Sunday, December 02, 2012

Collectivism on Parade

Youth unemployment in Europe has gone from merely stratospheric to astronomic.

Throughout the European Union, unemployment among those aged 15 to 24 is soaring — 22 percent in France … But those are only percentages among those looking for work. There is another category: those who are “not in employment, education or training,” or NEETs, as the Organization for Economic Cooperation and Development calls them. And according to a study by the European Union’s research agency, Eurofound, there are as many as 14 million out-of-work and disengaged young Europeans, costing member states an estimated 153 billion euros, or about $200 billion, a year in welfare benefits and lost production — 1.2 percent of the bloc’s gross domestic product.

… In France, it’s 16.7 percent — nearly two million young people …

For the innumerate, that means nearly 39% are doing nothing. (That is nearly three times the comparable the U.S. rate.)

Collectivism's parade of horribles is easy to see:

This is a “floating generation,” made worse by the euro crisis, and its plight is widely seen as a failure of the system: an elitist educational tradition that does not integrate graduates into the work force, a rigid labor market that is hard to enter, and a tax system that makes it expensive for companies to hire full-time employees and both difficult and expensive to lay them off.

...

Ms. Sonnet, the O.E.C.D. economist, said that high youth unemployment is a regular problem in France. Companies are afraid to commit to permanent hiring when economic growth is stagnant and charges for social benefits are so high, and the educational system tends to value liberal arts over technical or industrial expertise.

Nothing could possibly go wrong with any of this; after all, the collective has used its superior knowledge and intellect to ensure social justice.

Right?

Without cost, nothing has value. Their education system is a sinkhole. The real reason the "rigid labor market is hard to enter" has nothing to do with hired, and everything to do with getting fired. Standard collectivist misdirection charges companies for social benefits. It is the perfect way to convince people there is such a thing as "free".

Mysteriously left unmentioned in this NYT article is minimum wage. In France, it is $12.35 per hour, more than 65% higher than in the U.S.

And I'll bet the next NYT editorial advocating an increase our minimum wage will resoundingly fail to note the unmentionable.

Being a collectivist means never having to say you are sorry, because you are immune to the obvious.

15 Comments:

Blogger Bret said...

I'm confident that the socialism (collectivism) exacerbates the employment problems, but there are some other very significant factors. There's a major problem in generating jobs worldwide as identified by Clayton Christensen, Arnold Kling, and Tyler Cowen. Basically, "destruction" is outpacing the "creative" part of Schumpeter's "creative destruction" description of economic advances and far more jobs are being destroyed than are being created. I'm hoping to post something on this fairly soon.

In addition, europe has been miserable at assimilating their immigrants (and of course we're following their lead).

Whether socialism is a small factor or a large multiplier for the problem is hard to know. My guess is that it's a large multiplier, but we'll probably never find out for sure because the United States is doing its best to catch up to Europe in their collectivist approach to everything.

December 02, 2012 8:14 PM  
Blogger Mark Frank said...

The nice thing about taking an ideological approach to economic problems is that it saves you the effort of getting to grips with the figures.

Here (http://www.oecd.org/newsroom/g20labourministersmustfocusonyoungjobseekers.htm) are the youth unemployment rates or OECD countries in March 2012. Notice that while some countries such as France, Spain and Greece have appalling rates many other countries with more collectivist economies than the USA (6 of them European) have lower rates than the USA:

Switzerland

Norway

Germany

Austria

Japan

Netherlands

Australia

Canada

Denmark

The USA comes out even worse on the NEET figures.

But it goes much further than that. Unemployment percentages are calculated by dividing the unemployed by the total of employed and unemployed. But there are a large number which are neither. This includes the NEET people but also groups such as those in full-time education.

I haven’t time to calculate the effect of full-time education but an interesting example which I looked at a year or two ago is the effect of prison rates on unemployment rates. Prisoners do not count as unemployed (or employed). The USA incarcerates about 5 times as many people per 100,000 as other OECD countries. At the moment that amounts to about 2.3 million people. I can’t find how many of those fit into the youth category but prison populations tend to be strongly skewed towards youth (http://www.irp.wisc.edu/newsevents/workshops/2011/participants/papers/6-BushwayTsaoSmith.pdf). So it is reasonable to estimate 500,000 of US youth are in prison. That’s a significant addition to the 3.5 million unemployed youth

December 03, 2012 1:00 AM  
Blogger Bret said...

