April 01, 2005

Headline-Grabbing Unemployment Rates

German unemployment at 12%--a post WWII high (with France clocking in at 10.1%). The German number, in particular, is getting quite worrisome (but see the linked article for some analysis/factors arguing that the German employment numbers may have peaked, though I'm far from certain that's the case). I've always felt that--should a major economic shock impact Europe, with unemployment in key states like Germany hitting 15%--all bets could be off on forward movement towards EU unification. People (and politicians) will start looking for scapegoats--and the EU sure will present an easy, tempting target. But even in the 10-12% range; people are going to start to ask: what has the EU done for me lately? What has this top-down project of (mostly) elites, hoisting a centralized Brussels-based government on individual peoples, what has it accomplished for me the guy on the street? And, of course, it's not just economic factors that have many more nostalgic, nationalist Europeans not overly keen to bow to the Brussels court. Indeed, I'm starting to get worried that France's May 29th referendum on an EU constitution might not squeak by (I still think, all told, it will--but it's gonna be real close). Finally, note a supranational Central Bank is a novel experiment. Like all experiments, it may fail. There's never been one before--and there is nothing necessarily permanent about it. Indeed, given the complexities of setting monetary policy for a large number of nations, many grappling with very different kinds of economic challenges, we cannot yet be confident that the Euro and/or the European Central Bank will still be with us in a decade or two hence. I think Europe will likely get through these choppy waters; but a few major external shocks, bad policy decisions, continued strength of the Euro--all will present many challenges indeed to monetary policymakers on the Continent. All this is not to score cheap points about the mighty USA and lame Old Europe. Not at all. After all, I don't think it is in any of our interests to see unemployment in Germany, say, hit 15%. God forbid, really.

Posted by Gregory at April 1, 2005 04:36 AM | TrackBack (7)
Comments

I can't immediately see how U.S. policy can impact German unemployment, except through the exchange rate. (And we are too busy talking down the dollar in Asia to try talking it up in Europe.) Like you, I would hate to see 15% unemployment, but I think we are a nation of spectators at this show.

Posted by: sammler at April 1, 2005 07:30 AM | Permalink to this comment Permalink

Unemployment statistics can be manipulated and in Germany's case, the numbers are woefully understated. The actual unemployment rate is closer to 20 percent and may even be higher. Germans over 50 who are unemployed for over a year are coerced into "early retirement" to get them off the rolls. Government funded make-work programs also keep substantial numbers from showing up at the local Arbeitsamt. Then there are the long-term university students who stay in school until middle age to avoid the unpleasantness of adulthood. (A German Economics minister once said Germany has the oldest students and the earliest retirees in the world.) In the former East Germany unemployment rates are off the scale as anyone who has traveled west to east on the A-9 autobahn on a Friday evening can attest. Lopsided economic development forces thousands of workers in the east to temporarily relocate every Monday to Friday. Were these people to stay home and collect unemployment the country would probably be looking at a 30 percent unemployment rate. So far, the EU has avoided blame. Globalization (and GWB) is the villian. Witness all the finger pointing at GM for Opels woes. It will be a long hard slog (to coin a phrase).

Posted by: David Lange at April 1, 2005 07:56 AM | Permalink to this comment Permalink

BD: Why are you concerned for the stability of the EU? The EU has always been structurally, irremediably undemocratic -- essentially authoritarian. Why should the US and GWB be concerned with its fate?

Posted by: Keith Jacka at April 1, 2005 10:07 AM | Permalink to this comment Permalink

Related story:

http://www.snappingturtle.net/jmc/tmblog/archives/005293.html

Posted by: Barry Meislin at April 3, 2005 12:20 PM | Permalink to this comment Permalink

Actually we vastly understate our unemployment. There are many who have given up looking for a job, many who are in the military, many who are working 2 or 3 jobs. The EU is a avast market of 500million plus those asking to get in. Ask Jack Welsh how irrelevant the EU is; it stopped his merger after our justice dept. said it was ok. We may think that China is the next super power rival we have to deal with, do nmot over look the EU.

Posted by: Bill V. at April 3, 2005 05:06 PM | Permalink to this comment Permalink

12% is the AVERAGE German unemployment rate. In Berlin it is 19.4%. In the large areas of states surrounding Berlin it is over 30%. These are the official rates. These figures do not include the significant percentages in "retraining" and make work programs.

