Old Europe Works
"Call me crazy, but I find the obsession with Gross Domestic Product in economic commentary to be odd, not to say perverse."
By Max B. Sawicky
Call me crazy, but I find the obsession with Gross Domestic Product in economic commentary to be odd, not to say perverse. Would you count yourself better off if you worked 75 hours a week instead of 40? Not necessarily, since time not working is valuable. Of course, sometimes you want the work, so the choice has value as well.
Our economic accounts place a zero value on leisure time, vacation time, time spent caring for children or for Grandma. Zero. Even worse, in the U.S. debate, nations that make a social choice in favor of shorter work weeks and longer vacations are scorned. It’s as Josef Stalin had been reincarnated as some demented industrialist. “Work harder, you bastards!”
Which brings me back to France. I love France. J’aime la France beaucoup. Comprenez vous? I’ve been there. I can’t wait to get back. My daughter has been in a French immersion program since kindergarten. We were worried about her keeping up in English later on. No problem. A few kids fell out of the program, but not many. Every child should have a chance to get bilingual.
France gets a lot of flack for its foreign policy, but that’s a subject for another day. In my previous Pajamas column, I noted the comparability of labor productivity in France to the U.S. and some people said, what about unemployment. So let’s get to it.
A key study is here, another here. We learn that among social-democratic nations, there are some with big welfare states and unemployment on par with the U.S. (Austria, Denmark, Netherlands, Norway, and Sweden). There are also countries with similar rates and moderately larger public sectors, such as Great Britain, Canada, and Australia. The problem states, relatively speaking, are Belgium, Finland, France, Germany, Italy, and Spain.
One problem with comparing the rates is that definitions of “unemployed” differ across nations. A backwards illustration of the problem lies in the fact that by these data, Mexico has lower unemployment rates than the U.S.! Unbelievable. A further difficulty is that some countries change their own methods, so a rate in one year does not necessarily compare to the same rate at another point in time.
Blogger and Guardian columnist Daniel Davies, a.k.a. “D-Squared,” noted how easy it would be for France to reduce its unemployment rate:
” . . . [R]educe the student grant, but make students eligible for unemployment benefit. On top of this, make all other state benefits for 20-24 year olds conditional on actively looking for work, in some half-defined fashion. This will immediately increase the measured labour force participation rate of French 20-24 year olds. Since the unemployment rate is defined as the unemployed population relative to
the labour force, the increase in the denominator will bring the unemployment rate down at a stroke.”
One way to evade definitional problems is to compare employment to population, leaving out the squirrelly youth age bracket. If you look at the 25-64 age group, you find that the U.S. rate in 2005 was 79.3, and in France it was 79.6. I have deliberately cherry-picked a year to show that the U.S. is not always ahead of France. Of course, sometimes it is.
Is France without problems? Of course not. It obviously needs to better integrate minorities into the workforce and educate immigrant youth. Sound familiar?
On the vacation front, since my last bit on that subject some updates have been published. The U.S. remains an outlier in failing to mandate any paid vacation for workers. Consequently, one in four U.S. workers get no paid vacation or holidays.
Some took umbrage at the idea of the government forcing employers to provide any benefits on the grounds that the worker should have the choice of trading benefits for money wages. This would indeed have some value insofar as it would be possible. But by the same token, some workers who are not permitted to take any paid time off would like the opportunity. If they can’t find a job with that possibility, they lose out. So whichever way the Gov moves, somebody is disadvantaged.
The U.S. chooses to work more, the French to work less. Are they wrong?
Max B. Sawicky is an economist at the Economic Policy Institute. He has worked in the Office of State and Local Finance of the U.S. Treasury Department and the U.S. Advisory Commission on Intergovernmental Relations. He is a member of the National Board of Americans for Democratic Action and serves on the editorial advisory board of Working USA. He is a frequent contributor to TPM Cafe.
Sawicky’s page can be found at Max Speak, You Listen!
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25 Comments
1. DoktorNo:Go to New Europe, and see the wonderful ironies. In Poland the public sector is sharing a bit over 50% of the national economy.
