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Author Topic: Why the difference?
In March of 2002, Britain's unemployment rate was 3.1% -- at the same time, the unemployment rates of Italy, France, and Germany hovered in the 8 to 9% range. Calling all Babble economists -- why is this so?
holy crap that is low. Why i have no clue but that is lower then in the US and Canada too! Way lower! hmmm maybe they keep records different?
I picked up the figures via Southam news and wondered whether they were correct, but BBC and other sources confirmed it. Like you, I found it very surprising.
Part of the reason is the Britain counts unemployed as "claiming benefits" (i.e. on pogey, or "the dole" as they say). That actually captures about 60% of people who would be considered unemployed by generally accepted definitions.
Even making that correction (from 3.1 to 5.1 per cent), the number is still low by European standards. On the other hand, when I lived there a couple of years, my subjective feeling was that wages were also pretty low.
But measured by the internationally-comparable ILO standard, which aims to include people unemployed but not claiming benefits, joblessness rose slightly to 1.53 million, or 5.1%.
Thanks -- that helps to explain part of it. But 5.1% compared to 9% is still a big difference (the difference right now between the U.K and France -- remarkable because their economies are almost exactly the same size).
Using OECD data is generally preferable when comparing cross-industrialized-nation unemployment rates, because the OECD renormalizes the data to fit consistent definitions. The US and Canadian unemployment rates change by maybe a tenth of a percent for this reason.
Now, as to why the UK has a lower unemployment rate? It suffers less hysteresis, and obviously has "greater labor market flexibility", which simply means that workers in Britain will more readily snap up jobs that pay lousy wages because they aren't guaranteed to be on the dole for as long as in France or Germany.
Having said that, Europe's higher unemployment rates are due to very tight monetary policies in place at the Deutsche Bank, which have a ripple effect through the rest of Europe - and this effect is only even more pronounced now that the Eurozone is fully in place and monetary policy is de facto set by Germany alone for the entire area.
If the ECB were to loosen up on interest rates, European unemployment would start to come back down.
I think part of the explanation is the clever blend of neoliberal economics and labour politics.
The question is for me is the overall social wealth more evenly distributed? Or putting it another way is it better to have 92 of 100 people working at a decent wage and benefit level and 8 receiving reasonable social welfare OR to have 80 people in the first category, 15 working at crappy jobs with few benefits and 5 getting crappy social assistance?
I don't know if this is the ratio is actual I'm simply guesstimating to illustrate the problem with using unemployment figures as a barometer in isolation.
That's a good question. The latest stats I've seen (1998) show that the S80/S20 ratio for the UK -- that is, the ratio between average earnings of the 20% at the top of the earnings chart to the bottom 20% -- is 5.7 for the UK, and around 4.7 for France and Germany.
My subjective feeling is that the UK is an economically divided society -- but then I could be accused of being biased. I hate the rain, too.
try looking at the GDP with teh unemployment rates. Neither on thier own are worth much and even togather they can often be misleading but are better togather then by themselves.
Maybe the DOC knows of a better way or an index of distribution that we can look at.
One thing if the employment is up and GDP up it COULD be good. If employment is down and GDP is up you know distribution is less. Same for employment being up and GDP being down chances are distribution is less. Either way GDP and unemployment rates are sketchy at best. This is of course just my patch work thinking.
Again calling on the doc for clarification.
Oh, incidentally... on the subject of unemployment? This should be sufficient vindication for my statements that there is plenty of room to bring unemployment down in Canada, and furthermore that the Bank of Canada is far too doctrinaire and rigid.
Dr. George Akerlof said during a meeting of the Canadian Institute for Advanced Research that the chairman of the U.S. Federal Reserve Board, Edward (sic) Greenspan, went against the advice of his staff and traditional economic theory and kept stimulating the economy with low interest rates as unemployment hit historic lows.
workers in Britain will more readily snap up jobs that pay lousy wages because they aren't guaranteed to be on the dole for as long as in France or Germany.
Not really - the income support/dole is available to people who have paid enough National Insurance (approx 2 years of employment at a low wage), but if they have not paid that, they qualify for income support, which is EXACTLY THE SAME WEEKLY AMOUNT, and is effectively available ad infinitum - though there is a supposed theory that people must actively seek work, they are not compelled/forced to work.
5. That we massage the figures.
I would be interested in hearing the more recent figures, as certainly by 1997 the UK was definitely more divided - 18 years of Tory rule and Thatcherite policies had massively widened inequality, and contrary to popular myth, the income of the poorest had risen little in real terms, despite a massive increase in economic freedom. Labour has made clear its intention to tackle poverty, though recent reports imply it has not achieved as much as it would like.
We hate the rain too, but it is getting less and less with global warming and all that!
Yes, but then summers become veritable blast furnaces.