Meanwhile, in Europe…(11). Unemployment
from Merijn Knibbe
European economists should pay more attention to unemployment!
European economists have a lot to learn from their USA counterparts. When the Bureau of Labor Statistics issues new data on the labor market – unemployment, jobs, earnings – the USA blogosphere is ablaze. When Eurostat does the same thing for Europe – nothing. The Americans are right; I’ll try to follow their example. And that’s needed. The stockmarket section of the April 2 issue of my newspaper did mention how European stockmarkets reacted to April 1 USA labor market information. On the same day, Eurostat published European unemployment data – which (if stock markets were efficient) ought to make a much larger impression than the USA data. This information went, however, unnoticed (austeristian countries have higher unemployment, by the way).
Is Europe stagnating?
What does Eurostat say? Europe as a whole seems stagnant (all data: Eurostat, April 1). European unemployment (EU 27) declined from 9,6% in January to 9,5% in February, only 0,1% lower than in February 2010. In the USA, unemployment declined from 8.9 to 8.8% between January and February but compared with a year ago, unemployment is almost a percentage-point lower than a year ago. Is Europe loosing its edge?
‘Greater Germany’ does well
When we look at different regions of Europe, quite some differences however appear. ‘Greater Germany’ does as well as the USA – slightly better even. All of these countries (Germany, Belgium, the Netherlands, Sweden, Finland, the Czech Republic and in fact Switzerland too, though that’s not a EU country) have either a below 5% unemployment rate (Austria, the Netherlands) or unemployment which is about a percentage-point lower than a year ago and sometimes already heading towards or even below pre crisis levels (Germany: 6,3%). Sweden saw the largest one year decline, from 8,8 to 7,6%.
Transitions countries which devaluated/depreciated compared with the Euro do well, too
A number of transition countries do well too. After 2007, the Czech Republic (already included in Greater Germany, but some double counting doesn’t do harm in this case), Slovakia and Romania devaluated temporarily (!) compared with the Euro. All of these countries have rather low (Romania) or declining unemployment (Czech Republic, Slovakia). The rate of unemployment is Slovakia is, with 14%, still at Great Depression levels but the economy is doing quite well when we look at orders and industrial production.
Transition countries which did not devaluate do badly
Some other transition countries did not devaluate. The either have Ueber-unemployment (The Baltic states Latvia, Lithuania and Estonia) or witnessed rapidly increasing numbers of unemployed people (Bulgaria: from 9,4 to 11,6%; Slovenia: from 6,8 to 8,0%, Hungary: from 11,1 to 12,0%). Hungary is somewhat special, as it did devaluate but revaluated again afterwards. The Baltic states did know a fast rebound of especially industrial production in 2010, but there are signs that this is stalling (especially in Latvia). Unemployment is declining, but this might well be due to emigration.
Poland: somewhat of an anomaly
Poland is somewhat of an anomaly. It did devaluate and the economy is still doing well. But unemployment is, alas, not going down. It is possible that this is caused by remigration of migrant workers. Just like in Romania, industry is growing fast, but not as fast as in the Baltic states. Compared with 2005, however, Poland (and Romania) still does a bit better than the Baltic States – and when it comes to unemployment it still is in a different league, despite the lack of improvement.
Italy, France
Both of these countries did, compared with one year ago, not see any significant change, though there are some signs that industrial production in both countries is finally recovering a little.
Greece, Spain, Portugal, Denmark, Ireland: shrinking economies.
All these countries are suffering from high debts, internal devaluation or a misguided exchange rate policy. Just like the non-devaluating transition countries, unemployment in Denmark is rising. The same holds for Greece, Spain and Portugal: these have either very high unemployment or already high unemployment rates which still are increasing. As for Ireland, which want to pay another 24 billion euro’s to the bank (paid for by, among others, poor Irish elderly people who never owned a house) – unemployment is very high and the economy is shrinking.
The UK: worst of all worlds
Unemployment is going up. Production is going down. Inflation is increasing fast. The structural deficit must be the largest of all western countries. The government is firing hundreds of thousands of people. And it has a large banking sector, too.
