Re: Full Employment is what?

["William F. Hummel" <wfhummel@xxxxxxxxxxxx>]

Sven Larson wrote:

>"William F. Hummel" wrote:
>>
>> Voluntary ELR with guaranteed income seems like a prescription
>> for a gradual opting out of the workforce.  Of course it would
>> depend on the amount of guaranteed income relative to the minimum
>> acceptable income of the private sector work force.  But surely
>> there is a danger of a losing in the price competition in a world
>> of free trade.  It may take a long time, but the elements would
>> appear to be in place for a downward trend in economic growth and
>> (average) standard of living.  I have to wonder whether the
>> European experience is truly supportive of your thesis.
>
>Persson & Tabellini (AER '95) shows that economic growth correlates
>positively with even distribution of income in small open economies.

I would like to know precisely how P&T measure evenness of
income.  There are many forms of income.  Is owner and rentier
income included along with manager and worker income?

>They do not take welfare into account, but it's not a very dramatic move
>to suggest that generous welfare programs make similar contributions.
>(The opposite extension of their argument would be a bolder move.)

I don't know what you mean by "similar contributions."  Welfare
income cannot contribute much to economic growth unless
productivity of the workforce somehow increases.  And generous
welfare programs are likely to contribute to a smaller workforce.
Off hand, I see no connection between generous welfare programs
and evenness of income, particularly if welfare programs are not
taken into account.

>If increased remuneration with effort is significant to workers, then in
>the end it would be hard to explain P&T's results.

Why?

>Also, it would be
>hard to explain, e.g., why Denmark, where welfare is comparatively
>generous and workfare institutions are rare, still has one of the lowest
>unemployment rates in the industrialized world. You can find similarly
>illustrative examples elsewhere in Europe where more or less harsh
>workfare regimes have walked hand in hand with comparatively low growth
>and high unemployment. Just look country by country. It's actually very
>interesting.

My main experience in Europe is Germany where unemployment has
been stubbornly high for a long time and economic growth has been
relatively poor.  It can reasonably be argued that the cause is
the generous benefits to the unemployed and the "fringe benefits"
for employees that would make US workers envious.

Long vacations are the rule, and they take priority over company
business.  I worked as a consultant to MBB in 1978 on a proposal
to ESA for a spacecraft program they were bidding on with a team
of other European members.  I was amazed to see the chief
engineer of the team (a German) take off on vacation for 3 weeks
right in the middle of the effort.  That simply wouldn't happen
in the US, where a proposal team usually expects to work nights
and weekends.  At MBB, few Germans showed up on Saturday, and no
one was even allowed to work Sunday because the law prohibited
it.

I have to wonder whether Denmark has cultural patterns or laws
that tend to work towards a more equitable distribution of income
than most other countries.  I believe Japan has relatively little
in the way of welfare benefits, yet it has a remarkably even
distribution of income if measured by the ratio of manager to
worker pay.

William F Hummel