The European Job-Killing Machine
From the desk of Richard Rahn on Fri, 2006-09-22 16:44
Assume you were a graduate student trying to make as much money as possible during the summer. You obtain a job at a resort, and you ask the manager the maximum number of hours he will allow you to work. He says you can work seven hour shifts without a break other than for necessities, with 10 hours between shifts, for an average workday of 10-1/2 hours. You agree, with appreciation. In America, you would be praised for your work ethic; but in Europe, you would be engaging in an illegal act.
In the real world, we know employees have widely varying preferences about how long they work at a stretch and how they prefer to bunch their workweek. For instance, we know some workers prefer to work long hours for three or four days and then take extended weekends, while others prefer shorter workdays. Some jobs are physically demanding or mentally intense and require frequent breaks, while other jobs require little in physical effort and only periodically require any activity (such as a drawbridge operator). In many types of jobs, playing the radio or eating while working is perfectly acceptable.
The European Court of Justice has just ordered the British to adopt some of the more rigid work rules of Continental Europe. One reason the British have prospered more and have almost half of the unemployment rate of Germany and France is the British have much more flexible work rules. Now the European Union demands the staff in British firms have at least 11 hours off between work days, a minimum of one day off per week, and an extended break at least every six hours.
Such rules may seem reasonable on average, but they ignore the reality of necessary “crunch time” at many accounting firms at tax time, law firms during intense negotiations, high-tech firms at critical product development times, retailers during the week before Christmas, hotels and restaurants during high season, farms during harvests, and in news rooms during critical events, etc. They also deny employees the fundamental freedom to bunch their working time if they so choose, and to work as hard and to earn as much as they wish.
A major reason the U.S. has grown more rapidly than most other developed countries is that unions and the government have, for the most part, been sensible enough to recognize both differences in job requirements and in personal preferences to allow employees and employers to voluntarily find ways to accommodate each other’s needs to everyone’s benefit. France, Germany and some of the other European countries have extremely rigid work rules, such as the French requirement that workers not work more than 35 hours weekly, even if they want to, and the almost impossibility of firing workers, no matter how lazy and incompetent. The predictable result is there has been little growth in private-sector employment in these countries – the U.S., with a smaller population, has created more private sector jobs in the last four years than Europe has in the last 20.
Sweden is often cited as an example of the success of the high-tax high-spend European model. But in fact, Sweden has created virtually no new net private sector jobs since 1950, and has fallen from the fourth-richest, on a per capita basis, member of the Organization for Economic Cooperation and Development (the group of major industrial countries) in 1970 to only 16th now.
Germany has had little economic growth in recent years, yet it has only flirted with economic reform, rather than moving boldly toward reducing job destroying impediments as Margaret Thatcher did in Britain and Ronald Reagan did in the United States. Germany has reduced its corporate tax rate, but is slated to raise its value added tax (VAT) from 16 to 19 percent at the beginning of 2007. This will further dampen consumer demand in Germany, and lead to even lower job creation which it can ill afford with an unemployment rate of more than 10 percent.
The headquarters of the EU in Brussels seem intent upon destroying the remaining vibrant parts of the European economy. They are about to place onerous regulations on the chemical industry (without doing sensible cost-benefit analysis) that will destroy much of it and the workers it employs. The European attempt to stop tax induced capital flight through its “Savings Tax Directive” has predictably failed. It has caused even more capital to flee to places, such as Hong Kong and Singapore where the European governments cannot touch it.
We will know the Europeans have finally become serious about stopping the killing of jobs when the European Court of Justice recognizes the restrictive work rules in France, Germany and elsewhere are a denial of the fundamental human right to earn a decent living and work as much as one wishes. But, as the ruling against the British shows, their European neighbors still seem more intent upon killing success than emulating it.
This piece originally appeared in The Washington Times on Sept. 21, 2006.
re: Can't Agree
Submitted by loikll on Sun, 2006-09-24 00:50.
marcfrans is right, in a country of 300 million and an economy of 145 million jobs, one cherry-picked anecdotal example is less than absolutely meaningless.
Of course your San Francisco "customer rep" could go off and become a web designer -- one of many entire careers that simply did not exist in the 1980s, and which exists today because and only because the American economy had the flexibility to create new technologies and whole new industries.
I'll point out that the any web designer jobs in Europe also exist today only because Americans created that industry. There is a lot of that, as much productivity and innovation are incubated in the US, and other nations benefit from it. Not so much in the other direction.
But to Brian's point, because the US economy is more free than most, it is free to award those who most productively serve their fellow man by satisfying their needs. That's so obvioulsy a good thing that it always amazes me how many people don't get it, and how many people fight it, and how many people wish the government would put a stop to it.
And the labor market is utterly free to reorganize itself to be rewarded. In this country at least, a 35 or 40 year old can abondon their careers to go to medical school and become high-paid doctors. My brother and sister are two examples. Is there much of that elsewhere? It sounds like a pep talk but it's true: people are limited only by themselves. The opportunities are certainly there -- my company constantly struggles to fill job openings. We'd be creating more of those new jobs if more people would only come work for us.
confused dissenter #2
Submitted by marcfrans on Sat, 2006-09-23 20:25.