Why is Greater Germany growing? Not because of low wages!
The economic rebound in Greater Germany is export led, at the moment. According to recent research, this export boom has to be explained by ‘exporting the right stuff’, not by low wages (Jesus Felipe, Utsav Kumar, http://www.voxeu.org/index.php?q=node/6299) A Mercedes Benz, machinery, weapons, advanced chemicals, pharmaceuticals – that’s what the people want. And that’s the unique selling point of Greater Germany. And that’s why lower wages won’t solve the problems of, for instance, the Greek. Greek products are typically low tech – and no amount of internal devaluation will enable the Greek to compete with India of China, which produce comparable products.
Ireland: if you can’t say it – sing it
Leave a comment
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
The “statistical” (as opposed to actual) unemployment rate has dropped 1% due to the miracle of a missing 2 million Civilian Labor Force participants since March 2010. Check out the data here: http://www.bls.gov/news.release/empsit.a.htm
However, when the Irish Central Statistics Office issues updated figures, they do get pored over. I suspect the difference between us and the US is that we focus on national but not ‘federal’ figures.
By a curious co-incidence, Emma Freud, great-granddaughter of Sigmund, just said how filling a long period of unemployment by writing led her to realise she was not reliant on someone else letting her.
The difference between initiative and employment is of course that, when banks won’t arrange (they never provide) the real credit necessary to live on, people others than employers have to provide it. That’s more of a tradition in some cultures than in others: just one more reason why these standardised statistics are all eye-wash if not lies.
Indeed, statistics can be very misleading. Germany doing well is not true if you look on the detailed statistics that tell you how much of a lie the official number of 3,2 million unemployed are. Almost 1 million people are not counted into the official number. People older than 58 are excluded, as are people who are sent to private job agencies or currently in professional training programs (provided by the state, not employers). Thus, almost 1 million people are counted out of the official statistics, though they are able to work and available for the job market.
I don´t know if the different concept Germany has in defining unemployment does offset this.
@Tombuktu
There is, of course, a political agenda behind this piece. Very recently, the European Commission usurped an enormous amount of power. They want power over
– national budgets
– as well as on wage rises per country and even per economic sector per country
And national leaders have agreed to this…. As the European commission is a non-democratic institution which faces no ‘counterfailing power’ or other kinds of checks and balances on the European level the only thing restraining this power grab are national parliaments and, in some countries, plebicites. The thing I try to do is to emphasize that economic differences in Europe and even in the Euro area have become larger, post 2008. A one size fits all (or should I write: A German size fits all?) economic policy formulated by an European Commission which is dominated by Germany and France will tend to downplay these differences and to subject other interests to German and French interests. It won’t make much of a difference, but the very least we can try to do is to establish an economic discourse which highlights these differences – in this case a discourse on European unemployment.
@Dave,
A. Emma Freud is wedded to Richard Curtis, writer of ,among other hitseries, Blackadder, Mr. Bean and Four weddings and a funeral. Indeed, Emma is not reliant on someboddy letting her…. (thanks, Wikipedia).
B1. Even if these statistics are eye-wash or lies (which I do not believe), people do look at them and use them to investigate economic policy. The least we can do is to make that discussion more rational and transparant by investigating the data.
B2. We sure have to extend the narrative from just data on unemployment to data on employment, employment/population ratio’s, labor flows and the like. When we do this, we indeed do find very large differences in pariticipation ratio’s – take for instance the number of working mothers (paid work, I mean) in Turkey and in the Netherlands. But does this negate the fact that people people without work are searching for work (self employed or wage labor) and that this number can increase and sometimes even increases dramatically, like in Spain between the end of 2007 and the beginning of 2009 (from about 8% of the labor force to about 20% of the labor force, U-3)?
In my opinion, it’s not just painfull to compare a very, very priviliged lady like Emma Freud with very, very poor unemployed in the Baltic states but also misleading. In modern societies, well paid jobs require large amounts of investments in physical capital and/or human capital (including connections) and the idea that one just has to take the initiatieve to earn a familiy income is ridiculous – in most cases, this takes many, many years and lots and lots of hours. Solving unemployment in Spain requires huge investments and 30 to 40% of growth of GDP. That doesn’t happen overnight. And sadly, there is no incentive to invest, in Spain, right now.
