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EU unemployment is a problem. | 70 comments (70 topical, editorial, 0 hidden)
Re: EU unemployment is a problem. (4.00 / 5)
Again, at the risk of shameless self-promotion, one of my old diaries summarizes the Blanchard paper in-depth.
by TGeraghty on Tue Mar 28th, 2006 at 11:00:42 AM EST
Re: EU unemployment is a problem. (none / 0)
So it does.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 11:01:31 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
These are some of the major points in a nutshell:

He makes the following points:

  • The roots of the European unemployment problem lie in the productivity slowdown and commodity price inflation of the 1970s.

  • The rise in unemployment led to changes in government policy to protect workers -- more employment protection and more generous unemployment insurance.

  • In the 1980s, the unemployment problem was compounded by declining business profits and investment, which reduced labor demand, and conflicts between "insiders" and "outsiders" in the labor market.

  • Most countries have partially reversed the labor market policy changes of the 1970s, but only partially, and sometimes with perverse consequences. European labor market institutions are still less employment friendly than they were prior to the 1970s.

  • National differences in institutions matter. Countries with well-developed institutions of social partnership, including centralized government-business-labor wage bargaining, seem to have done better than others.
by TGeraghty on Tue Mar 28th, 2006 at 11:02:17 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
He's fairly tentative about all of those conclusions though. This is work in progress, not fixed science. He has evidence to support his ideas but not anything approaching proof.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 11:06:59 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 3)
Well, yes, although the paper is mainly an analytical literature review, and the main body of the evidence would be in the references.

It's not like you are ever going to be able to "prove" these things to everybody's full satisfaction anyway. This is not rocket science. It's harder.

The question is, are the conclusions plausible, and can we make reasonably rational policy recommendations from them? I think so.

In fact, the policy recommendations he comes to -- basically coordinated expansionary fiscal, monetary, and incomes policy -- do not seem all that far off from what the Alternative Economic Policy for Europe people are arguing for.

Blanchard would add some job-friendly institutional reforms of employment regulations, unemployment insurance, and so forth.

It seems like these could be the seeds of a traditional European business-labor-government grand bargain that mobilizes the whole society to combat unemployment.

Business would get some regulatory relief and wage restraint; workers would get guarantees from the government to create more jobs with macroeconomic policy and public sector employment, and active labor market policy to ease insecurity caused by the deregulation.

All negotiated among the social partners rather than imposed from the top, of course.

by TGeraghty on Tue Mar 28th, 2006 at 11:21:03 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
It's not like you are ever going to be able to "prove" these things to everybody's full satisfaction anyway. This is not rocket science. It's harder.

Sorry, I try to be very careful to be precise about how reliable things like that are.

As for your other diary: I never read it properly as I wasn't well. My loss. I'll have to read it now.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 11:26:30 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
You're right to be precise. No need to apologize. Sorry if I sounded defensive.
by TGeraghty on Tue Mar 28th, 2006 at 11:44:32 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 1)
I'm afraid I consider that the lack of emphasis on the provisional nature of scientific and theoretical results when communicating with laymen to cause of a lot of the loss of confidence in science.

And now I'm taking a break: I cannot believe I just constructed that sentence.

by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 11:50:08 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
I think that's right. The media hype the latest paper in some field as if it were the final word on the issue (e.g. the "apples cause cancer" scare we had over here about 15 years ago) and people go nuts.
by TGeraghty on Tue Mar 28th, 2006 at 11:52:08 AM EST
[ Parent ]
*Wakes up* (none / 0)
What? I thought this was about economy and employment and stuff I generally don't chip in... You and Colman's magnificent sentence sound exactly how I feel when I pick apart the next untruths and baseless enlargements in (climate) science in the popular media. What just happened?
by Nomad (Bjinse) on Tue Mar 28th, 2006 at 06:23:56 PM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 3)
Reading the summary again, it seems as though there is an argument that standard of living is constrained by energy prices (since energy is the root of all raw materials.)

If that's the case, does this suggest we need to be looking at managed decline? Or just that we need to change some of our measurements to take energy better into account?

by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 11:06:44 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 3)
The start of the unemployment problem began with the energy crises of the 1970s, yes, but energy and resource prices played a far lesser role in the 1980s and 1990s.

Now, of course, those issues are back.

So I guess the answer is yes and no. Certainly resource supplies are a constraint on living standards, but the constraint is not always binding. Or, maybe it's better to say that the binding is looser at some times and tighter at others. Resource supplies, at least in the short term, were just not an issue in the 1980s (when oil prices fell well below their 1970s levels) and 1990s.

by TGeraghty on Tue Mar 28th, 2006 at 11:24:44 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
I guess the question I'm asking:

Will Blancahrd's recommendations head off the impact of the next oil shock?

Maybe I'm just too tired right now, but it's not clear to me that his ideas explain how to deal with an oil shock whilst it is happening, (rather than after it is done with) and yet everything Jerome posts points to an "expensive-energy" future at the moment.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Mar 28th, 2006 at 11:37:31 AM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 2)
If you could predict the consequences sure. We could act to adapt ourselves to the expected consequences. We might be wrong though.
by Colman (colman at eurotrib.com) on Tue Mar 28th, 2006 at 11:39:47 AM EST
[ Parent ]
Re: EU unemployment is a problem. (none / 0)
Exactly.

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 04:03:12 PM EST
[ Parent ]
Re: EU unemployment is a problem. (4.00 / 4)
With supply constraints the problem you tend to get is "stagflation" -- rising inflation and rising unemployment simultaneously.

One answer to this, as Blanchard points out, is that if one set of costs (say resource costs) are rising, other costs have to be stabilized if employment levels are to be preserved.

This can mean "incomes policy," where business, labor, and government get together to make sure that wage deals do not exacerbate inflation. Countries such as Germany that had this kind of system in place got through the 1970s better than countries that didn't, like Britain for example.

by TGeraghty on Tue Mar 28th, 2006 at 11:50:09 AM EST
[ Parent ]

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