I like this Greg Markiw summary of the different theories for varying employment in the United States and Europe:

"Edward Prescott, the 2004 winner of the Nobel Prize in economics, has concluded that “virtually all of the large differences between U.S. labor supply and those of Germany and France are due to differences in tax systems.” This hypothesis is consistent with two facts: (1) Europeans face higher tax rates than Americans, and (2) European tax rates have risen significantly over the past several decades. Some economists take these facts as powerful evidence for the impact of taxes on work effort. Yet others are skeptical, arguing that to explain the difference in hours worked by tax rates alone requires an implausibly large elasticity of labor supply.

A related hypothesis is that the difference in observed work effort may be attributable to the underground economy. When tax rates are high, people have a greater incentive to work “off the books” to evade taxes. For obvious reasons, data on the underground economy are hard to come by. But economists who study the subject believe the underground economy is larger in Europe than it is in the United States. This fact suggests that the difference in actual hours worked, including work in the underground economy, may be smaller than the difference in measured hours worked.

Another hypothesis stresses the role of unions. As we have seen, collective bargaining is more important in European than in U.S. labor markets. Unions often push for shorter workweeks in contract negotiations, and they lobby the government for a variety of labor-market regulations, such as official holidays. Economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote conclude that “mandated holidays can explain 80 percent of the difference in weeks worked between the U.S. and Europe and 30 percent of the difference in total labor supply between the two regions.” They suggest that Prescott may overstate the role of taxes because, looking across countries, tax rates and unionization rates are positively correlated; as a result, the effects of high taxes and the effects of widespread unionization are hard to disentangle.

A final hypothesis emphasizes the possibility of different preferences. As technological advance and economic growth have made all advanced countries richer, people around the world must decide whether to take the greater prosperity in the form of increased consumption of goods and services or increased leisure. According to economist Olivier Blanchard, “the main difference [between the continents] is that Europe has used some of the increase in productivity to increase leisure rather than income, while the U.S. has done the opposite.” Blanchard believes that Europeans simply have more taste for leisure than do Americans. (As a French economist working in the United States, he may have special insight into this phenomenon.) If Blanchard is right, this raises the even harder question of why tastes vary by geography.
"

December 03, 2012 7:42 AM  
Blogger Mark Frank said...

Bret

Nice extract - measuring unemployment is complicated enough before you even get to assess the causes.

One criticism of this set of comments is that it treats "Europe" as one economic entity. It is many different countries each with their own laws and culture.

December 03, 2012 7:55 AM  
Blogger Bret said...

Mark Frank,

A couple of things. There are many measures of how "collectivist" a country is, but in the end, I favor total government expenditures at all levels. Using that metric Switzerland, Japan, Australia, and Canada are now LESS collectivist than the United States. Norway has huge oil wealth per capita and Netherlands and Denmark are dinky little countries so it would be like comparing to the best in the U.S. (currently North Dakota, I think) which wouldn't tell you much.

That leaves Germany and Austria as the outliers. Ten years ago, when the U.S. governments were spending less and Germany was spending more (in relation to GDP), the U.S. had better unemployment numbers than Germany (even with the prison population - and note, even Germany has prisons).

So you have a point, but the evidence behind it is far from overwhelming.

December 03, 2012 8:00 AM  
Blogger Mark Frank said...

Bret

I don't think we'll find overwhelming evidence for any explanation of unemployment figures - certainly minimum wage isn't going to do it!

(Although Germany has prisons its incarceration rate is 83 per 100,000 as opposed to USA 730)

December 03, 2012 10:59 AM  
Blogger Hey Skipper said...

Mark:

The nice thing about taking an ideological approach to economic problems is that it saves you the effort of getting to grips with the figures.

The figures in your link are very broad brush, to the point where they mask both the forest and the trees.

In my second link, I mentioned that France's combined 39% rate was triple the US's comparable rate. The link itself breaks down unemployment and participation rates by both age and ethnicity. (The figures were sourced from the

This is important because my point is about collectivism's impact on the labor market, not about other issues which themselves impact unemployment, but aren't caused by the labor market, although they might well be due to other consequences of collectivism.

To wit, the African-American unemployment rate ages 16-24 is 28.6%, a full ten points ahead of Hispanics, and darn near twice that for Whites and Asians.

Unless the labor market itself is racist — it isn't, except perhaps in a reverse sort of way — then the explanation for that difference lies outside the labor market. I'd look far more towards social pathologies, primarily the extremely high rate of single-mother households and horrid schools.