Thanks for the insight on the EU situation, Merijn.
A. My point was that Emma, then a young actress, hadn’t REALISED she had options other than being employed. Judging by the questions about work on our recent Census form, neither has the UK Government.
B1. By “eyewash” I meant able to obscure the truth. If that is intentional, the “lies” will occur in the determination of what is to be measured, whether or not the statisticians and the reporting of the statistic are honest. Two examples where this seem to be the case are the perpetuation of reliance on GDP, despite the frequent pointing out of its intellectual absurdity, and the changing in the definitions of unemployment whenever the statistics become uncomfortable to the powers that be. Of course I have no objection to your “at least” proposals for dealing with it. I would simply go further in the direction of calling a spade a spade.
B2. The bit missing from your question is that people are seeking work “to support themselves”, even where (in saturated markets) work is neither needed nor desirable (even though more is desperately needed in non-monetarised caring for each other and our environment). Being a practical person myself, I see the answer being to recognise the truth that our money represents our credit limit, and (on condition that we use that properly and [re]productively) give everyone a decent [credit] income. Then financiers don’t need to make profits, employers don’t have to pay wages, and we are all free to do voluntarily what actually needs doing.
Of course that’s not what “modern societies” are actually doing, but it is what subsets of them continue to do within the global framework. Kids get brought up and educated on credit, and so long as they pull their weight honourably that credit can be and usually is happily written off. The culture I had in mind in my earlier remarks was the Pakistani one in Britain, where house purchase and setting up business tends to be financed interest-free by family and friends, giving them a huge advantage over us English natives, who pay double the price for everything by the time we (or our landlords) have paid interest to the banks.
how long have I been hearing from the media that europe is going to decline is declining, has declined, but there never seems to be a big crash? I think at least since Reagan revolution took over the media!
With GDP in mind from B1 in my reply to Merijn, this dtd 24 Mar 11 was of real interest:
http://www.frontporchrepublic.com/2011/03/egypt-tunisia-and-the-failure-of-neoclassical-economic-theory/
One’s profession tends to get tangled with one’s identity. Though employment may not be necessary for well being, some means of economic support is. It becomes tied to self worth to such an extent that long bouts of it can cause people to feel useless and undervalued, leading to increases in alcoholism, domestic abuse, and other social ills in market oriented societies. Since markets tend only to value that which has a price it should not come as a surprise that people think of themselves as valueless when the market price for their labor power is zero.
The link from Dave Taylor is definitely thought provoking, though one commentator called it a perfect example of a straw man arguing that neoclassical ecnonomists are not generally ignorant of the fact that GDP is “incomplete.” I am much more in line with the original comment.
When I worked at a different school, I had students look at other indicators of well being, such as the UN Human Development Index, and the Calvert-Henderson quality of life indicators. http://www.calvert-henderson.com/ . This reinforces my evolving belief that a wholesale change of the philosophy of ‘well – being’ is necessary. Amartya Sen seems to take some steps in this direction even if he is wedded to a mostly individualist method.
Aristotle points out early on in “Ethics” that “The money-maker’s life is in a way forced on him [not chosen for itself]; and clearly wealth is not the good we are seeking, since it is [merely] useful,[choiceworthy only] for some other end.” (Hackett Publishing, Indianapolis Indiana, U.S.A., Translated by Terence Irwin)
The “straw man” argument Jeff mentioned was acknowledged by the original author, who answered it much as I would have done:
“If you’re going to abstract [mathematical laws] from reality enough to deny the application of the [real] laws of thermodynamics to economic processes, then the practice of taking exception to GDP in what amounts to a footnote or two to your theory, while accepting its continued use as a valid measure of well-being, seems like intellectual integrity.”
Thanks Dave. I saw that, but thought I had already taken enough time.