@ Brian Soper
The reality is;
-- that labor market flexibility is considerably higher in the USA than in most European countries, certainly than in the big continental European countries. The so-called 'Lisbon-agenda' is supposed to remedy that, but the EU has a long way to go to get that 'agenda' implemented. As a result there has been considerably more job creation in the USA than in Europe. Indeed, there have been more jobs created in the USA over the last 3 or 4 years than in Europe over the last 25 years, and the unemployment rate in the USA is roughly half the European one. However, to be fair, there are some 'smaller' European countries which have managed to preserve or to restore sufficient labor market flexibility on their markets, and who have an unemployment rate similar to (and in some cases better than) the American one. Ireland is the prime example.
- It is true that the income distribution appears to have worsened somewhat in recent years in the USA, and that "real disposable income" for a large number of lower-middle-income people has not risen (and in some cases declined somewhat) over the current business cycle. However, the 'big picture' certainly is that real disposable income for the average typical american household has significantly increased since your reference point of 1986.
- Income per head in the USA today is again about one third larger than in Europe. Roughly between 1970-90, income per head in Europe was rapidly catching up with the USA one. However, over the past decade or so that trend has been reversed, and real incomes (after inflation adjustment) have been rising faster in the US than in Europe.
Confused dissenter
Submitted by marcfrans on Sat, 2006-09-23 19:52.
@ Brian Soper
You appear very confused in your mind about economic concepts. But, like most people, you are good at repeating nonsensical slogans (like "...job creation... on the backs of the hard working middle class". How does one create jobs "on the back of a hardworking middle class"? That is pure nonsense.
First, the subject of this article by Rahn is 'labor market flexibility' and job creation. And the tiny little comment by 'loikll' is essentially about a rather extreme example of flexibility on 1 particular labor market in America. Your complaint about the evolution of "real disposable income" associated with 1 particular job (a "customer service job in San Francisco") over the past 20 years has nothing to do with the subject at hand.
Second, even if we were for a moment to accept your (probably wrong) assertion about the evolution of that specific example of a particular "disposable income" in San Francisco, it would be wrong (meaningless) to make comparisons between continents on such a narrow basis of 1 example concerning the evolution of real disposable income over time on both continents. And, again, it is totally ludicrous to mix 'apples and oranges', i.e. to present your purported example (concerning a disposable income) in a discussion on labor market flexibility and job creation. Maybe you should apply for a job with Martine Aubry, the former French minister of labor who mistakingly thought that the number of jobs (in the sense of work hours) is a 'fixed variable' so that lowering the workweek to 35 hours would create more jobs, because the 'fixed work hours' could then be distributed over more people. This is all economic illiteracy.
Let's get back to reality, shall we?.......
Can't Agree
Submitted by Brian Soper on Sat, 2006-09-23 18:07.
The United States does not really present a wonderful example of a country where the willingness to work hard, work smart, work fast and work long hours or doing all 4, while juggling multiple tasks leads to prosperity. Much of the job creation that you refer to has come on the backs of the hard working middle class.
In 1986 a customer service job in the San Francisco Bay Area paid $28,000/yr including 10 days paid sick leave, 10 days paid vacation, Medical w/Vision ($25/yr deductible & $5.00 for prescriptions) Dental $1600/yr, a pension program and an optional Individual Retirement Account with a small encouragement contribution from the company.
20 years later, the pay for a customer service job has grown by a whooping $3.846 to $36,000/yr, the same paid sick leave and vacation, typically 25% employee burden for medical coverage (drug coverage, hope the drug is on the list), Vision optional, even a higher burden for Dental, don’t even ask about orthodontics, Human Resources will chuckle, No pension plan and you can opt in for an IRA or not. What passes for a pension is paid to your IRA and is tied to the fuzzy executive number-play of profit sharing. In the mean time executive pay has risen by 400%.
The 1986 job represented more disposable income, a lot more and with the quality of life that has been lost, so has gone a piece of ones freedom.
Man's gotta do what a man's gotta do
Submitted by loikll on Sat, 2006-09-23 04:25.
Yo I pulled an all-nighter working though til 6 AM, caught two hours sleep, went back in and worked through the day til 2000 on Friday night. Because I made a committment to a client. Geez I guess they'd lock me away for life in Europeaser land.
... the fundamental human
Submitted by oiznop on Fri, 2006-09-22 18:08.
... the fundamental human right to earn a decent living...
Absolutley...Just keep in mind that a decent living is NOT OWED to anyone!.....
... the fundamental human
Submitted by evan on Fri, 2006-09-22 17:16.
... the fundamental human right to earn a decent living...
Once upon a time Anglo-American common law recognized that very right, which could be traced all the way back to the Magna Carta. It was destroyed beginning in the late 19th century and culminating in just a few years of rampaging against centuries of legal tradition in the late 1930s in the wake of the threatened Roosevelt court-packing. The fascinating history of this legal evolution is traced at www.independent.org/tii/content/pubs/review/tir71_sandefur.html.