[발췌: The Economist] All or nothing (1997)

출처: The Economist, "All or nothing," Nov 1997


※ 발췌 (excerpt):

There are three kinds of economists: those who can count and those who can't. Anybody familiar with this old joke ought to be sceptical of economists who claim that one plus one equals three. Yet, applied to labour-market deregulation, it may well be true. Reforms to make labour markets more flexible, such as cutting jobless benefits, reducing minimum wages or relaxing job-protection laws, reinforce one another. The effect of any one measure is therefore greater if it is pushed through in tandem with other reforms than if it is done in isolation.

This conclusion from a paper* by David Coe at the IMF and Dennis Snower at Birkbeck College, London, would provide an excellent starting point for the special jobs summit that European leaders are due to attend on an ambitious but empty proposal from the European Commission to adopt a "target" to cut Europe's unemployment rate from 11% to 7% over the next five years. Why empty? Because until governments accept that the only way to reduce unemployment by much is to make their labour markets much more flexible, they stand no chance of meeting their own target.

The need for greater flexibility will become even more pressing after European monetary union. If an external shock, such as a big rise in the price of oil, hits one member of a single currency far harder than its European neighbors, it will no longer be able to cut interest rates or devalue its currency to cushion the impact on its economy. Unless wages fall or unemployed workers move to areas where the demand for jobs is higher, unemployment will rise further. Yet studies  suggest that in Europe real wages are only half as flexible as those in America, and that Europe's workers are much less likely to move around in search of work than American ones.

( ... ) The IMF estimates that the regions's structural unemployment rate is now as high as 9%. ( ... ... )

By contrast, America's structural unemployment rate is 5-6%. Britain's performance has also been impressive. The IMF reckons that radical labour-market reforms have reduced the country's structural unemployment rate from almost 9% to under 6% over the past decade; its actual jobless rate has fallen to just 5.2%.

Several governments in continental Europe have made a modest start at reforming their labour markets. Some, including France and Germany, have trimmed jobless benefits; Italy has stopped tying wage increases to the inflation rate; Belgium, France and Spain have reduced minimum wages for young people. But all of these initiatives have so far failed to cut unemployment.

Messrs Coe and Snower have built a more formal economic model, which details how workers search for jobs and firms hire staff, to explore how different types of labour-market reforms interact with one another. Suppose, for instance, that a government cuts unemployment benefits. Workers now have a sharper incentive to seek work and so unemployment should fall. An increase in the number of job seekers will also put downward pressure on wages. Lower wage costs should, in turn, boost employment.

The model shows that the size of these effect is magnified if, say, firms' firing costs are reduced. As well as giving firm a greater incentive to hire workers, this improves an unemployed person's chance of getting a job and so makes him search even harder. Moreover, the amplified effect of these reforms reduces unemployment and hence the total cost of jobless benefits, which allows the government to cut tax rates, further improving the incentive for the unemployed to seek work.

( ... ... )

* “Policy Complementarities: The Case for Fundamental Labour Market Reform”, by David Coe and Dennis Snower. IMF Staff Papers Volume 44, No. 1, 1997.