be justified (nor can it be shot down).  It's not that productivity is independent of hiring.  A different way to look at it would be to say, "Well, my company's producitivity has jumped, so I can afford to hire more workers and produce more goods."  It's the investment decision that's going to determine the employment outcome.

I think we, in the West, are dealing with a period of uncertainty right now -- more so, perhaps, in America than anywhere else, but the effect is not lost on Europe, I suspect.  Productivity growth has been fairly strong in America over the last few years, but, as we all know, private-sector job growth has been a joke.

The reason productivity growth should lead to job growth is that it lowers costs, right?  But this is also coming at a time when there are tremendous opportunities in countries, like China, where lower wages can offset the lack of productivity.

I hope some of that made sense, because I'm about to fall asleep.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Mar 28th, 2006 at 04:47:44 PM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
Well, I'd connect it to TGeraghty's post on global over-capacity (relative to demand.) If the paper he refers to is correct and this is something that first turned up in the 1970s then the addition of strong-supply, weak-demand countries like India and China to the mix implies some big troubles if we don't take it inot account.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 02:50:26 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
But there are two sides to the story - supply (productivity), and demand (consumption, investment, exports, government spending).

If aggregate demand keeps up with productivity growth, you don't have an unemployment problem.

Part of the joint problems both the U.S. and European economy face is global industrial overcapacity -- productivity in the global economy is outrunning global demand.

In the U. S. this (along with political factors) shows up as a redistribution of income from wages to profits, slow-growing wages, and rising inequality. In Europe it shows up more as unemployment and insider/outsider problems.

That's why any left economic program has to have reform of international trade and financial institutions as part of it.

by TGeraghty on Tue Mar 28th, 2006 at 09:19:46 PM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
Exactly.

Of course, one complementary problem is that we're not sure the Earth can cope with giving everyone the ability to demand on the same level as US citizens.

The other question I have is that if the 1970s saw overcapacity coming out the fact that the US, Europe and Japan/Korea were all pumping out more goods than they could buy, doesn't this suggest there are major demand problems, even before you add China and India to the mix (who have much stronger supply than demand at the moment.)

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 02:48:25 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Yes, and yes.
by TGeraghty on Wed Mar 29th, 2006 at 02:51:16 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I believe the technical term for my reaction is:

Oh bugger.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 03:23:27 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
I guess I'm one of those "cornucopians" or whatever they call us -- I have faith that human ingenuity will allow those countries to maintain growing living standards without exhausting planetary resources.

It's not much more than faith, though.

It would help if the rich countries started thinking along the lines of qualitative growth. There really needs to be a whole ecological sustainability agenda integrated into all of this employment and growth stuff we've been talking about.

by TGeraghty on Wed Mar 29th, 2006 at 03:38:53 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I definitely agree about qualitative growth.

I guess the other thing we have to do is join up all your diaries into a platform and start pushing it at progressive political parties.

Interesting question, would you consider the deficit/credit fuelled US boom as an attempt to address the demand problem?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 03:48:38 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
We don't need even more demand in industrialized countries, but to raise the standard of living (and demand) in the third world.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 04:00:50 AM EST
[ Parent ]
Mmmphmm. (none / 0)
I know you mean well, and I agree, but it sounds... condescending somehow. "We" don't need to raise the standard of living in the third world for them - that's reaching back to imperialism. We want them to do it themselves - even if we don't agree how that turns out for us. Based on what I've heard from expats living there, at least in countries in the horn of Africa, humanitarian aid from the west is a politically exploited tool, and one that by enlarging the "pity factor" during a crisis stymies the motivation to independent development. Europe and the rest of the western world are their heart machine which kicks in action whenever the next best crisis looms - and it comes for free. Countries practically count on the hand that feeds.

The current drought in eastern Africa is different, but only a little.

by Nomad (Bjinse) on Wed Mar 29th, 2006 at 04:55:48 PM EST
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Re: Mmmphmm. (none / 0)
Right. I don't mean "we in the west" but "we all".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 05:05:28 PM EST
[ Parent ]
Re: Mmmphmm. (4.00 / 2)
Well, I've heard that view from some expats.