Meanwhile the employees of the public health service are on strike, demanding the privatisation of health care, and the left-winged and liberal opposition is criticizing the conservative government for being not pro-free market enought.
May 23, 2007 - 4:38 am 2. ParisParamus:This is an interesting, undercovered subject. You sort of lose me at the end, however.
If there are definitional and other differences between the way France and the US measure and create unemployment, I think they work the other way.
First, I don’t understand the logic of D.Davies. For example, if you reduced student subsidies, that would increase unemployment because some of those students would now be forced to look for work.
What about all the created, subsidized jobs and internships that France creates that would otherwise be unemployment?
What about the more rigorous mandatory retirement laws? What about the ex-pats working elsewhere (London comes to mind, but all the French working, legally or otherwise in the US as well)? There are other elements as well, but I need some French roast…
May 23, 2007 - 5:03 am 3. Nomad:sound fair for once ; anyway you can’t compare our both ways of living, not the same approch with the issues.
what is obsolete in our system, its the administration wages and retirment, too heavy, and they retire earlier with less participation ; this on the subject that Sarko will have hard time to assure
May 23, 2007 - 8:15 am 4. Morton Doodslag:Dear “crazy”,
“…nations that make a social choice in favor of shorter work weeks and longer vacations…”
Placing this same phrase in my handy dandy Orwellian Dynamic Deconstruction (ODD) translation module, I get this:
“…Committees Overseeing Mankind (”Commies” for short) who impose restrictive anti-capitalist handcuffs on their citizens in order to force socialist boondoggles for the greater good of the collective…”
“Squirrelly” indeed.
How interesting that Max, “an economist at the Economic Policy Institute” chooses to cheerlead for the failing communist French Model.
He even cites, in a dishonest attempt to show how skewed these statistics may be, a“Guardian columnist” (read “revanchist Communist apologist”), who proposes a zany formula to make French unemployment SEEM less horrid than it actually is. My question is: “Why?”
In order to reveal the true dimensions of the falsity of French claims of unemployment, wouldn’t it make more sense to compare apples with apples, rather than proposing cheap Stalinist methodologies to conceal the truth?
Isn’t it more accurate to say the following: Since France MANDATES more jobs and more workers to accomplish roughly the same amount of productivity as fewer Americans with fewer jobs, that France’s unemployment numbers are even more unfairly skewed than stated?
Clearly they’re spreading more work among more people in the best communist tradition, and getting far less productivity in the bargain. Isn’t this extremely wasteful, both in terms of raw resources, but also in terms of their human potential? Isn’t this amoral on some dimension? Isn’t this a most profound difference between our system and theirs? One well worth discussing?
And doesn’t Max deal with this huge matter in a rather glib and cavalier manner, reducing it as he does to a matter of mere “work week hours”, and in terms of vacation “choices” and “social choices”?
He’s proposing a restictive policy driven approach, one which severly limits real choices, and mandates a narrow set of rules as determined by some elite central planning committee – one filled with Marxist engineers similar to himself.
I how odd I find it that this economist finds “discussions of obsession with Gross Domestic Product in economic commentary to be odd”!!!
No wonder our policies are sometimes so muddled — we have full blown Francophilic communists “advising” our government, it would appear.
Well — here’s a choice for Max: Move to your beloved France. Subject yourself to their failing economic system — see what kind of country you bequeath to you daughter in 30-40 years. From where I’m sitting, France looks like it will join the long list of failed Islamic nations within a few decades. “Get bilingual”. Knock yourself out. But stop “advising” our government, PLEASE! You obviously are very confused!
Comprenez vous?
Sincerement,
May 23, 2007 - 10:10 am 5. ParisParamus:Mort
By the way, the other issue: how much less dynamic would French and other European economies be without the energy funneled into them, in various ways, by the US economy…
May 23, 2007 - 1:24 pm 6. MichaelW:This is completely wrong, actually. You can’t add numbers to just the denominator, you’d have to do so to the numerator as well. IOW, if we assume that the current work force is 100 million with 10 million unemployed, and that the population of the work force changes from 100M to 105M (the denominator) then the population of the total unemployed changes from 10M to 15M (the numerator). The difference is between:
10/100 = 10%
and
15/105 = 14.3%
Accordingly, the unemployment rate would actually rise, not fall.
