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What's really wrong with the Eurozone labour market?

by Colman Tue Jun 21st, 2005 at 10:28:48 AM EST

There is a lot of talk about the Eurozone economy being too inefficient, too inflexible and too expensive, and how wonderful everything would be if only we would all reform our economies to something much closer to the ideal US globalised model of no worker protection, no welfare or health system and no regulation of any sort.


I can't pretend to understand how much of the criticism aimed at the Eurozone is realistic and how much is ideological propaganda. Much of the coverage of the debate assumes the conventional wisdom that the Euro economies are bad without really explaining what the problem is meant to be and how to fix it.

One of the things I'd like to see EuroTrib do is to tease out these issues in the hope of coming to some sort of realistic view of the choices facing the continent, shorn of ideology where possible and making clear where ideological choices are being made.

My first question: what's so bad about the Eurozone labour market? What makes it inflexible, and how should it be reformed?

Display:
Links and references appreciated: I'm willing to do my homework on this one.
by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 10:29:59 AM EST
Is the main problem with each individual country?  Or is it the general policies of the EU that are causing such "problems" that may or may not exist?
by Meandering Fox on Tue Jun 21st, 2005 at 11:28:08 AM EST
If I knew that ...

It seems that both EU policies and individual countrys' policies are blamed.

by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 01:09:05 PM EST
[ Parent ]
The unemployment problem varies considerably between, and even within, European countries.

At the continental level, the "Big 4" countries - France, Germany, Italy, Spain - all have high unemployment rates in the range of 9 to 10 percent or more.

Smaller economies - Scandinavia, the Netherlands, Austria, Switzerland - have much lower unemployment rates, typically around 5%, as good or better than the US. These countries all have extensive welfare states and social protections, which is one reason why you can't just point to labor market "overregulation" or welfare states "run amok" as the sole cause of Europe's economic problems.

Going back to the big 4, where most of Europe's unemployment problem exists, even there conditions can vary within countries. In Italy, for example, the underdeveloped south has unemployment rates on the order of 20%, while the industrialized north does much better (5% or so unemployment). In Germany, the ex-communist east has an unemployment rate above 20%, while the west's is a more reasonable but still high 8% or so.

by TGeraghty on Tue Jun 21st, 2005 at 04:42:43 PM EST
[ Parent ]
I can't pretend to understand how much of the criticism aimed at the Eurozone is realistic and how much is ideological propaganda.

I can help a little on this - these are the things I studied in pursuit of a MS in Mfg Systems... but frankly we didn't do a lot of benchmarking against Euro Zone companies... but rather against Asian firms... especially Japan & Toyota.

If I were you... before I got to involved in the minutia... I'd do a little background reading... here are a few I'd start with:

The Machine That Changed the World

And the follow up...

Lean Thinking

And if that isn't enough - go right to the source...

Toyota production System

Once you read some of this then you'll be pretty well inoculated against the propaganda... Otherwise it will be a bit like trying to read a budget without knowing anything about accounting...

BTW - I think Europe could have the most productive labor force in the world with a few minor tweaks... I've even though about relocating over there to be a part of it... that was until the recent bru-ha-ha...

I'll look for you postings as always.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Tue Jun 21st, 2005 at 12:47:52 PM EST
What's the key thing I'd learn from those books? The Amazon listings don't make their relevance clear to me, which I assume is due to my cluelessness here.
by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 01:08:12 PM EST
[ Parent ]
You'll learn what a modern work force is supposed to look like... how a modern factory is supposed to run.

Toyota revolutionized it 30-40 years ago and now those same principles are EVERYWHERE. That was the basic discovery of 'The Machine That Changed The World'... that the Japanese didn't have a monopoly on good practices... rather they could be found in North America, Europe, Asia... but they all had certain things in common... they coined the term 'lean practices' to describe them. And lean doesn't mean give them the mushroom treatment... keep them in the dark, feed them shit... Many of the 'lean plants' have the highest wages in the manufacturing world... they are so productive they can afford to pay them and still remain profitable... Toyota City in Japan is the poster child for this.

And the principles are spreading into offices too... My wife just went to a seminar on 'lean practices' in the office environment... basically the Toyota system projected into the services side... she isn't big on 'buzz words' but was shocked how much sense it made... almost too much for a large company.

Once you understand what good practices are then looking at regs & policy that 'fix' labor woes makes sense... until then it is like adjusting the thermostat and not being able to feel the temperature.

That was my point.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Tue Jun 21st, 2005 at 01:45:31 PM EST
[ Parent ]
I thought that was what you were getting at, but I wasn't quite sure.

Thanks.

by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 02:31:09 PM EST
[ Parent ]
...check this out:

http://www.lean.org/

Read some of their stuff... this is a 'non-profit' founded by the guy who wrote 'The Machine That Changed The World'... to be honest, I think it is a 'pseudo' non-profit... in that while the dot-org makes no money, they do as consultants...

Regardless they describe the basic workings of a modern well run factory & office... and it won't be that hard to get European mfg & workforce up to speed... all the basics are in place... just a little tweaking.

