Sunday, May 31, 2015

The End of the European Welfare State As a Comparison Point for the USA

For years' articles about everything from family leave to medical benefits started with the premise that
The United States is the only modern Western economy that doesn't do or provide "X" for their workers
Thus the premise was the our economies were roughly equivalent and the USA was "mean" or "backwards" because we didn't provide all those benefits and worker protections that the other countries were (apparently) able to absorb.

In the Sunday Business of the NY Times we can see where this has finally led, however - in an article about retraining European workers titled "Fake Jobs with Real Benefits" this is the end statistic:
But in a reflection of the shifting nature of the European workplace, most are low-paying and last for short stints, sometimes just three to six months.  Today, more than half of all new jobs in the European Union are temporary contracts, according to Eurostat.
These jobs don't have the famous protections for working mothers and stay-at-home dads and for medical benefits and pensions and everything else; they just set you up for a few months at a time and can just not renew your contract for any reason, including if you are legitimately hurt or ill.  These are the ruthless "McJobs" that have been decried for years in the USA.

In parallel, Spain is now lurching into a political crisis similar to what is happening in Greece.  Here are some statistics on Spain per this Foreign Policy article:
The Eurozone as a whole is a disaster.  Whereas the United States' economy is nearly 10 percent larger than it was seven years ago, the Eurozone's is 1.5% smaller.  And Spain is faring even worse; it's economy is still 5 percent smaller.  Nearly one in four Spaniards, and one in two young people, are unemployed.  In the European Union, only Greece's unemployment rate is higher.  Many people have dropped out of the labor force (or immigrated to countries where there are jobs to be found).  A lost generation is in the making.
And the governmental statistics are sobering:
Spain still has the largest fiscal deficit, as a share of the economy; in the entire EU: 5.8% of GDP last year.  Public debt as a share of GDP rose by more last year than anywhere else in the eurozone and is set to top 100 percent this year.
The few remaining permanent full-time jobs are often in the governmental sector; this is closely linked to corruption.  In Spain the corruption of the ruling parties contributed to their drubbing in local elections.

The net of all this is that comparing the USA to Europe is now mostly a fools' errand.  Not only has growth and productivity stalled across most of the EU, the cherished benefits that are held up as the "gold standard" are accruing to fewer and fewer workers as the young frankly have no work at all and many of the adults that do work are on these short term contracts where those protections rarely apply.

Whether or not the USA should enact various protections to our workers is a good question, with pros and cons on both sides of the ledger.  However, the blanket statements that we are the last modern economy to not do "X" should be tossed in the dustbin of history, because it doesn't apply anymore.

Cross posted at Chicago Boyz


Anonymous said...

If we ever hear honest numbers about our own employment, I wouldn't be surprised if close to half of our workforce is on contract or "consultant" status.
I've been there for the last four years. Let me assure you: it's no fun.
No paid vacation or holidays, no medical, dental and life insurance, no retirement contributions from the employer and most importantly - no guarantee that they will keep you for more than the duration of the project.

As I have followed the popular advice of the HR experts and have been networking tirelessly to get contacts that might lend me my next contract I've talked to a lot, really a lot of people in the A&D trade. So I say it from personal knowledge: my is a typical situation. Majority of designers and architects (those who are not business owners) are in the same boat.

What I hear from people in IT, web design and programming they too are on contract-type employment. It becomes a model for employment - a very troubling model, especially for people close to retirement.

Carl from Chicago said...

I think that moving to a wholesale model of contract employment isn't necessarily good for the country either. I am familiar with this model through many of my family members and close friends.

We've been moving away from it as a country for many years now and companies are very reluctant to add new full time staff. There are many downsides to doing this from legal to benefits to rigidity while there are few downsides to adding contractors.

The real issue is that we need to remove the massive dis incentives for hiring and actually build incentives to hire staff as opposed to the current situation with lawyers and rights and OSHA and everyone else. The net of all these dis incentives is a reduction in permanent employment, while the tax code DOES incent you to do other things like 1) load up on debt 2) put your revenues overseas and never bring them back. This is much more than tax it is a sea change in the regulatory environment and limitation on rights to sue and back to the "at will" model.

But that's very unlikely to happen so Plan B is what we are on a hollowing out of permanent jobs and moving towards a full contractor based workforce. Sadly, the governmental employees will likely be protected the longest which is the irony as the net of their policies is that everyone else is screwed. To be fair it isn't the policies of the actual governmental workers it is the policies of the representatives we elect and their vast army of lobbyists and more importantly the massive agencies like EPA and OSHA and the legal arms that do the day to day work of creating byzantine policies and attempting to enforce them.

Anonymous said...

"Contractor-based workforce"...argh.
I wouldn't mind buying insurance, managing my 1-to-3 months working spells, etc - if I was paid like a real contractor. The thing is - employers still try to pay you by calculating your hrs rate as if you were earning salary w/benefits, except they won't pay for those benefits. And that eats up more than a third of that paycheck - plus enormous unpaid time spent on what in days of yore was the job of HR department.

I hear your argument about diminished profit for companies due to enormous regulatory demands, etc.
But maybe they should not pile up so much on a worker bee and reconcile with having slightly less profit?