Whatever their causes might be, rigid labor markets can't be among them, although an excessive minimum wage can't be helping.

Regarding the labor force participation rate, 71% of all young adults 20-24 participated. However, the non-participation rate includes those still in school, so the actual rate is higher (although the link only discusses the impact of school in the 15-19 age group).

The point being that excluding Blacks means the core unemployment rate is about 16%, far less than in France. And this difference has been long standing; I remember The Economist discussing back in the 1990s the reasons why youth unemployment was so much higher in Europe than the US. Among the reasons they gave was the high minimum wage, as well has a rigid labor market.

I haven’t time to calculate the effect of full-time education but an interesting example which I looked at a year or two ago is the effect of prison rates on unemployment rates. Prisoners do not count as unemployed (or employed). The USA incarcerates about 5 times as many people per 100,000 as other OECD countries.

I hadn't thought of that.

However, it is worth noting that Blacks are disastrously overrepresented in the prison population, probably for the same reasons as they are overrepresented among the unemployed. Striking them from the incarceration statistics (which one must, because the reasons for the substantially higher criminality are external to the law) makes the US incarceration rate much lower — the Black incarceration rate is four times that of whites; further, 70% of inmates are non-white.

Consequently, I prefer to make comparisons like this more like-to-like. With respect to whites, the incarceration rate is 223 per 100,000. That is more than England, at 155 per 100,000, but not a heck of a lot more. (Granted, there are probably racial discrepancies there, too).

In any event, the incarceration rate in the US is just over 1%, so even if every one of them was added to the unemployed, or not participating, stacks, the numbers wouldn't change that much.

December 03, 2012 5:43 PM  
Blogger Hey Skipper said...

This comment has been removed by the author.

December 03, 2012 5:44 PM  
Blogger Hey Skipper said...

Well, that was a fairly decent shake, rattle, and roll just now.

December 03, 2012 5:44 PM  
Blogger Mark Frank said...

Hey Skipper

If you are going to make a more detailed comparison between the USA and France then you need to compare similar figures. It looks like you have compared the US White/Asian youth unemployment with the France whole population youth NEET+unemployed. Presumably there are NEET youth in the USA – they would be part of that 45% of youth who are not participating. France also has ethnic minorities with social problems and no doubt the unemployment rate is much higher among them. Nevertheless I am sure that the unemployment rate in France and other countries hit by the Eurozone crisis is higher than the USA. My main point is that there are plenty of other countries with collectivist policies (and high minimum wages) with lower youth unemployment than the USA.

December 04, 2012 12:30 AM  
Blogger Hey Skipper said...

Mark:

You are right, I do need to compare similar figures.

I went reviewed the story that was the inspiration of this post. The French NEET + unemployment figure is for ages 15-29; the unemployment figure I cited for the U.S. was 15-24.

Consequently, the French number includes a significant proportion of people — about 30% — who are nearly all post-secondary education. That means it should be much lower than the US, if everything else was equal, because the U.S. figure includes many who are still in college. (To put it differently, the US figure for ages 15-29 would be substantially lower than 15-24.)

Putting the numbers on similar footing makes things look even worse for France in particular, and probably Europe in general. Clearly, things are not equal.

The Eurozone has long been characterized by much more collectivist employment policies (higher minimum wages, greater protections against being laid off, and higher taxes on labor). It has also been characterized by higher unemployment over the last 20 years.

Unfortunately, your OECD link is broken (worked fine a couple days ago), so I can't review it to see what.

However, I did stumble onto an OECD chart showing the "tax wedge" (difference between total labor costs and take home pay). For France, it is 49%; US 30%. The core EU countries are all north of 40%, save for the UK at 33%.

Taking another look at unemployment, US youth unemployment is lower than every OECD country, save for Canada, Germany, and Japan (and that number ignores the racial disparities unique to the US that are independent of the economy). Canada is nearly a statistical dead heat.

And from the OECD's Employment Protection: The Costs and Benefits of Greater Job Security:

Since employment protection legislation tends to reduce both dismissals and hiring, its overall impact on aggregate unemployment is unclear, both in economic theory and in the empirical evidence. This notwithstanding, the effects of employment protection legislation are different for different groups. For instance, first-time entrants (mainly young people), and re-entrants (mainly women who are more likely than men to move between employment and inactivity, in particular when seeking to balance the competing demands of work and family life) are more likely to be affected by reduced hiring opportunities while being less in a position to benefit from fewer dismissals. And
indeed, empirical evidence suggests that strict employment protection legislation may reduce the employment rate of both youth and prime-age women.

