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).


3 comments so far

  1. Martin Wisse on

    Galbraith is largely wrong on this, as he neglects to take into account the simple fact that while their may be pay inequalities between countries, there are also cost of living inequalities and these are correlated with those pay inequality. Dutch workers need to pay Dutch prices, Polish workers Polish prices. Granted, there is a significant amount of in-EU migration as workers from lower priced countries sought work in higher paid countries, but for the overwhelming majority of people what matters is their own country, not the EU as a whole.

  2. Jim Tressor on

    Interesting article on flexicurity as a possible cause for European Unemployment –

  3. Jakob on

    What the comparison fails to take in consideration is that the Nordic countries tend to have both a more egalitarian labor market and lesser unemployment. Hence the explanation model pointing towards equality as the factor for unemployment fails. My theory is that equality doesn’t have anything to do with this, rather factors as the overall functioning of the labor market, the way the labor unions work etc are critical.

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