Supposedly one of the guys on their board is from the UK... this guy... I bet he would do an interview... they all love publicity.

Good luck on your effort... I can hardly wait to see the propaganda debunked!

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Tue Jun 21st, 2005 at 02:24:33 PM EST
[ Parent ]
Certainly in Germany when people talk about the labor market being inflexible what they mean is that people are less willing to pull up stakes and move. But is this a bad thing? Certainly not from a social point of view.

As regards costs, die Zeit has recently published several articles contrasting how Germany and the Scandinavian countries finance social benefits. Germany finances these primarily through wage deductions and matching employer contributions, whereas Scandinavia pays for these through high personal income taxes and VAT rates. The result is that German social benefits represent a 42% surcharge on wages. Meanwhile, unemployment in Denmark and Sweden is running around 5.5%.


The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Tue Jun 21st, 2005 at 12:51:35 PM EST
How do the total costs of employment compare? If I employ a programmer in Germany, does it cost me 42% more than in Scandinavia?
by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 01:10:27 PM EST
[ Parent ]
Yes and no. You have to turn the question round and ask what return you would get from providing the programming service if you located in Germany compared to say Denmark (there are reasons for this choice by the way)

Without have the Die Zeit figures and an explanation avaiable I will have to give generalised answers. Taking the post at face value, if direct taxes on employemnt and the overhead caused by social provisions in Germany total 42%, what is the comparable figure for Denmark and what is included in the calculation? Or is the German figure 42% greater than the equivalent in Denmark - a rather different statement.

Apart from that you have missed two important factors. While tax on the employer is lower, taxes on the employee are higher to partly make up the funds necessary to pay for the social provisions. Indirect taxes (VAT) are also higher to provide the other part of the equation. The difference between the countries are listed here but if you look up the rates you will see Germans pay VAT at 7% on food and 16% for other goods and services compared to 25% for both in Denmark. The employee therefore pays far more for their living expenses and higher direct taxes from their pay packet. The implication of this is that to attain the same real buying power, the Danish worker would expect to be receive a higher basic rate of pay.

The extra VAT also affects the amount the business would receive from selling its services. For a simple comparison this is often referred to as a "purchase tax" when explaining it to Americans. As alluded to earlier, the tax is paid on all goods and servicess. Not explained is that the amount collected is offset by the amount already paid out. So if in Denmark you buy an item for 100 Euro and sell it for 300 Euro, you pay over 25% of the diffence of 200 Euro, hence "value added".

This is where the returns question comes back into play with your example. Programming is a high value added industry, if only because it is heavily dependent on labour costs. In either country you would have to pay VAT on a very high proportion of the final charge however the rate is much higher in Denamrk. So whereas in Denmark you might expect to hand over say 20% of the  contract charge as VAT, in Germany it would be nearer 12%.

So in summation, as an employer your would hand over more in direct taxes on the wages you pay in Germany but in Denmark you would have to pay your employees more and hand over more in indirect tazes. While you are deciding, you may want to employ someone in a Baltic state or Slovakia where there are still much lower wages (for the moment) and some very highly skilled workers.
 

by Londonbear on Tue Jun 21st, 2005 at 03:03:57 PM EST
[ Parent ]
The most recent die Zeit article on the subject is here.

Here is a brief excerpt that I think frames the issue fairly well (xlation m.o.):

In fact, for some time now, experts have distinguished between three different models for national social systems:


  • the Anglo-Saxon model, in which the state organizes large portions of the society such as education and health through private means and social security is restricted to preventing destitution;

  • the continental European model, in which a large portion of social benefits is financed through contribution payments from employers and their employees rather than taxes;

  • the Scandinavian model, in which the welfare state is financed primarily through taxes and self-employed and marginally employed persons are also entitled to comprehensive social benefits.



The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Wed Jun 22nd, 2005 at 02:30:02 AM EST
[ Parent ]
...they do so at their peril.

"On the Internet, nobody knows you're a dog." - Peter Steiner
by dryfly (jjwhodat at hotmail dot com) on Wed Jun 22nd, 2005 at 08:10:24 AM EST
[ Parent ]
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
[ Parent ]
this is a topic that I intend to address regularly, but I have done only partial research so far.

There are a number of questions:

  • wealth vs inequality (or growth of average vs growth of median - for a number of statistics);

  • tax levels - this is one of the usual things associated with the (sclerotic) "European model", but can be quite separate from the issue of labor flexibility;

  • unemployment vs total workforce employment (i.e. the proportion of people in a given age category that work);

  • total hours worked vs total number of workers (part time schemes, number of jobs per person, etc)

  • procedures to fire people.

It's important to distinguish them, but it's hard to get started!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 21st, 2005 at 01:00:50 PM EST
It is vital, which is why I'm interested. I don't believe that a lot of the propaganda is justified, but there's no point throwing it all out since there clearly are real problems in the Eurozone.

