Links and references appreciated: I'm willing to do my homework on this one.

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?

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

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

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

The mainstream economics view of what's wrong with the European economy and labor market probably goes something like this, courtesy of Brad DeLong:

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.

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.

(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.)

.
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!


'Sapere aude'

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.

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

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

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

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.

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 ...