Structural Unemployment in the E.U. and U.S.: Industrial Policy as a Competitive Advantage
“It is clearly unacceptable that 25 million Europeans are out of work,” Jonathan Todd of the E.U. Commission told a news briefing on October 1, 2012.

For August 2012, the unemployment rate in the E.U. was 10.5 percent, whereas in the U.S. the rate was 8.1 percent. Neither Union was making much of a dent in the post-September 2008 recession. The U.S. rate does not include the unemployed who are no longer on or applying for unemployment benefits. Because of certain work requirements and the limited duration of unemployment compensation in the U.S., the actual number of unemployed was doubtlessly much higher. In the case of the E.U., the official rate, which may or may not also understate the actual number of unemployed (though I suspect less of an understatement because benefits are less constricted in Europe), translates into 25 million residents without a job.

In any case, that the rates were too high is perhaps to be regarded as a truism. “It is clearly unacceptable that 25 million Europeans are out of work,” Jonathan Todd of the E.U. Commission (i.e., the executive branch) told a news briefing on October 1, 2012. That the state of Spain had the highest jobless rate in the E.U., at 25.1 percent, with 52.9 percent of residents under 25 years old being out of work, suggests that the state was not very able to weather additional austerity cuts bearing on sustenance programs. The state of Greece was doubtless in a similar general condition. Meanwhile, the state of Austria had the lowest unemployment rate of at least the E.U. states that use the euro, at 4.5 percent. With such a divergence, it could be argued that unemployment compensation should be federalized, meaning that the E.U. Commission should be responsible collecting revenue for, and paying out unemployment compensation. This is a particularly important point regarding the fiscal integration needed to support the euro among very different states.

Moreover, the high rates in the E.U. and U.S. suggest that market-equilibrium does not necessarily come to rest at full employment. This is particularly likely to be the case when an economy such as the E.U. or U.S. is undergoing a structural shift in terms of industry sectors and the job-training and job-markets lag behind. Both the E.U. and U.S. might consider industrial policy directed at education and training programs geared to increasing the number of people who can go into jobs in sectors where developed economies have a comparative advantage. Doubtless there would still be a service sector (e.g., hotels), but the proportion of young people going into computer or medical science, for example, could be increased through government policy oriented to educative and training institutions. Relying on the market mechanism exclusively is not a good bet because market-equilibrium often settles far below full- employment. I suspect that the Europeans in general are more inclined to this argument than are the Americans, which is itself a basis for sustainable competitive advantage for the E.U. over the U.S.

Source:

David Jolly, “Unemployment in Euro Zone at Record High,” The New York Times, October 1,2012. http://www.nytimes.com/2012/10/02/business/global/unemployment-in-euro-zone-rose-to-new-high-in-august.html?hp&_r=0