The Nuances of EU Unemployment
By Bryan Caplan
When I compare U.S. and European unemployment, critics often object that Europe is heterogeneous. Fair enough, but you can make the same objection to any generalization. The U.S. is diverse, too. How often can you silence critics of the U.S. by pointing out American diversity?
Still, I’m happy to be more nuanced. The EU-15 is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the
United Kingdom. According to my stereotypes, the countries with less regulated labor markets will have relatively low unemployment during normal times, but sparker spikes during crises. This table shows unemployment now versus a year ago. What’s going on?
1. High-population France, Germany, Italy nicely fit my stereotypes. So do Belgium, Greece, and Portugal. They’ve all got high unemployment during normal times, but relatively small spikes.
2. A year ago, the EU-15 countries best-known for lower labor market regulation – the UK, the Netherlands, and Denmark – had unemployment well below European norms. The increase in unemployment in the UK and Denmark – but not the Netherlands – has been unusually sharp. Ireland – also known for its relatively free-market policies, looks just like the UK and Denmark – low unemployment a year ago, and a sharp spike since.
3. The outliers: Austria, Finland, Luxembourg, Spain, and Sweden. Austria and Luxembourg were low and only rose a little; Finland and especially Sweden started low-moderate and rose fairly sharply. Spain had high unemployment a year ago, but a huge spike since then.
The lesson I draw: Noting European diversity makes the case against stereotypical European labor market policy even stronger. European countries that don’t act like France, Germany, and Italy do much better. While there are outliers, they’re no reason for Euro-optimism: Spain, which manages to have high unemployment and a big unemployment spike, has a bigger population than all of the positive outliers put together.
Questions for people who know better than me: What’s going on with Finland and especially Sweden? Are their labor market policies closer to Denmark’s than I’ve been led to believe? And what’s the deal with Spain? Why do they have high regular unemployment and a big recession spike?