Saturday, June 6, 2009

European vs. U.S. Unemployment Explained

European vs. U.S. Unemployment Explained

When Jaimie Galbraith is good, he can be very good. Here is an example, explaining European unemployment as a result of inequality rather than social democracy. After explaining the close association between inequality and unemployment, he goes on:

97: "The European economy is no longer a collection of separated national systems. Spain, Germany, and France are not independent, mutually isolated national economies. There are no barriers to trade or capital flow, in fact, no formal barriers to the movement of labor throughout Europe. There is now a single currency unit across most of the region. The integration of the European economy in practice -- from the standpoint of a large multinational corporate employer, for instance -- is nearly complete. From every analytical point of view, it is necessary to start thinking of Europe as a single unit. It is therefore necessary, from a statistical and practical point of view, to measure inequality and employment at the European, and not the national, level."

97: "When this is done, the notion of Europe and the United States at the opposite ends of an employment-equality spectrum disappears. Pay inequality within countries of Europe is relatively low, but inequalities between them are very high: much higher than across comparable distances in the United States. Adding the two components, the inequality within and the inequality between countries, one finds that overall inequalities of pay are actually higher in Europe than in the United States. Thus, the standard perception of a European/American counterpoint is simply incorrect. So far as pay is concerned, Europe now is both more unequal and less fully employed than the United States. It is, by the same token, less efficient, but not for the reasons usually given. Rather, the United States wins the efficiency contest -- not because it is less egalitarian but because it is more so than the ungainly ensemble of countries that now make up the European Union."

Galbraith, James K. 2008. The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (New York: Free Press).


dale said...

We are not as integrated as the EU, but to the extend that NAFTA nations resemble the EU we should adjust our employment rates by the impact Mexico and Canada have on the US rates. That might require another adjustment of our comparison of the EU and North America.

Michael Perelman said...

Interesting thought. Thanks.