Re: Full Employment is what?

["Per Gunnar Berglund" <pgberglund@xxxxxxxxxxx>]

Dear William,

You wrote:
> 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.

Per says:
While I agree that this may be *one* of the causes underlying sluggish
growth performance, I really think one should put emphasis on the
macroeconomic policies pursued in Germany and Europe as a whole in the last
quarter century.

One must also remember that it is only in the 1990s that the United States
outperforms Europe. In the preceding two decades, per capita growth in
output as well as and labour productivity is higher in Europe than in the
United States. Germany provides a good example. If you look back to the
seventies, German labour productivity is considerably lower than in the
United States. Today, it is at least as high as in the U.S. and probably
higher (there are some conceptual and measurement difficulties here that
makes the case hard to decide). It seems to me that if German labour
standards were so terribly slack, then German workers ought to be far less
productive than U.S. workers, but that is not the case.

The main reason behind the slower growth in Europe is, in my view, the far
too tight fiscal and monetary policies pursued by the governments and
central banks. Since the late 1970s, the German Bundesbank stands out as the
great villain, pursuing very tight 'monetarist' style policies, and also --
by virtue of its dominating role in Europe -- pushing other central banks in
the same austere direction. The cessation of the Mitterand expansion in the
early 1980s provides a good example.

William wrote:
> 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.

Per says:
I personally do not like this sort of slack working standards -- I certainly
side with you from a work ethic point of view. But I still cannot see how
this could provide anything like a conclusive argument about the economic
problems in Europe. Moreover, Germans are not precisely known as work shy!

Finally let me also mention the high payroll taxes and high marginal taxes
charged on wage incomes in Europe as a factor behind a tight supply side.
These factors have little to do with regulations or poor work ethic but
should be taken into account. I recall Robert Eisner would emphasise the
high payroll taxes as one of the reasons behind the high unemployment in
France.

All best,
Per

_____________________________________________
Per Gunnar Berglund
CEPA    80 Fifth Avenue, 5th floor    New York, NY 10011
Tel: (212)229-5923    Fax: (212)229-5903