On GDP
1. GDP was never developed to be an indicator of welfare, well being or of sustainable development. It should not be used as such. It was developed to follow the flow of money: income (wages, profits etc.) leads to expenditures (consumption, investments etc.) which leads to production (companies, government) which leads to income (new wages, profits etc.). Often, it is however used as an indicator of welfare. Wrong. Only one example: real GDP per capita in the Netherlands more or less doubled between 1969 and 2010 but real disposable income per household increased only about 12%… (Partly because the number of households increased faster than the number of inhabitants, partly because real disposable income of households grew much less than real GDP). These streams of money are, however, quite real and have to be measured (there is something like ‘total wages’, ‘total investments’, ‘total taxes’ and the like). And this information is interesting In the USA, the 1969-2010 difference between real income and real GDP is smaller as the Netherlands knew an increasing surplus on the current account while the USA knew an increasing deficit – but that shows another asset of national accounting. If the USA succeeds in diminishing the deficit on the current account, this will lead to relatively lower incomes (which is logical: exporting more means that less is available for domestic consumption). Tip: look at the BEA statistics on the (surprisingly stable) development of the differences between average and median income of racial groups in the USA – it’s national accounting which enables this investigation.
2. This brings us to the second point: it’s not about GDP – it’s all about the National Accounts. The National Accounts are a comprehensive and consistent measurement of the flow of money in an economy (production, expenditure, taxes, income) which is based on actual events. I fully endorse the view that National Accounts should include depletion of natural resources – but hey, that’s what modern National Accounts actually do (there are even some geonomic aspects in National Accounting). See for instance:
http://www.cpb.nl/en/publication/dutch-fiscal-framework-history-current-practice-and-role-cpb
GDP surely is a limited concept when it comes to production and consumption and not a concept at all when it comes to happiness (though correlations of measured happness with the log of real GDP seem to be high I’m in fact not interested at all in this). But the National Accounts do show the workings of present day capitalism (yes, a very, very vague phrase, I admit). It are these accounts which enable statisticians to calculate the post bail out subsidies to the banks caused by very cheap money available to the banks (for the Netherlands alone: 1% of nominal GDP per year, or about 2% of disposable income).
So: GDP is not a measure of well being, absolutely not. But it is a metric of the flows of money in the economy: income, expenditure, savings and the like. Seems intersting enough, to me. And, as modern National Accounts do not only look at income and expenditure but also at (national) balance sheets (including natural resources) and liquidity statements (including private and public debt) they are way beyond the rather simple, primitive and not exactly ‘state of the art’ ‘representative consumer’ models of people like Lucas and Sargent.
And on happiness: a long time ago I read the ‘Confessions’ of Saint Augustine. Once, he was talking about ‘what’s happiness’ with his friends, on a summer evening, in a villa in Rome, probably with a glas of wine. To me, that’s about as good as it gets – even though Angus Maddison estimated that Roman GDP per capita was, though relatively high, much lower than ours. Real income per capita of Augustine and his friends might, however, have been surprisingly high. As Francois Villon stated: ‘Il n’est tresor que de vivre a son aise’.
So it is easy to confuse the measure of monetary flows and welfare where they should be considered separately. This confusion arises because those monetary flows influence other areas that are much harder to measure but that more readily capture some notion of well-being and life satisfaction. And this enables some people to claim GDP as a starting point for measuring welfare and then never step beyond it. Do I understand this correctly?
For example, the money flows reflect a depletion of natural resources which enhances(?) our standards of living today at the expense of our children. William Stanley Jevons openly advocated that choice – glory for the British Empire now, what ever else the future may hold. He did this in the context of “The Coal Question” where he laid out his argument for what is now known as the Jevons Paradox. The depletion of natural resources is easily mis-measured. Frank Ackerman points out in numerous places since it has to be incorporated into NIPAs, but the side effects like pollution are not. Ackerman also notes the difficulties with discount rates in context of natural resources and the environment.Thus the monetary flows as captured by NIPAs are at best incomplete.
Completely agree
Your defence of GDP as a statistic got me studying the definitions of it, Merijn! I still judge it intellectually incoherent. Though I can agree with what you say, I would argue that that is irrelevant. In practice Governments (probably influenced more by media pressure than by reflection or common sense) do single-mindedly pursue GDP growth as if it were the sole measure of welfare.