Europe's Unemployment Rate

[Lawrence of Arabia]

Youths? Those who have support of their parents and couldn't claim unemployment benefit anyway? Funnily enough minimum wage is going to entice more of them to work, it's a very specific section of the populace.

So by your logic companies should be made to pay a living wage, no?

the report looked at 25 - 30 year olds.

You're prepared to make generalizations of that gravity based on a study in one single country?

two countries - USA and France.

Not only that, but unemployment benefits also gives the leeway for people to look for work in their branch.

you need 2 years of unemployment benefit to find a job? thats waaay too much. and then you wonder why France average 10% over the last decade or so.

While LoA is largely right, in that less unemployment benefit means more people accept the worst, lowliest job that comes along quickly, in terms of economics this can be a very bad thing.

in terms of economics, this is a GOOD thing. when more people get back to work, it gives them more money, so they can buy more stuff, so firms have more revenue, so that they produce more, and so that they hire more. then yoiu can get your old job back. more employed is better then less employed

[Odin]

Originally posted by DanS
I'm going more by how it feels than anything.

Thats economics for ya.

[Bereta_Eder]

there has been talk here like unemployment benefits are enough to provide you with a cozy life. however i dont think thats the case.

[Drogue]

Originally posted by Lawrence of Arabia
in terms of economics, this is a GOOD thing. when more people get back to work, it gives them more money, so they can buy more stuff, so firms have more revenue, so that they produce more, and so that they hire more. then yoiu can get your old job back. more employed is better then less employed

Have you read my posts?

A small amount of unemployment is good for the economy, and waiting a little longer to get a better job can be good for the economy - it raises income, government revenue, output and GDP. Getting everyone unemployed into jobs that pay peanuts is not good for the economy, if they can wait and get better jobs.

[Drogue]

Originally posted by DanS
I'm going more by how it feels than anything. At 3.8% unemployment, it feels like everyone who wants a job and has reasonable expectations of a fair wage has one or is on his way to finding one. That's full employment and it has happened only a couple years of my life -- in the late 90s.

I guess I'm questioning whether the economists have a good handle on what the natural rate is and think instead that it can go pretty damn low without creating undue inflation, depending on the circumstances.

Oh I agree, I think we can hit 4% or 5% or so as a natural rate. Any less and it looks unsustainable. But the issue was that there is a need for some unemployment.

What I mean, is that 4% unemployment is better than 1% unemployment, as far as the economy is concerned.

[Lawrence of Arabia]

A small amount of unemployment is good for the economy, and waiting a little longer to get a better job can be good for the economy - it raises income, government revenue, output and GDP. Getting everyone unemployed into jobs that pay peanuts is not good for the economy, if they can wait and get better jobs.

yeah, and I disagreed. a small amount, sure. but 10% is waay too much. if you are waiting two years for a new job, there is a problem, and its structural, and the only way to get rid of it, is for the unemployed to find jobs they wouldnt normally take, to get the economy going again. they can find a better job later, when there ar emore jobs availalbe. if France employed even half of 10%, their economy would grow tremedously

[Drogue]

Originally posted by Lawrence of Arabia
yeah, and I disagreed. a small amount, sure. but 10% is waay too much.

Where's the disagreement there? I said a small amount is good. 10% is obviously way to much. However there comes a point when unemployment begins to create inflation, when it gets too low. The economy overheats and economic growth is too high. Krugman estimates economic growth in the US to be stable at around 2.2% economic growth. Some go up to 4%, but that's largely rubbished by academic economists. In unemployment gets too low, economic growth starts to get too high.

I never said 10% was good, it's obviously not. I said *some* was good. 1% is too little, 10% is too much. Ideally, it should be somewhere between the two.

Originally posted by Lawrence of Arabia
if you are waiting two years for a new job, there is a problem, and its structural, and the only way to get rid of it, is for the unemployed to find jobs they wouldnt normally take, to get the economy going again. they can find a better job later, when there ar emore jobs availalbe. if France employed even half of 10%, their economy would grow by an additional 0.5%, according to Okuns law.

Okun's Law:
Change in Unemployment=-0.5* (growth - 3%)

Very true. However then a drop in Unemployment from 10% to 5% would lead to real GDP growth of 7%. Is that sustainable? Will it lead to too high inflationary pressure?

Edit: Using the traditionally used sacrifice ration of 5:1 (5% of one year's GDP must be forgone to reduce inflation by 1%), France reducing unemployment from 10% to 5% will likely increase inflation by 1.4% each year.

[DanS]

Hmm, looking at that list you seem to define 'full employment' as unemployment below 5% - not too bad a definition.

I was setting the bar somewhat arbitrarily at about 4.5%.

[Lawrence of Arabia]

Where's the disagreement there? I said a small amount is good. 10% is obviously way to much. However there comes a point when unemployment begins to create inflation, when it gets too low. The economy overheats and economic growth is too high. Krugman estimates economic growth in the US to be stable at around 2.2% economic growth. Some go up to 4%, but that's largely rubbished by academic economists. In unemployment gets too low, economic growth starts to get too high.

yes, but only if productivity doesnt change.

Actually, that 3% is meant to signify NAIRU. Okun's law states that reducing unemployment by 1% increases GDP by 2% (2.5% if you go to the original text, but has since been scaled down). So reducing their unemployment to 5% would lead to a 10% raise in GDP.

silly me I divided wrong. thanks for the correction

(but its actually 7%, because Okun only kicks in after 3%. )

[Lawrence of Arabia]

Drogue learns from the best/ I just got DanSed.

[Lawrence of Arabia]

Very true. However then a drop in Unemployment from 10% to 5% would lead to real GDP growth of 7%. Is that sustainable? Will it lead to too high inflationary pressure?

well, look at the phillips curve. the more social programs there are, the higher the natural rate of unemployment is (a country who has good social services has a phillips curve that is to the right of a country with less unemployment benefits, etc.)

but since you need to cut those benefits to get growth of employment, you are actually increasing employment, while at the same time, pushing the phillips curve to the left, moving NAIRU further to the left, and giving the economy a way to reach 4% unemployment as a natural rate (or whatever a countries natural/ structural rate is. in switzerland, its around 2.2% i think)

[Spiffor]

Originally posted by Drogue
Very true. However then a drop in Unemployment from 10% to 5% would lead to real GDP growth of 7%. Is that sustainable? Will it lead to too high inflationary pressure?

Don't worry. We'll do everything in our power to raise unemployment and to restrict growth. What are employment and growth when they can lead to inflation

[Drogue]

Originally posted by Lawrence of Arabia
Drogue learns from the best/ I just got DanSed.

realised my mistake on the 3%

[Lawrence of Arabia]

however, NBER paper #6111 makes it clear the effects of increases in the minimum wage. France's minimum wage is 255% larger in real terms then in 1951. In the US, the real minimum wage (federal) has decreased by 25% since 1951. yet for every increase of 1% in real minimum wage, 4.6 French out of a 100 lost their jobs, costing everyone more, and slowing down the economy.

[Lawrence of Arabia]

Don't worry. We'll do everything in our power to raise unemployment and to restrict growth. What are employment and growth when they can lead to inflation

hahahah. inflation. theres no chance of that in Europe as long as the euro bank's target inflation rate is 2%. if they set it at 2.5%, it would stimulate growth almost right away, and not by pocket change either.