A leading think-tanksays ‘Old Europe’could teach us a fewthings.
Should America Reconsider The Welfare State?By Cliff Montgomery – Jan. 22nd, 2007The Center for Economic and Policy Research (CEPR), a liberal think-tank, released the study, “Old Europe Goes To Work: Rising Employment Rates in the European Union,” by John Schmitt and Dean Baker in September 2006.The issue here is the welfare state. If correct, the CEPR study indicates that we may want to give the conservative arguments against welfare a much closer look. We quote from the report below:“During the 1990s, many economists, international organizations, and politicians promoted U.S.-style labor-market flexibility as a solution to Europe’s employment problems. Through much of that decade, the United States did have a significantly higher share of its working-age population in jobs than Europe as a whole. [But] by 2005…the overall employment gap had fallen to 6.1 percentage points, reflecting both declines in employment rates in the United States and increases in employment rates in Europe.”In this brief report, we focus on employment rates for the “prime-age” population–those in the 25-to-54 age range, who have generally completed full-time schooling and are still too young to retire. Among this core population, over the last five years, Europe has nearly closed the employment gap with respect to the United States. The small remaining difference is due almost entirely to low employment rates among women in this age range in Italy and Spain, two large economies with weak welfare-state institutions and long traditions of low female employment.”Critics of the broad European social model, however, [claim] that welfare-state institutions have had the biggest–if unintended–negative impact on Europe’s least-advantaged populations, including younger and older workers (and women and the less-educated). We have argued elsewhere that the employment case against the welfare state is not strong (see Howell, Baker, Glyn, and Schmitt, 2006, and Schmitt and Wadsworth, 2005). In 2005, for example, in Sweden, the quintessential welfare state, 73.5 percent of 15-to-64 year olds were working, compared to 71.5 percent in the United States. The Netherlands (72.0 percent) and Denmark (75.5 percent) are two other highly regulated European economies with larger shares of their adult population in employment than the United States has.”In this paper, we also want to emphasize that welfare-state institutions sometimes act to reduce employment of younger and older workers quite intentionally. Many European countries, for example, made explicit decisions to encourage early retirement, which had the intended effect of lowering employment rates for 55-to-64 year olds.”In both the United States and Europe, governments have also worked to expand access to full-time higher education over the last 40 years. In Europe, these efforts have included keeping fees for post-secondary education well below those in the United States. In some countries, governments also provide student stipends and other income supports that [ensure] students generally don’t have to work while in school.”Whether we agree or disagree with these policies, they presumably reflect Europeans’ democratic choices, with electorates well aware that the impact of these decisions would be to lower employment.”Economists are increasingly emphasizing the importance of the employment rate [as]…a useful indicator of economic performance, capacity, and well-being.”The employment rate has several advantages over the unemployment rate. First, the employment rate is a better measure of the success that economies have had in incorporating women into the paid workforce.”Second, the meaning of a reduction in the unemployment rate can be ambiguous. The unemployment rate can fall because workers are, on net, leaving unemployment to take jobs, or because they are, on net, giving up their job search and becoming ‘economically inactive’.”By far the best performers [in employment] have been the three small economies…[of] Denmark, the Netherlands, and Sweden. Compared to the United States, these three economies have much more established welfare-state institutions, including substantial taxation, generous unemployment benefits and other income supports, employment protection legislation, and strong unions.”In 2005, overall employment rates were higher than they were in the United States (79.3 percent) in all three countries: the Netherlands (81.5 percent), Denmark (83.9 percent), and Sweden (82.9 percent). The three small, regulated, economies did particularly well in placing women in paid employment, with the Netherlands (74.0 percent), Denmark (80.0 percent), and Sweden (80.8 percent) all surpassing the United States (72.0 percent).”For the prime-age population, the employment gap between Europe and the United States has all but disappeared in the last five years. The narrowing of the gap reflects falling employment rates in the United States in the 2000s and rising employment rates in Europe over the same period. The five-percentage-point gap between Europe and the United States in overall employment rates for 25-to-54 year olds in 2000 declined to just 1.1 percentage points in 2005.”The true employment gap is almost certainly smaller, since high incarceration rates in the United States boost measured employment rates by excluding a large group of men from the non-institutional employment statistics.”
