European Unemployment

Businessweek has a piece on rising unemployment in Europe. What do they expect, with such stifling tax rates and ridiculous labor laws?

So where will new jobs come from? Mostly from smallish businesses and startups, economists say. That's likely to give a nice employment bounce to countries that have enacted business-friendly reforms. They include Denmark, which has slashed payroll taxes, and Italy and Spain, where employment has risen since labor laws were relaxed to encourage part-time and temporary jobs. Germany and France, by contrast, have been slower to ease tax and regulatory burdens on employers, and now they are feeling the heat. "It's time to stop talking and act," German Labor & Economics Minister Wolfgang Clement said at a press conference on May 6.

Germany has been slow to ease tax and regulatory burdens on businesses because many Europeans think businesses are the bad guy. I guess in a perfect world the government would employ everyone. I remember reading the the Wall Street Journal a few years back about how in Italy it is a big hassle to lay people off- you have to get government approval. This sounds nice and all, to guarantee people a job for life, but the effect it had was that companies didn't hire people during upturns because they knew they couldn't fire them during downturns. Part of the key to a good economy is the ease with which capital and labor can move around.

When I was in Denmark taking a course in International Business, I wrote a paper on how a more integrated European Union would lead to lower tax rates in European countries. My assumption was that as the EU became more integrated and people and money could move about more freely, tax rates would be a major factor in business location. I think we are seeing that I was correct. But, don't expect a total turnaround. I am sure the Europeans will yell about unfairness for awhile. They want to live in a world where high taxes lead to economic prosperity. But that just doesn't happen. Maybe they need a political party called the pragmatists.