May 23, 2007 - 2:56 pm 7. pch1013:Morton Murder:
You seem a bit tense. Have you thought about taking a vacation?
May 23, 2007 - 3:37 pm 8. Nomad:dear douchblague
enjoy your happy life in US
http://www.conference-board.org/utilities/pressDetail.cfm?press_ID=3075
May 23, 2007 - 4:03 pm 9. Smokey:MichaelW, above, is exactly right. I’m not sure I believe Max is a real economist. He states:
”Our economic accounts place a zero value on leisure time, vacation time, time spent caring for children or for Grandma. Zero.”
The Market Supply Curve for Labor is a well-known model familiar to all economists. As leisure time increases due to higher pay, then beyond some point, increases in the price of labor result in smaller amounts of labor being supplied. This results in a “backward-bending” supply curve in the model.
Maybe Max just didn’t express himself clearly, but leisure time as a function of the supply curve for labor has been long established.
France has a terrible economic culture. President Sarkozy has a monumental job ahead of him. I wish him the best of luck, as he will need it.
May 23, 2007 - 5:46 pm 10. Miracle Max:Into the breach, biotches!
DoctorNo: Poland is still recovering from recovering from the Soviet domination Gerald Ford said they did not suffer under. Bad example of social-democracy in action.
Paris: Daniel was being facetious. An elaboration of the point is here.
Dood: As I pointed out at the end, either way the Gov chooses aggrieves somebody somehow. The fiction you are laboring under is that if the Gov choses nothing, that somehow individuals are granted freedom, rather than living under the yoke of all manner of private sector predators. That’s you blessed anarchy: kind of like Somalia or Waziristan. You also gloss over the points I made in my last column, that French and U.S. labor productivity are not so different. Sad to say, I do advise the government but they don’t take any of my advice. You seem to see commies everywhere. Try some prune juice. As for moving to France, I couldn’t live with myself if I abandoned all you poor slobs.
Paris: The only energy the U.S. is funneling into the rest of the world’s economies is buying their imports, while they buy more U.S. assets.
MichaelW: you’re right but see above.
Smokey: The National Income and Product Accounts. Look into ‘em.
May 24, 2007 - 8:00 pm 11. DoktorNo:Max, I have just cited the current headlines in my country…
Our economy is booming, but meanwhile the small business is complaining on the taxes and other obstacles for business activities, like high payments for the inefficient Social Insurance Institution (whitch is co-existing with retirement funds), overregulation and bureaucracy. Regardless of the desired economical model, the point is, that we need more market-oriented solutions.
My opinion is, that would be better to adopt Irish model than French one!
May 25, 2007 - 2:07 am 12. Barry Dauphin:The issue isn’t as simple as the US chooses to work more and France less.
The French generally want more benefits with less work. They want an outcome without a sound method of maintaining it. OK work less, but then accept a lower income and fewer benefits. The French don’t want the tradeoff. The philosophy is–Let them eat cake (and have it too).
That kind of mindset also fuels a lot of shady dealing in the Middle East and Africa as a means of bringing home the bacon, which the French nationals wish to eat but not earn.
May 25, 2007 - 6:12 am 13. Miracle Max:Dok — small biz complains here in the U.S. too, and we’re supposed to be the small biz paradise.
Barry — In my previous column I showed that French productivity is comparable to the U.S., so their benefits are evidently not a problem.
May 25, 2007 - 7:20 pm 14. Barry Dauphin:Miracle Max,
Thanks for the reply.
When you say “comparable” do you mean they are more productive per hour worked, as they would have to be in order to work less but enjoy benefits without extra cost to society? If you were a young person looking for a job, where would you rather be? What about the declining birthrate-who will pay for their version of Social Security or was Pete Peterson wrong in Grey Dawn?
May 25, 2007 - 9:26 pm 15. Barry Dauphin:Miracle Max
My previous post will likely show up afer this one, as I wasn’t logged in to Typekey and PJ will hold it for review.
