European employment rates

A short missive from Dean Baker:

Old Europe Goes to Work

Remember the days when the European welfare state led to economic stagnation and high unemployment? Well, like hula hoops and bobby socks, this story may be a relic of the past. The latest data from the OECD show that employment to population (EPOP) ratios for prime age workers (ages 25-54) are almost identical in the EU-15 countries and the United States.

The EPOPs for young workers and older workers are still substantially lower in the EU than in the United States, but this is largely the deliberate outcome of policy decisions. In the case of young people, European countries have very low college tuition and often give students stipends. As a result, most European college students do not work. In the case of older workers, European countries generally have lower retirement ages, so that workers can often begin to receive benefits in their mid or late fifties. Whether or not these are good policies, Europeans recognize that student stipends and early retirement benefits are lowering employment rates, so the low EPOPs among the young and old can not be seen as failings of their labor markets.

The Eurosclerosis argument certainly was widely accepted until recently. My sense is that tight monetary policy in the lead up to deeper economic integration deserves a sustantial portion of the blame for negative macro stats on GDP and employment. In any event, the critique of Europe was always constained in its choice of indicators: what about leisure time, inequality, poverty, health outcomes, environmental performance, or economic security?

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