Posted by: james in Berlin at April 3, 2005 09:03 PM | Permalink to this comment Permalink

The government in power is an easy target when the economy is bad, and Europeans might be forgiven some confusion about which government is in power. I'm not so sure, by the way, that French voters will come around on the EU constitution this May.

Posted by: Zathras at April 3, 2005 09:23 PM | Permalink to this comment Permalink

The thing about being unemployed in Europe, though, is that European unemployment benefits are so good that being unemployed in Europe is like being on vacation in America, if I understand the system correctly. I know I'm coming at this from the perspective of someone whose idea of the perfect life is never having to work again, but I think that were I a European, I would not at all mind sitting on the couch in my boxers and drawing an unemployment check. Why should someone lacking a job care if they still have enough money to live and eat?

Posted by: Andrew Reeves at April 4, 2005 03:17 AM | Permalink to this comment Permalink

Mr. Reeves: in the short term, an unemployment benefit which addresses immediate financial needs indeed takes the sting out of losing a job. In the medium term, few people can avoid sinking into joyless sloth; what you call "sitting on the couch in my boxers".

In the long term, the situation is still worse. There is a free-rider problem as those accustomed to the dole drop permanently out of the workforce. Valuable but un-prestigious employees, like those of plumbers and electricians, become scarce and expensive. The boredom of life tends to foster violence; this propensity, combined with the lack of legitimate paths to prosperity (and lack of willpower and patience, which can atrophy), leads to more crime. Society sees this happening, and it becomes part of the picture of a class, so that negative stereotypes of formerly respected classes become dominant.

The amazing wealth of the West has allowed this odd experiment to be carried farther than I would have thought possible. We still have not seen the horrible denouement.

Posted by: sammler at April 4, 2005 11:27 AM | Permalink to this comment Permalink

foist, not hoist

Posted by: Blooch at April 4, 2005 02:14 PM | Permalink to this comment Permalink

The EU is going to fail, for precisely the reason you stated.

As soon as the politicians realize they're in hot water, they're going to look for foreign scapegoats.

The EU will be as sacred as the trans-Atlantic relationship was to Schroeder when he needed a stronger election platform.

Can't say I'll be that sad at its passing.

Posted by: Cutler at April 4, 2005 10:52 PM | Permalink to this comment Permalink

reeves: european unemplyment benefits may be good in, say, sweden, netherlands, germany (not sure about). in all other european countries being unemployed is no vacation at all, you may rest sure.

cutler: europe will not fail because european unification is an irreversible process as it has affected for the best the lives of million and million of europeans. nobody know the european convention, and those who have read it do not understand it, and those who understand it do not like it, and maybe france will vote no to the ratification, but nobody would ever want to go back to ten-fifteen years ago. for a couple of generations europe has been unified first of all through things such as the interrail, a train ticket which allowed you to travel all over europe for one month paying something like 150 dollars, and the erasmus programs, which allow students to spend terms in foreign universities. you may think that this means nothing, that europe needs more economic, military and political power or it will remain an irrelevant entity, and you may be true. but european unification process is something that has really changed in depth the real life of normal people and i do not think that there is real chance that the process will fail. it will be long and boring, but it will continue, and, finally, succeed.

Posted by: edoardo at April 5, 2005 02:13 PM | Permalink to this comment Permalink

"but european unification process is something that has really changed in depth the real life of normal people and i do not think that there is real chance that the process will fail. it will be long and boring, but it will continue, and, finally, succeed."

Famous last words. See: Catholic Church, Napoleon, Hitler, Rome, etc etc.

I can't help but think that Europe's greatest strength historically has been its lack of unification. The kind of centralization a country like China had impeded its ability to succeed and it was quickly surpassed by Europe. I think there's more value in decentralization and a lack of unification in Europe than unification. And from the economic policies and ideas that seem to emerge from the EU, it 's always looked to me like an economic suicide pact. If they were creating one giant free market, yay! but that doesn't seem to be in the cards.

Posted by: mariana at April 6, 2005 04:22 AM | Permalink to this comment Permalink
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