It seems essential to the free-market ideologues that the EU model is discredited, and the entrenched power groups in the EU are going to fight even necessary changes tooth and nail. Finding anything resembling the truth of the matter seems like an interesting job.

by Colman (colman at eurotrib.com) on Tue Jun 21st, 2005 at 01:14:39 PM EST
[ Parent ]
I hope that I have enough credibility as a critic of the French and other European systems to be heard when I say what works or not. We'll see...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 21st, 2005 at 01:41:20 PM EST
[ Parent ]


The surest sign that intelligent life exists elsewhere in the universe is that it has never tried to contact us. -- Calvin and Hobbes
by SteveK on Tue Jun 21st, 2005 at 11:18:28 PM EST
[ Parent ]
The mainstream economics view of what's wrong with the European economy and labor market probably goes something like this, courtesy of Brad DeLong:

The European Dilemma

  • Some of slow European growth should be attributed to slow population growth. Not all . . .

  • A failure to take advantage of opportunities opened by I[nformation] T[echnology].

  • Central banks believe that macroeconomic stimulus without structural reform will lead to inflation.

  • National governments believe that structural reform without macroeconomic stimulus will worsen the plight of the unemployed

  • Without macroeconomic stimulus, the demand will not exist to justify heavy investments in IT

  • Without structural reform, investments in IT will not be followed by the reconfigurations of the workforce needed to turn IT investment into a productivity booster.

So we have three interrelated problems:

  1. Slow population and labor force growth;
  2. Labor market overregulation that dulls firm incentives to hire and invest;
  3. Excessively tight monetary policy.

The first point is pretty obvious; the second and third are subject to some debate.

For example, the ECB cut short-term interest rates in 2001 and 2002-03, but they are still about the same as those in the US (in an economy that is growing more slowly), and if you also include long-term rates and the appreciating (until recently) Euro, monetary conditions are tighter in Europe now than they were 5 or 6 years ago, and tighter than in the U.S. (PDF link):

The other point, about overregulated labor markets, probably has some validity, although the evidence for it is not necessarily all that strong (PDF link), so I think it is also overemphasized. Certainly Europe does not have to abandon its' social model or the welfare state, Thatcher-style, to set things right, as many Anglo-American and/or business commentators would have us believe.

by TGeraghty on Tue Jun 21st, 2005 at 02:31:01 PM EST
Your comments flag an important issue: the political leadership and the central bank must trust each other. In Europe, they obviously don't, the result of German mistrust of the "Club Med" countries, and Bundesbank taking its revenge on Kohl's (erroneous, with hindsight) decision to peg the ost mark to the Deutschemark after reunification.

Clinton/Rubin is a great example of an executive and a central bank working together to create favorable economic conditions. Chirac/Trichet is the exact opposite, leading to the chicken and egg pointed out by De Long.

That said, I don't really see how Europe's interest rates, at 2% with 2% inflation, can be seen in any way as tight. The ECB has been subject to an unimaginable amount of criticism, often contradictory (coming from the anglo-saxon business press and the London traders on one side and the unreconstructed French marxists and other assorted lefties and populists on the other), which in my view shows that they have been mostly right.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 21st, 2005 at 02:44:17 PM EST
[ Parent ]
Rubin actually spent his years in the Clinton Administration as the Deputy Secretary (#2) and then as the Secretary of the Treasury Department.  In that role, he was the executive's interface with the Central Bank.

IMHO, the reason why Rubin was effective is that he came from Wall Street and could explain U.S. policy to the financial and trading communities.  Since that's the community that the Federal Reserve tries to send its messages to with its rate changes, there was good balance.

It's been bizarre watching the tail wag the dog in the Bush Administration.  Greenspan has been twisting himself into a pretzel to justify the executive's irresponsible macroeconomic policies (huge tax cuts with huge deficits), while Bush's Treasury people have no understanding of how to talk traderspeak.
by Hoya90 (hoya90jmk-at-yahoo-dot-com) on Tue Jun 21st, 2005 at 03:09:27 PM EST
[ Parent ]
On the one hand, zero real short-term interest rates is pretty loose monetary policy, as you say.

But, if you compare Europe to the US, monetary conditions are much tighter in Europe, even though economic growth is slower there. Of course monetary conditions are extraordinarily loose over here in the US for any number of reasons -- low long-term rates, dollar depreciation, capital inflows from the rest of the world.

So it's not clear that's the right standard.

Notice though, that the ECB refi rate is still about 1/4 point above the "Taylor Rule" level:

Taylor's rule is a formula developed by Stanford economist John Taylor. It was designed to provide "recommendations" for how a central bank like the Federal Reserve should set short-term interest rates as economic conditions change to achieve both its short-run goal for stabilizing the economy and its long-run goal for inflation.

Specifically, the rule states that the "real" short-term interest rate (that is, the interest rate adjusted for inflation) should be determined according to three factors: (1) where actual inflation is relative to the targeted level that the Fed wishes to achieve, (2) how far economic activity is above or below its "full employment" level, and (3) what the level of the short-term interest rate is that would be consistent with full employment.

The rule "recommends" a relatively high interest rate (that is, a "tight" monetary policy) when inflation is above its target or when the economy is above its full employment level, and a relatively low interest rate ("easy" monetary policy) in the opposite situations.