Again thanks for the reply. I wasn’t expecting that. If you check in again—
I looked at those numbers from your previous column and can accept them (and hats off to the French for that). But it basically says one hour of French labor and one hour of American labor produce the same amount. So, if they work fewer hours, they should expect less. Comparability per hour does not translate into expecting the same thing as those who work more hours. So, in my mind there’s still a disconnect for the French.
Plus they have a faster greying society than we and will be facing a far bigger Social Security crisis than the US (cf. Pete Peterson in Grey Dawn). Are they making a deal with the devil to live for today?
I agree it’s about values, and respect the wishes of Frenchmen to work fewer hours and enjoy leisure as long as a trade off is accepted. Of course, you are not factoring in the cost to the US for the defense of Europe (remember Bosnia/Kosovo and Chirac begging Clinton to get in because Old Europe couldn’t do anything about ethnic cleansing and worse, it could affect Old Europe). The French could not defend themselves if their lives depended on it. And with Iran lurking, it just might. Some of French leisure has been purchased at the expense of the American taxpayer.
May 25, 2007 - 9:44 pm 16. ParisParamus:“Paris: The only energy the U.S. is funneling into the rest of the world’s economies is buying their imports, while they buy more U.S. assets.”
I am not talking about flows of capital, but rather, inspiration for entrepreneurship, new products, and just economic optimism. I’m sure that more than a few fran√ßais have been inspired by visting, studying and working in the US (conversely, I was inspired by French women and food when I lived there…) The US is, inevitably a R&D lab for the rest of the world on many levels.
May 26, 2007 - 9:01 am 17. Cian:Barry,
The French can afford their level of benefits (they have higher taxes for one thing). The US could afford correspondingly higher benefits than the French if it chose, but it doesn’t. Its a matter of political choices, rather than economics. Although the French have higher public borrowing than they are currently happy with, its not nearly as high as that of the US. And unlike the US, they don’t have a trade deficit, but a healthy trade surplus (with among other countries, the US) – so in a sense they are saving for tommorow. The US (and UK) also have more disguised unemployment than the French (in the UK a lot of people are on disability benefit, and the US and UK also lock up a lot more people), so comparisons are difficult. The French youth in the banlieus might be unhappy, but in the US they’d be far more likely to be in prison (or high on crack).
ParisParamus: I have really no idea how you might measure entrepreneurialism. These days the main R&D labs seem to be Japan, Germany, Scandinavia, SE Asia and northern Italy. The US is innovative in some areas, but its marginal in most. The exceptions are software (though Europe is rapidly catching up), pharmaceuticals, biotech and aeronautics (where Europe is at about parity). In other high tech areas the US has been left behind, including areas where it assumes dominance (like the internet). The US still has the universities, but increasingly the students are from SE Asia and are choosing to return after their doctoral work.
May 26, 2007 - 10:44 am 18. Barry Dauphin:Clan
Well, if we are going to go into unofficial numbers and vague generalities, we could say just about anything. What country in the world doesn’t have a disguised unemployment, including France? So we are to compare the official French numbers to some vague unofficial US numbers? This is a nonstarter.
The French version of Social Security is pay as you go. They have a major demographic problem–they are not producing enough children (future tax payers) to pay for the lavish social benefits. Demographic trends cannot be reversed in short order except via major social upheavels through massive immigration, which of course undercuts the whole notion of being “French”.
Yes, there are political choices in addition to economic ones, including the political choice by the French to have a small military and let the US cover them.
May 26, 2007 - 11:54 am 19. Miracle Max:Barry — Productivity means output per hour. By comparable I mean it is in the same range as the U.S., sometimes higher, sometimes lower. Of course if they work fewer hours, they produce less GDP, but they also enjoy more leisure, a good not counted as part of GDP — my first point. On productivity, see my previous Pajamas column. Of course their benefits are a cost to their employer. Re: Birthrates, that’s a bit much for a comment section, but you have given me a good topic for another column. P.S., Peter Peterson is an hysterical loon. Cheers.