December 05, 2012 11:01 AM  
Blogger Mark Frank said...

Hey Skipper

Well it is quite interesting poking into figures so I will carry this on for a moment. You ignored my reasons for the figures not being comparable. Does that mean you accept that they are not comparable? After all comparing the NEET+unemp to just unempl is a pretty dramatic difference. Full time education is one of the categories that is neither employed nor unemployed – so it is not obvious what difference the different age groups in France and USA should make.

Putting the numbers on similar footing makes things look even worse for France in particular, and probably Europe in general. Clearly, things are not equal.

But we haven’t come close to putting things on a similar footing at all. And why do you say “probably Europe in general” when the figures are there showing the enormous differences between different parts of Europe with many, such as Germany, having dramatically higher tax rates and dramatically lower unemployment than the USA?


"The Eurozone has long been characterized by much more collectivist employment policies (higher minimum wages, greater protections against being laid off, and higher taxes on labor). It has also been characterized by higher unemployment over the last 20 years."

So now you switch to unemployment in general. I suspect that overall that is true – although with many anomalies. However, correlation does not prove causation and there are plenty of countries with collectivist policies and low unemployment.

"Taking another look at unemployment, US youth unemployment is lower than every OECD country, save for Canada, Germany, and Japan (and that number ignores the racial disparities unique to the US that are independent of the economy). Canada is nearly a statistical dead heat."

Why do you think that other countries don’t have groups with special employment problems? Not necessarily on racial lines.

Anyhow I think we must be reading the table in different ways. There are a lot of columns!For youth unemployment 2011 and Q1 and Q2 2012 I get all these countries with a lower rate than the USA:

Germany

Norway

Switzerland

Austria

Korea

Japan

Netherlands

Mexico

Israel

Australia

Canada

Iceland

Denmark

Turkey

Some like Germany are less than half the USA. Almost all of these are higher than the USA on your table of tax wedge.

December 05, 2012 2:39 PM  
Blogger Hey Skipper said...

Mark:

Regarding NEET, I think the link I used did discuss that, because it noted the substantial change in unemployment numbers between the 15-19 and 19-24 age groups. They attributed the difference to the changes in school attendance.

I haven't been able to untangle the difference between schooling, unemployment, and NEET in comparing numbers. And finding statistics that do that isn't easy. Moreover, the welfare state nature of Europe makes it nearly impossible to properly compare. Retirement ages in Europe are lower, often far lower in than in the US. So someone who isn't working in Europe might well not be considered unemployed, because they are retired, while a similar person in the US might still have ten years working ahead of them, and therefore considered unemployed.

And why do you say “probably Europe in general” when the figures are there showing the enormous differences between different parts of Europe with many, such as Germany, having dramatically higher tax rates and dramatically lower unemployment than the USA?

Because it isn't a fair comparison to say US vs. Germany. It makes sense to compare the US to Europe, and it makes sense to compare states in the US to similar size countries in the EU. Texas, which is much more comparable in size to Germany, has low taxes and an unemployment rate, at 6.8%, slightly lower than Germany's.

Just so with your list of countries with youth unemployment lower than the US. The countries you list are far smaller, largely ethnically homogenous, and none of them have the embedded social pathologies that, through slavery, Jim Crow, and the predations of The Great Society, afflict African Americans. (This same sort of problem afflicts other issues — supposedly the US spends much more money on health care, but gets worse results. However, if you compare like against like — European Americans v. Europeans, or even just exclude African Americans — the differences vanish. Every comparison that involves the economy, health, or crime rates must take that central problem on board, but almost never does.)

Compounding matters, comparing the US in general to specific European countries also blurs the substantial difference between individual states, many of which are as large as European countries. Twenty-one of the US states have an unemployment rate lower than Germany's.

Since my point is that high minimum wages, social charges, and market inflexibility harm employment, lumping states like California and New York with states such as Texas or Utah uses the consequences I am trying to point out to hide the consequences I am trying to point out.

Therefore, the list of countries you have fails to demonstrate your point, because I could put up a list of similar size states that have lower youth unemployment.