So perhaps there is a bit more room for the ECB to reduce short-term rates, but they are not far from where we should expect them to be.

If you want to stimulate European growth to get the economy closer to full employment, however, maybe you have to be more aggressive than normal.

You could say the same thing with respect to fiscal policy: the big continental economies are all running pretty large budget deficits, but only half as large as the current US deficit, so you could argue either that it would be imprudent to increase deficits further, or that if you are really interested in spurring growth you may need to be more aggressive with tax cuts and spending increases than you might otherwise be.

It really is a dilemma, though, any way you look at it.

by TGeraghty on Tue Jun 21st, 2005 at 04:28:14 PM EST
[ Parent ]
Certainly Europe does not have to abandon its' social model or the welfare state, Thatcher-style, to set things right, as many Anglo-American and/or business commentators would have us believe.

I agree. I've worked with EU firms that export to the US... from what I saw there were very few 'social burdens'... but a number of the firms didn't have all the systems in place they should have (IT being only one and not the most important in my opinion)... to take full advantage of the typically better educated and experienced workforce you have in the western part of the EU... Eastern Europe might be a bit different...

If there is a 'structural flaw' in the European macro-model it might be the distrust between labor & management (probably earned over the years)... From what I saw it was much more adversarial than I see in most US work forces.

Now having said that - I didn't get to tour the European factories... just met a number of folks who came over to the states to work with me... and of course hundreds of conversations on the phone. But I doubt my impressions are that far off base... You could sense it in conversations with the higher ups & the lower downs... there was a lot of tension.

Another thing about the 'propaganda'... managers run the plants & offices, 'workers' do not... if the plants & offices don't 'perform'... managers get their heads whacked... that is unless they can find a suitable scape goat... Now, they can't blame their superiors (the Directors & stockholders)... and they can't blame the customers... they can't even blame the suppliers, though that is often given a try (hard to make that stick since mgmt selects the suppliers)... So who to blame?

Government & labor... the two groups that can't or won't bark back. Fat easy targets...

I think Coleman will find A LOT of evidence that this kind of blame game is going on in Europe... and that there aren't as many problems with labor as there are problems with ineffective & incompetent management just like over here in the NAFTA Zone...

JMHO...

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Tue Jun 21st, 2005 at 03:02:09 PM EST
[ Parent ]
not knowing anything about macro-economics, just wanted to chime in and rehash a lingustic prejudice.  Germans f.e are considered rude in their normal conversations, while Americans are always considered to be more friendly. In Germany, in my experience, that has nothing to do with how you view your superior on a personal level. These two levels can be quite seperate.

Next linguistic prejudice: Germans are famed for voicing negative aspects (critical voicing) and an extensive moan-culture.

It would be interesting to compare levels of mobbing - to get a grip on worker satisfaction. Also, the retention of employement is much greater, at least in Germany as the first poster states, that would at least anecdotally contradict your assumption, that being critical or moany automatically means not wanting to be in that place, quite the contrary.

Where you able to speak with your European collegues in their language?  

by PeWi on Wed Jun 22nd, 2005 at 05:49:45 AM EST
[ Parent ]
Language... interesting, I should have thought of that... might be.

One of the companies was British with operations on the continent as well... The Brits ran it and I spoke with them in English.

The other company I had a lot of conversations with  had multiple plants in Europe sprinkled about... both West & East... But my contact was almost entirely with Germans and I do not speak German at all... a little French but no German. So we spoke English.

The funny thing is the Brits were the ones that whined the most to me about their superiors & underlings... there was a lot of tension. But they mostly did what our customers asked after a lot of complaining about how it will raise hell in the factory.

The Germans didn't complain to me much... they held their cards pretty close. When asked to do something difficult they just bluntly said my request couldn't be done a certain way due to 'internal resistance' and wouldn't comment further. I learned later that my requests were the equivalent of the handgrenade in the board room... but I didn't learn that until later.

I am not saying that the US doesn't have similar issues - just not as pronounced... at least not here in the Midwestern & Western part of the US where I call on accounts... Maybe in the Eastern US where things are more 'formal' and more 'socially structured'... but it is so hard to say based on my limited anacdotal evidence.

Good point PeWi...

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Wed Jun 22nd, 2005 at 08:28:49 AM EST
[ Parent ]
Thanks dryfly.

bluntly, very good. hehe. {Beavis sound effect}

One of my favorite German words is: Betriebsklimaforschung. That was the field Theodore Wiesengrund Adorno was working in as a sociologist the States before returning to Germany. Not that I ever read anything by him from that time. I just like the word.

It is certainly an interesting world. The rigidity of the German personal sphere can also be seen in Du and Sie. It can sometimes be years before you call someone by his/her first name and even then, you might still call them with the more formal Sie. That has nothing to do with class or even familiarity, but with social distance. It is more a sign of respect for the other person personal life.
My father knew people for over thirty years. He married their daughters, baptized their children, buried their fathers, visited for birthdays; in other words knew them intimately and still, it would be the furthest on his mind to call them by their first names.