The burden sharing is another good topic. Naturally if there is consensus on defense goals, sharing is only right. It’s not clear from the U.S. side, however, how much sharing is desired, since that means less domination by the U.S. There seems to have been a long-standing lack of U.S. pressure for sharing, except in crisis periods when some sort of specific cooperation is demanded by the U.S.
Paris — I don’t have the #s at hand right now, but the U.S. advantage in R&D may be waning.
Cian’s point is germane to the birthrate issue. A trade surplus means more wealth accumulation, a factor that helps later on if there is a population issue.
May 26, 2007 - 1:13 pm 20. Nomad:http://www.indexmundi.com/g/r.aspx?c=fr&v=25
France is in the highest ranks for EU, not too bad compared to US
http://www.indexmundi.com/g/r.aspx?c=fr&v=29
but what you gain with births, you lose it far much than France with deaths
By the ways, didn’t Charles de Gaulle fired out the GI in 1967 ?
and while he started his nuclear programm, it was surely not for awaiting a cover from Americans
May 26, 2007 - 3:23 pm 21. Cian:“So we are to compare the official French numbers to some vague unofficial US numbers?”
No, I was simply making the point that comparing the raw numbers tends to be meaningless. Different countries measure it differently, and direct comparisons can be misleading. Its acknowledged in the UK across all political parties, for example, that the disability benefit is used as a convenient way to improve the long term unemployment statistics. However its not included in international comparisons. Given that its relatively easy to claim unemployment benefit in France and they have a small prison population, their disguised unemployment rate is likely to be lower.
Who exactly is the US protecting the French from? I don’t think Iran is really a credible threat to anybody but its neighbours. And the French actually have quite a large military force, relative to the size of their country, particularly given that Europe is peaceful and likely to remain so in the forseeable future. The US has a very large military because it wants to be the world’s leading superpower.
All forms of social security are pay as you go, and social benefits in France are paid out in the present (just as they are in other countries, accounting fudges in the US notwithstanding). Currently they can afford them. If they are unable to afford them in the future, that will be a problem for future Frenchmen to worry about. Given that France is successful economically, with a growing GDP they may well be fine.
May 26, 2007 - 3:27 pm 22. ParisParamus:OK, France is really in great shape; Sarkozy’s election means nothing, and us USians are just jealous we don’t have five or six weeks of vacances…I get it.
May 26, 2007 - 11:31 pm 23. Smokey:Cian claims that:
”The US is innovative in some areas, but its marginal in most.”
Wrong, bucko. Do a search for patents issued by country. The U.S. leads the world by a substantial margin, even adjusted for population [which, when you think about it, should not matter very much; California received more patents than 46 other states].
But nice try, and thanx for playing. We have some lovely parting gifts for you on your way out.
May 27, 2007 - 12:43 pm 24. Cian:Which patents are we talking about? The US patent system allows both business and software patents, which tend not to be terribly innovative (but of which there are an awful lot). And the patent office doesn’t do much checking of filed patents, its not that hard to get a patent accepted (the trick is enforcing it legally). It used to be, but the patent office has changed its policy in the last ten to fifteen years. US companies also tend to be very aggressive about filing them, and use them far more aggressively than companies elsewhere – a patent arsenal I think its called. I’m sure you could make a case for innovation using issued patents, but it wouldn’t be easy. You’d need another metric, though I’m not sure what you’d use.
Of course size matters. The gross GDP of the US is vastly bigger than that of Switzerland. Does that mean Swiss individuals are poorer?
The US is still innovative in some areas with good R&D. In other areas its pretty marginal. However, its certainly not the world’s R&D lab as somebody was suggesting above. Germany and Japan are also both very innovative, and if we include among innovation making things that people want (i.e. design), rather than simply technologically new – Italy and Sweden both do pretty well.
May 28, 2007 - 3:33 am 25. ParisParamus:“. However, its certainly not the world’s R&D lab as somebody was suggesting above.”
Again I am not speaking of R&D as in engineering, but rather ideas in the human experience, creativity, marketing, etc.
May 28, 2007 - 10:36 pm