TCS Daily


Casino Royal, Gambling With Jobs

By Johnny Munkhammar - February 15, 2007 12:00 AM

The Socialist candidate for President of France, Ségolène Royal, recently presented her Election Manifesto with 100 proposals. It includes an increase in the minimum wage, higher taxes, more regulations in the labor market, expanded public welfare contributions, subsidised jobs for the young and nationalisation of companies. She promises to fight globalisation and free-market reform.

This is a candidate for President - who might very well win - in a country that experienced weeks of riots in its capital little more than a year ago. The current President concluded that France suffered from a profound "malaise." In short, they have many great economic problems, which they share with several countries in Western Europe. And Ms Royal promises not only to protect the current model, but also to do more of the same.

It is true that unemployment is down a bit in the EU, and in the euro area, at the moment. At 7.5 per cent, it is the lowest in a long time.

That said, these employment figures would be worrisome in other western countries, such as the United States. And the figures for unemployment don't show the whole picture. There are at least as many people of working age as the formally unemployed that don't work, but they are called something else, like early retired. The total number of people who are excluded is very high, and they are so for a long time. This is especially true for young workers and immigrants.

What's more, a comparison between the more free-market US, and the EU, is revealing. The share of the working-age population employed in EU countries is only 64 per cent; in the US, it is 72 per cent. In 2004, only 13 percent of unemployed workers in the US were unable to find a new job within 12 months; in the EU, the figure was 44 percent. In the EU, average youth unemployment is 17 percent. In the US, it is 10 percent.

And some of the most interesting comparisons can be made within Europe itself. Youth unemployment is above 20 percent in Greece, Italy, Sweden, France, Belgium, and Finland; but it is below 8 percent in Ireland, the Netherlands, and Denmark.

In the EU's 15 member states, between 1995 and 2004, the change in employment rates was also very different among countries. In Ireland, the Netherlands, and Spain, the increase in employment was the highest; in Germany and Austria, it was almost zero.

What yielded these differences? Labor markets are substantially freer in the countries that succeeded in creating new jobs. Payroll and income taxes were more than 10 percentage points lower in the five best economies (in terms of job creation) compared to the five worst. And the levels of contribution from the state for unemployment and sick leave were lower in the best economies.

This should not be a surprise. In recent years, the OECD has published a number of studies that confirm these correlations in its member countries. Government interventions in the labor market produce serious negative effects in terms of unemployment, especially among young people and immigrants. There are numerous academic studies that confirm this.

In the newly published "2007 Index of Economic Freedom" (Heritage/Wall Street Journal), there is a new category called Labor Freedom. It measures the degree of a number of regulations in the labor market on a scale from 1 to 100, and the 41 European countries score between 45.4 and 99.9. The differences are substantial. Countries with a high score, and a relatively free labor market, tend to be more successful in terms of employment.

Combined with the other factors of economic freedom, the correlation is even stronger. The freer a country's economy is, the wealthier it is - and unemployment is lower. When Ms. Royal gambles with populist policies that do in the opposite direction, she is playing with fire - literally.

Johnny Munkhammar is Program Director of Timbro in Sweden. He is the author of "The Urgent Need for Labor Freedom in Europe - and the World" in the "2007 Index of Economic Freedom."


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7 Comments

Hopefully she wins - need continual examples of what not to do
I hope Royal wins and puts her socialist policies into place. Then Europe will have another example of what not to do and what happens when you put more of these policies into practice.

Socialist Policies and the Scientific Method
Historical evidence clearly indicates that Socialist policies do not work as well as those founded on the primacy of the individual and the power of choice. Yet, from South America to Europe to the US Congress, champions of Socialism are unpersuaded and undaunted. So, yes I agree, let the French choose Royal and her policies and let the chips fall where they may. Unfortunately, US imperialism will likely be implicated if the economic situation in France deteriorates.

On a similar note...before the US jumps into the universal health care model being championed by many, why not let the states that are currently determinined to institute such policies serve as field tests. It is also possible, at least I hope it is possible, that other states may implement more market oriented approaches to improving health care quality and efficiency. After a sufficient period of time, results from the two approaches can be analyzed and used to guide future policy choices.

The scientific method can/should be used to enhance the process of policy choice.

It could be worse
France is a great example of the "benefits" of a socialist paradise. High unemployment in relative and absolute terms. High taxes and other "investments" as liberals like to call them. Slow to nonexistent economic growth. And all this supported by a populace which is supposed to be better educated than its American counterpart.

It could be worse. Rather than being relatively pleasing to look at, Royal could have been ugly.

Mr. Munkhammar seems to know it all?
So, here is my question to him: Could you please tell, what it means in terms of wealth and getting wealthier by the day, if that same Nation at the same time in truth, ends up financing the militaty buildup, of one of its most tremendous future military thread? I any American should read my question, that American hopefully, should know of what country I am speaking off.

Ummm...
Are your writing in English? Not a clue as to what you are trying to say in your post.

-Bob

Umm
I knew that most Americans do not know what America is really doing to itself, as the Personal Storage business thrives like crazy!

It couldn't happen to a nicer group of people

If there is any cosmic justice in the world this is exactly what a bunch of cowardly back stabbing surrender monkey ingrates will get. I spent the weekend with a man that is still suffering from shrapnel wounds he received in Normandy. He told me how the day after D-day he found six twenty something French "men" cowering in a basement like women. When offered the opportunity to join the fight they refused. He left them in the basement and the next day he was hit by a German 88 round. I'm sure these same French pantie waists are still bragging about their brave exploits in the resistance and the superiority of socialism.

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