There are even ceremonies, that celebrate the shedding of the Sie. Auf Bruderschaft/ Schwesternschaft trinken. (involves Alcohol and the inter-twining of arms)

by PeWi on Wed Jun 22nd, 2005 at 12:06:49 PM EST
[ Parent ]
I'm not an economist so I don't have any facts to back this up, but it is quite clear that worker geographic mobility in the US is very high. Most people have moved, either "out west" to try California, or "down south" to try Atlanta or North Carolina or Florida, or "back east" to check out NYC or Boston. I would guess that around 90% of retirees move--practically nobody lives in the same house for a long time. And when we move, it's not just down the street it's across the country.

And I think that this is a big problem for Europe, because the language and social barriers make it harder to move. It would be interesting to compare the fraction of "foreigners" in a theoretical federal Europe to that of "out-of-staters" in the US.

by asdf on Tue Jun 21st, 2005 at 04:24:53 PM EST
That's a good point, but I would add that the high geographic mobility of Americans relative to Europeans is a long-standing phenomenon, whereas Europe's unemployment problem really only dates from the early 1980s. Before that European unemployment rates had actually been lower than those in the US since World War II.

So, unless there was a big increase in immobility of European labor since 1980, it can't be the whole answer.

It could be, though, that labor immobility is interacting with something else (some aspect of globalization?) that keeps unemployment high.

by TGeraghty on Tue Jun 21st, 2005 at 04:57:43 PM EST
[ Parent ]
My own impression is that the "labor mobility" tht used to be the feature of the US economy you describe, it is rapidly becoming only prevalent within professional and white collar workers. In this respect, the minimal unemployed worker protection and welfare benefits for the low paid are much more likely to have a more stationary effec because they are state based.

Again, while your observation of the situation in Europe may have been true in the past, the situation is turning  round, even more so with the new accession countries. Movement to cover shortages of skills is now happening, despite the attempts by some countries to restrict it. The postition should speed up considerably once the transitional arrangements for the east in some of the more protectionist markets expire. Remember the scare figure in the recent French referendum debates was the "Polish plumber", shorthand for these newly available skilled workers.

The UK fully applied the freedom of movement and work provisions from May last year, with the exception of welfare benefits. I have seen this have immediate effect as the block I live in used a contractor employing (wethink) Hungarian painters. The new digital aerial (antenna) system is being installed by contractors from Portugal who are gaining experience here so that they can get contracts for similar work back home.  

by Londonbear on Tue Jun 21st, 2005 at 04:58:08 PM EST
[ Parent ]
(which I don't necessarily subscribe to) is that:

  • Difficulties in the firing process make companies hesitant to hire and bloats payrolls with unproductive employees.
  • High payroll taxes make employees much more expensive than their take-home pay indicates.
  • High levels of holiday and vacation time, along with shorter work weeks in many countries, makes workers are less productive and thus overhead higher.
  • More and higher bureaucratic obstacles to business creation, plant expansion, and other actions reduces new activity.
  • Generally high marginal taxes reduce the incentive to work.

Of course, they never seem to mention good things like:

  • National health care systems that keep workers healthy and relieve employers of having to administer health care benefits.
  • Relatively good primary and secondary school systems means that workers can be productive with only a secondary education.

The Economist frequently cites the Netherlands as a model - strong safety net plus workplace flexibility results in the low unemployment in that country.  I doubt the formula is that simple, nor the reality on the ground uniformly wonderful.

(Note: This all from vague memories of many articles, so I could be misrepresenting their line.)

by Tom DC in VA on Tue Jun 21st, 2005 at 05:11:36 PM EST
.
There are some major points of concern:

  • Poor political leadership in EU Council and lack of common policy
  • Level of education in Europe deteriorating
  • Disconnect between education, job opportunities and qualification
  • Liberalization of markets - energy, water resources and public transport - is near catastrophic
  • Cost involved to introduce the Euro was carried by the consumer, plus a general product price increase
  • Job creation does not come from the large multinational corporations, with their fiscal benefits and usually no national taxes paid
  • Middle-class small business creates the jobs and sustains economic growth. Need less red-tape and administration rules from EU and national government
  • Absence of EU policy on asylum seekers and general immigration of highly qualified workers from outside the EU countries
  • West-German debt created to unite East-Germany greatly underestimated

All of mainland Europe is paying the price for East-European Freedom after the fall of communism in 1989, and rapid offer of EU membership. Great Britain has set the mark for taking care of its own, reaping the benefits, but lacking solidarity with the other Euro zone countries. Very frustrating when the larger EU nations: Germany, France and Italy not having its own economic house in order and fail to meet the standards agreed upon when Euro treaty was signed just a few years ago.

Too much change all at once, causes uncertainty by business and consumers, effects fiscal and social welfare law in each nation. Creates instability and enough mistrust for investment and hiring labor to be postponed.

In the Netherlands, the education system and methods are in continuous state of upheaval. The skilled labor education has been abolished, so a great need to import skilled workers from East-European nations, with large groups of Dutch citizens, often the 2nd and 3rd generation of Turks and Moroccan descent, hit by high unemployment. In the mean time, many standards set to meet minimum skills when starting one's own business has also been abolished, creating a wild-west of poor performance and cheating on contracts with the consumer as victim.

