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Thursday, May 28, 2009

US AND EU EMPLOYMENT AND UNEMPLOYMENT RATES: WHICH SIDE OF THE ATLANTIC HAS DONE BETTER?

Today's Buggy Topic

As usual, it's found at Economist's View --- the admirable web-site run by Professor Mark Thoma, a macroeconomist at the University of Oregon.  And as usual, the subject-heading above captures adequately the nature of the topic.

The thread where the bugged-out commentary is found --- lengthy, full of comparative data --- started when Prof. Thoma linked to an article by a good political science scholar who argued that the employment rates in the EU West European countries (EU-15) have noticeably outperformed the US rate in this decade and show that there isn't any problem for highly regulated welfare-state countries to create jobs. 

Prof bug examined the data, found all sorts of problems with its presentation; found additionally all sorts of difficulties that the aggregate data mask --- such as the percentage of jobs created in the EU compared to the US reflected temporary jobs and involuntary part-time work; noted, too, that the unemployment rate in the recent study the political scientist used for his data on employment rates --- the % of the 16-64 year old population is working --- is misleading for the last two years; and then quoted some EU specialists on how the welfare systems deliberately provide subsidies to 16-24 year-olds and 50-64 to stay out of the job market.

None of This Means the EU-15 Didn't Do Better Compared to Their Past in Creating New Jobs, Good or Bad

What the political scientist's study, the larger study he drew on, and the comments of prof bug's fellow posters --- all who have a dreamland image in mind of the advanced welfare-state countries in the EU --- all ignored was that the better job-creating performance there in this decade reflected consistent efforts to free-up their labor markets from all sorts of regulatory impediments in the past: such as the ability of firms to lay-off or fire workers.  For if firms can't do that, especially in a recessionary period, they will be reluctant to hire more workers in different times. 

Similarly, the unemployment benefits were cut markedly in France and Germany earlier in this decade --- at least in duration.  After a year, either you have found a new job or the benefits are cut.  In Germany, that means you are required to take a minimum-wage job that the government will create.

None of this means that there aren't certain policies that the EU West Europeans do better than us.  In particular, virtually any health-care system there would, if we emulated it, likely reduce the huge costs of our system and solve the problem of those uninsured here (about 12-13% of our population).  The likeliest one we will adopt --- which President Obama's reforms seem to be nudging toward --- would be Switzerland's, the country itself not in the EU.  There all the adult population is required to buy health-insurance offered by competing insurance firms.  If an adult (or family unit) pays more than 10% of its income up to a threshold level, then the Swiss government subsidizes the difference.

For the Prof Bug Stuff,

...click here.