But, at the same time, they rarely back it up with proposals to stop the Western (government and corporate) stanglehold on the economies of said nations. Thus, whilst it sounds very righteous to say that these people are "spoiled by charity" it's not clear that any proposal for them to develop survival without charity is being made.

Amartya Sen said it best, the market mechanism for dealing with a food shortage is... starvation...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 05:07:59 PM EST
[ Parent ]
You too? (none / 0)
Perhaps we know the same expats, non?

And that's the crux of it, of course. Decoupling the humanitarian machine instantaneously means starvation - but not for the bastards with the gold teeth and in their palaces who keep plying the milk machine. Always the innocent first, assemble in lines of three.

But should "we" instead hand them the brilliant survival plan for the future? Isn't that similarly wrong as also here the tickling of motivation is completely absent? Part of the reason why products in communist countries were crappy because no one was motivated enough to do it right themselves...

What a fix.

by Nomad (Bjinse) on Wed Mar 29th, 2006 at 05:16:35 PM EST
[ Parent ]
Re: You too? (4.00 / 2)
Well, I agree that we cannot "hand them the plan." But there are things we can do:

a) Stop handing them the arsenic, as it were.

b) Set a good example, by implementing sensible rather than wingnut policies here (and indeed stop promoting wingnut ones through the IMF etc.)

c) Hand them the ideas, we are a think tank after all. I'd like EuroTrib to one day be the seed of AfricaTrib!

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 05:32:43 PM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Debt does have that effect, although it is a deeply perverse way to address the problem.

The US deficit is caused by the Bush tax cuts, which is part of the overall conservative strategy to redistribute income upward. The tax cuts do raise demand, but you could get bigger bang for the buck in other ways if that was your first priority.

I think the explosion in consumer debt is an attempt by households to maintain living standards in the face of incomes that are growing only slowly, or even shrinking in real terms. This does prop up demand, but it is not sustainable in the long run. Again, the root of the problem is political: slow wage and income growth, due to excessive corporate power brought about by the evisceration of institutions like labor unions and labor market regulations designed to ensure that workers get their fair share of the growing pie.

by TGeraghty on Wed Mar 29th, 2006 at 04:07:51 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Debt does have that effect, although it is a deeply perverse way to address the problem.
This ties in with rdf's diary credit = growth, to which DeAnander quipped that "credit" is just another word for debt.

Maybe you'd like to comment over there?

By the way, Drew owes me a diary on debt-based money and how it is [not] a perverse vay to run a monetary policy.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 04:13:29 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
Let me backtrack a bit.

I agree with Drew that debt is not necessarily perverse. At reasonable levels it is part of a well-functioning economic system.

What is perverse in the US is the level to which debt is substituting for sustainable growth in living standards from wages and incomes.

It's all a question of balance.

by TGeraghty on Wed Mar 29th, 2006 at 04:30:51 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
I mentioned it because I have the perception (perhaps wrong) that the modern right has been in the vanguard of disdain for acting on aggregate demand. ("Supply-siders" spring to mind of course.)

However, in power the Bush admin has acted in a different manner and I suppose I see a danger that they get a bit of it before a lot of the left does.

(This comes out of observing the renewed rise of a "fiscally responsible" left, which I worry has internalised too much of the supply-side nostrums.)

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 29th, 2006 at 06:49:10 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
The question is whether on not we'll be able to graduate to a Type I civilization.
Carl Sagan pointed out that the energy gaps between Kardashev's three types were so enormous that a finer gradation was needed to make the scheme more useful. A Type 1.1 civilization, for example, would be able to expend a maximum of 1017 watts on communications, a Type 2.3 could utilize 1029 watts, and so on. He estimated that, on this more discriminating scale, the human race would presently qualify as roughly a Type 0.7.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 03:58:40 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Compared to the 60s BOTH employment and unemployment are higher. The "inactive" population has shrunk.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 28th, 2006 at 10:54:09 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
That would have been my guess, but it is good to know.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Mar 28th, 2006 at 10:55:15 AM EST
[ Parent ]

EU unemployment is a problem. | 70 comments (70 topical, 0 editorial, 0 hidden)
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