CONCLUSION: Poor leadership all around, lack of responsibility, reaping the benefits but lack solidarity with poor nations. The benefits for the large corporations and the people with less power: the employees and consumer paying the bill of EU expansion. A very unsatisfactory mark for the EU anno domine 2005.

USA WELCOME: Make Yourself Known @BooMan Tribune and add some cheers!

by Oui on Wed Jun 22nd, 2005 at 12:38:18 AM EST
The most common factor of labour is Employment Ratio. This has been rising in EU for last decade.

Most of the lament comes from Germany where Employment ratio has fallen (65.8->65.5)while most of the happy happy joy joy talk comes from Spain (57.7->60.9) and Italy (54.8->57.6) where job growth has been robust. Overall EU employment has been rising too (EU25 with 62.9->63.3 ,EU15 with 64.1->64.8) (All numbers 2001 to 2004) However, the growth of this increase has not been satisfactory to many and subsequently there is plenty of nervousness of job situation.

EU laws do make switching job between countries easier but few people want to learn new culture and language to work there. Meanwhile main responsibility inside each country rests firmly on shoulders of particular nation.

by Nikita on Wed Jun 22nd, 2005 at 02:24:41 AM EST
A great discussion all, thank you...and, I admit, a bit over my head...I'm not so knowledgeable in this area (yet), though consider me listening and learning. But where I do go with this discussion, is in a personal direction, and hope it isn't too off topic: I recently immigrated to Europe (Switzerland) from the US, and what I'm finding in this transition is incredibly interesting, but also challenging. The US is so much younger as a country than the European collective, yet it has one language, and one political system, which has allowed it to evolve as a system. And for better or (mostly) worse, the US had the history of "its mine if I take it" history ("Manifest Destiny"). But it has had, what, 231 years to evolve its system as one political/economic system. Here, every big and little country has its own language(s), culture, history, political system, economy, labor system, etc., etc. And it has been trying (nobly, I'd say) to organize into a united states for, what? 15 years or so? That is such a short time to try and accomplish the kinds of changes that are being contemplated. Progress is being made, but there is so much...state "personality"...that has to be dealt with in ths process. In looking at all this, I do wonder, what is the single labor model that the EU has been contemplating? Does that system has something for everyone? Is that something that can be worked with? I'm trying to fit this conversation into something I can grasp and understand...so pardon me, if its off the topic....but real curious if anyone has something to say on this.

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Wed Jun 22nd, 2005 at 11:24:37 AM EST
You bring interesting perspective with your questions. I think we are all wrestling with many of them. Hopefully more discussions here will help - so do join us with you "naive" questions which are not really so naive and go to the core of what "Europe" is.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jun 22nd, 2005 at 01:17:48 PM EST
[ Parent ]
growing unity in europe feels really good, but there is the dual worry of first the fact that we are perceived as 'fortress europe', especially in italy, surrounded by seas and a very porous coastline, making it difficult to police compassionately, and secondly that peak oil is still not being prepared for nearly intelligently enough.

vested interests are apparently slowing down passage of tax write-offs for solar panels.

with italy having so much sunshine, it's a disgrace that italians are dying in iraq for oil, and having to buy electricity from neighbours.

the south is rife with organised crime, practically ungovernable and a corrupt sinkhole for money, creating fodder for northern demagogues like bossi to prate.

most people i know here feel the economy to be poorer since the euro, stats notwithstanding.

still, with vivid memories of post war misery in everyones' families, the boom years have not changed old ways that much, especially compared to overindustrialised britain, where urbanisation is choking quality of life, even with higher employment, and modernisation in general has turned its worm much more deeply.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Jun 22nd, 2005 at 04:48:39 PM EST
Here's a short piece on employment, contrasting France and the UK. It's from the left-leaning French economics monthly Alternatives Economiques. No link, I'm afraid, their articles aren't on line. Copyright is obviously theirs. The translation is mine, so disclaimer: I'm not an economist.

Hardly a day goes by without its elogy of the British employment model. Indeed, the British jobless rate of 4.6% (2nd quarter 2004) is enough to make the French dream. Ten years ago, in 1994, the two countries showed similar, poor performance: 12% for France, 9.7% for the UK. So France should be red-faced today.

Not so sure. Over the same ten years, the number of jobs in the UK increased by 11%. In France, by... 14%. That's because of a rise in the number of government employees, reply the free-marketers. Well, no, because the UK is clear ahead of France in this race: since 1997, 45% of newly-created jobs (861,000 out of a total of 1.92 million), are public-sector, while in France, the number of new non-private-sector jobs (including public sector plus ONGs, trade unions, religious bodies) increased by 300,000 during the same period. Doctors, teachers, policemen, nurses... These are the jobs that have been created on the other side of the Channel. <snip> Not surprising, since public services were particularly badly treated by the ultra-free-market governments of the '80s and '90s.