Also, within any given state, it is probably worth comparing Jewish Americans v. Isreal, or Korean Americans v. Korea, etc. Not only does the gross US rate hide differences among states, it also includes a very high immigration rate, and African American problems that have nothing to do with the economy.

So, if you want comparable figures, take individual US states and compare them against EU countries, and then use similar populations so as to exclude factors that are beyond issues like taxation, rigidity, and minimum wages.

Finally, there is anecdotal evidence. Anchorage, Alaska, 25th on the list above, has an unemployment rate, at 7.1%, scarcely above Germany's. My 19 yr. old daughter, a high school graduate, got a $10/hr job — her very first — after one week of looking, and had two other offers.

December 06, 2012 11:37 AM  
Blogger Mark Frank said...

Hey Skipper

I am not sure this is going anywhere – but it is a good mental exercise before breakfast.

1) The point about NEET is that the French figures included it, the US figures did not. It is as simple as that. The age group difference does not in any way allow for this.

2) Comparing US States to European countries

As an aside US States may be geographically much the same size European countries but only a very few are comparable in terms of population. Many of them have less than a million population!

But that is not the real point. I am all for doing the analysis at the level of US State and European country – rather than Europe vs USA. Each is a unit with its own tax rates, employment laws and culture. If you want to prove that “collective” policies lead to high unemployment then each one can be considered to be a trial matching policy with unemployment rate. The result? You end up with negligible correlation.

Even more important - correlation does not prove causation. For example, collective policies may be a response to high unemployment; and a high percentage of minorities with social problems may be a common cause of both (blacks have higher unemployment and tend to vote Democrat).

3) European countries also have large ethnic minorities with embedded social pathologies.

Every comparison that involves the economy, health, or crime rates must take that central problem on board, but right wing US commentators almost never do . This is particularly relevant when comparing health care where the criticism of the US system is twofold:

* It does not distribute care as equally

* It is incredibly more expensive for little extra health gain

Very few critics dispute that it provides excellent care for those that can afford it.

December 06, 2012 11:24 PM  
Blogger Hey Skipper said...

Mark:

I'm not absolutely certain it is going anywhere either, because it is easy to start parading stats confirming one's own preconceptions — and my "one", I include myself in that group.

However, it think it is provable that collectivism imposes serious economic and liberty costs — there is no such thing as free, yet collectivism acts as if there was.

1) The point about NEET is that the French figures included it, the US figures did not. It is as simple as that. The age group difference does not in any way allow for this.

Probably because, when looking at similar populations, the NEET number for the US is negligible. I know some say otherwise, but I don't think they have done their sums.

The labor force participation rate for ages 20-24 in the U.S. was 71%, which would look bad for NEET, except the vast majority of the difference is accounted for by college enrollment, which is 51% of the college age population, M-F average. From 25-34, it is 82% (90.3% Male, 74.7% Female). That means NEET in the U.S. can't possibly be larger than 18%, and, in reality, has to be smaller, if only because it abuses the definition to include full-time parents.

(It is true that labor force participation has been on a long term downward trend — something like 12 times as working age men are on long term now than in 1960, a period which has seen both greatly improved medical care and substantially increased disability benefits. See Charles Murray "Coming Apart". But that only adds to my point about the costs of collectivism.

I am all for doing the analysis at the level of US State and European country – rather than Europe vs USA. Each is a unit with its own tax rates, employment laws and culture. If you want to prove that “collective” policies lead to high unemployment then each one can be considered to be a trial matching policy with unemployment rate. The result? You end up with negligible correlation.

I admit that I have only done eyeball analysis, but the rank ordered list by state of unemployment looked like having a much higher representation of the least collectivist states in the lower half (i.e., of the states having unemployment rates equal to or lower than Germany's). The worst states are the most collectivist.

An additional problem is that in the U.S., because state income taxes are deductible from federally taxable income, collectivist states get to impose some of the costs of their collectivism upon taxpayers in less collectivist states. Through my federal income taxes, I am subsidizing the collectivism of California, New York, and Illinois, despite living in Alaska.

3) European countries also have large ethnic minorities with embedded social pathologies.

Note, I am not excluding all minorities, only the one which has absolutely no counterpart in Europe, and which significantly skews statistics in realms having nothing to do with the real problem.

Hence my health care example. I am not arguing about expense or affordability, only that citing longevity for the entire population as some sort of indicator about effectiveness leads to an incorrect conclusion.

December 09, 2012 1:38 PM  

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