If job creation in France has been superior, how come the unemployment level remains stuck so high, while it keeps going down in Britain? Quite simply because of the increase in the active (working-age) population. The number of job-seekers rose by 12% in France over ten years, as against 6% in the UK. So France needs to create two jobs to Britain's one to bring the unemployment statistics down.

But to confess that a rise in active population might have an effect on unemployment goes against the fundamental free-market assertion: all candidates on the job market will find a job... unless prevented by government interference (minimum wage, constraints on firing, high unemployment benefits).

Denis Clerc, Alternatives Economiques, n° 235, April 2005

This is only a snippet from a long article on employment, with particular reference to France, though there's a similar snippet on the case of Denmark. I'm willing to translate if Colman or anyone else thinks it's worthwhile. Alternatives Economiques can be subscribed to or bought by number at www.alternatives-economiques.fr

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 23rd, 2005 at 12:11:51 AM EST
Thank you very much for that. I'd love to read a quick summary of it in English, but I wouldn't dare ask you to do it.
by Colman (colman at eurotrib.com) on Thu Jun 23rd, 2005 at 01:07:46 AM EST
[ Parent ]
I'd like to look at the full article too, but there's no need to translate if it's possible to "make the original available" without violating copyright laws (even other substantial chunks would be of interest).

I really love this kind of "hard-fact-based" analysis.

Hannah K. O'Luthon

by Hannah K OLuthon on Thu Jun 23rd, 2005 at 02:53:23 AM EST
[ Parent ]
Making the original available is almost the same work for me, since I've got it on paper and would have to type chunks out.

I'll try and do this a bit at a time and post what I've done in this diary.

Wish Alter Eco were on line...

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 23rd, 2005 at 03:28:06 AM EST
[ Parent ]
Just do a quick summary of the key points. Please don't spend too much time on it!
by Colman (colman at eurotrib.com) on Thu Jun 23rd, 2005 at 03:29:34 AM EST
[ Parent ]
Given the presence of only a hard copy, I second Colman's suggestion to just hit the high points. So far it's excellent.

Hannah K. O'Luthon
by Hannah K OLuthon on Thu Jun 23rd, 2005 at 04:21:02 AM EST
[ Parent ]
OK. I'll keep it short but it's densely-argued and I may end up missing a good deal, also there are graphs I can't post because my scanner's knackered, so bear with me. Comments in italics are mine.

The piece, titled Unemployment: what needs to be done, is entirely by Denis Clerc. The lead mentions the symbolic level of 10% unemployment which France has reached, despite slightly improved results elsewhere in the Eurozone.

The bad French figures for 2003 and 2004 happened this way: there was a surge of new jobs between 1997 and 2002, due to the law on the 35 hour working week, which obliged businesses to hire in return for employer contribution reductions and wage increase moderation. 2.06 million full-time jobs were created. But productivity gains over this five-year period were 3.5%, while total wages (wages + employer contributions) rose by 5%. Businesses therefore had a shortfall to make up.

This they did once the 35-hr transition period was over (and a new gov't created a more favourable environment for them to do so). They stopped hiring in 2003 (low-growth year) and intensified (ie invested in productivity-rich equipment, IT, etc, rather than extensifying by creating jobs) in 2004 (better-growth year). They also sat down hard on wage increases (real wages dropped very slightly). With the result that French businesses have now more than made up for the 35-hr shortfall, and saw considerably increased profits in 2004.

What now? (What is to be done? as someone asked)

On GDP growth, skies are grey. Gov't can't do much beyond tweaks here and there to improve purchasing power (increase earned income tax credit, in particular), and encourage investment (possible given increased company profits).

Bringing the euro down => increased export competivity (this has happened since the article was written).

Stimulate "job-rich" activities in the service sector. Particularly following the Scandinavian model of municipally-organized services (child-minding, looking after the elderly, etc), where employees have real, stable positions rather than the current French model of subsidizing unstable part-time employment (akin to old-fashioned domestic service).

Not a good idea to reduce payroll taxes on low wages -- this has been done a great deal over the years with the result that businesses tend to keep employees down in a low-wage trap.

The present gov't did away with a large number of subsidized job contracts, particularly for young people looking for their first job; these could usefully be reintroduced.

(Not much new in this second part, after all; basically an argument for more government intervention than Chirac's lot will go for).

I'll do the bit about Denmark next, it's quite interesting. And there's another piece from September 2004 that examines whether the shorter working week is responsible for low growth, which I'll summarize if you like.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 23rd, 2005 at 07:13:01 AM EST
Thanks for the summary, which continues to be of great interest (to me at least). It seems to redimension a lot of the rightist-axe-to-grind criticism of the 35 hour law.

All in all, highly illuminating.

Hannah K. O'Luthon

by Hannah K OLuthon on Thu Jun 23rd, 2005 at 07:22:10 AM EST
[ Parent ]
Caveat: I am not an economist, though I've read a fair amount of critique by dissident economists... anyway I keep feeling that all these discussions miss what I might call the "real point". They focus on jobs, employment, and that oughta-be-discredited holy grail of "Growth" (hello? it's a finite planet, folks), as measured by the oughta-be-even-more-discredited metric of GDP. And by these metrics (taken wholly from within the context of markets and finance) they attempt to decide whether one country's pol/econ system is "better" or "worse" than another.

If I were looking to figure out "what's wrong with," or what's right with, a polity, I would start with different metrics. Life expectancy would be a big one -- if a country's average life expectancy is declining, that seems like a bad indicator. I would be interested in the percentage of people who had paying jobs, but I would be even more interested in the distribution of those jobs and the pay scales -- i.e. does "employment" mean scraping a living together by holding down 3 part-time jobs with no benefits, while spending 20 percent of one's meagre salary on the expenses of running a car to shuttle between the 3 jobs? or does it mean a secure job with an adequate paycheck, with a reasonable commute at a manageable expense? If the average income of Country X is Y, is that because there are ten multi-millionaires making a zillion bucks an hour while everyone else is making minimum wage? i.e. what's the Gini factor -- what percentage of the country's wealth is owned or controlled by what percentage of the people? Geographical mobility (freedom of physical relocation) is possibly a good thing, but how much class mobility is there? what are the odds that a child born poor will remain in the poverty class for life?

Other metrics I would like to examine would be literacy, quality of education (how competitive are the young people of Country X with their counterparts worldwide), number of years of education completed by the average person; investment in technological/intellectual innovation vs investment in litigious intelprop defence of existing tech/concepts; infant mortality and morbidity; nutrition (or malnutrition); percentage of homeless people; number of personal bankruptcies per capita per annum and reasons for same; average personal savings; average age of retirement; size and weight of the "black economy," i.e. organised crime, drugs, arms, prostitution; percentage of the population that bothers to vote; percentage of national wealth derived from destructive vs constructive commerce (what percentage of industrial sector is dedicated to arms production and sales, etc). And of course I would want to see an energy/toxicity audit: is Country X poisoning its people with industrial toxins? what is its contribution of greenhouse gases? how wasteful is its energy usage pattern and how vulnerable is it to rising fossil fuel prices in future?

My point -- sorry to be typically long-winded -- is that Country X could have a booming economy with nearly full employment, massive growth, a "flexible" labour force, and all the rest (i.e. it could look "good" according to the limited metrics being discussed) and yet be a zone of misery, disease, premature death, illiteracy, a permanent underclass, near-slave labour, etc., with a dependence on cheap fossil fuel so complete that it will likely fall apart when prices rise. There's an underlying assumption that if "the economy" is doing well, the people are doing well and the future looks bright. I think this assumption needs to be deconstructed and fast -- esp in the light of the WB/IMF's spectacular successes over the last 20 years in immiserating whole populations in the name of "saving" their economies -- and of Bill Gates' recent comments on the beauty of the Chinese labour market. Economies can be made to "do well" (ostensibly and for a limited time) by asset-stripping, looting, immiseration of workers, and unsustainable resource extraction. I wonder, at first glance, is the EU being criticised for not doing these things?

I would even suggest that the maximally "efficient" economy will inevitably be one which inflicts gross human suffering and environmental damage, so long as we continue to define "efficiency" as the maximisation of growth and profit extraction. Many criticisms of the EU seem to focus on "inefficiencies" which imho reflect a superior quality of life for real, living human beings. Which leads me to an essential question: what is "an economy" for, if not to maximise the happiness of the people who participate in it? If the purpose of "an economy" is solely to concentrate wealth in the hands of a small elite at the expense of the majority (this seems to be what neolib capitalism is best at), then can we distinguish such a system from good ol' feudalism?

None of this solves the concrete issues of tax revenue, public service provision, etc. being discussed. I'm ducking those issues for the moment. But it does raise (for me) serious concerns about the direction of public discourse in our era. Quality of life, it seems to me, should always trump economic indicators when assessing the success of a polity. Otherwise we fall into the same mindset that fuelled the crash programmes of industrialisation in China and the USSR during the Communist years: quality of life is irrelevant, what we want is Productivity and lots of it...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jun 23rd, 2005 at 10:02:38 AM EST
Yup, and that's a whole other kettle of fish. Currently I'm trying to understand what the criticisms are. Slicing and dicing them is my next project.

The basis of the comparisons is one of the  things I want to look at in a little detail. It's pretty widely accepted that GDP is a bad way of comparing economies since it pretty much rewards wasteful and destructive activities.

See Blair's speech today in another diary. He almost explicitly repeats the assumption that an economy with good metrics will be good socially.

by Colman (colman at eurotrib.com) on Thu Jun 23rd, 2005 at 10:40:22 AM EST
[ Parent ]
I first became interested in "bad metrics" in a rigorously quantitative way by reading Daly and Cobb, who suggested a fairly elaborate, thought-out alternative to GDP for measuring national well-being.  I think several proposals along these lines have been floated, including  a brief attempt by the King of Nepal to establish a National Happiness Index...

More food for thought from Gar Alperovitz... on the idea that "wealth should benefit the community directly."

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jun 23rd, 2005 at 12:32:27 PM EST
[ Parent ]


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