Europe—From Catch Up to
Jobless Growth
European Economy in 1950
Strategic Bombing
Years of Education
• Working-age adults in 1950
– US 11 years
– Germany and UK 10.5 years
– Japan and France about 9 years
– India, Mexico, Brazil 1 to 3 years
Institutions
Bounce Back
Catch-Up Period 1950s – 1970s
• Used a social compact
• Technological Development
– Europe never had grand scale manu like the US
Examples of US Techno
Examples of US Techno
Why not in Europe
• Hard to raise the financial capital for the grand
scale
• Government Opposition
– Both in general and related to the many wars
• Labor Opposition
– Look at today and how strong labor unions are in
Europe
• We had new techno that had not been
introduced to Europe
US Techno
Comparative Techno Advantage
• Norway—optical-controlled flame cutting
• Italy—textile looms with numerical controls
• Germany—refined cutting lathes
• Holland—oil refining
A European Social Compact
Foreign Direct Investment
• In the 1960s, Europe received a large amount
of US foreign direct investment in plants and
companies and in sectors like chemicals,
computers, and transportation
• This greatly increased Europe’s techno
Beginning of Integration
• After the War, the seed institutions that would
move to our current high level of integration
• 1951 Treaty of Paris
– European Coal and Steel Community (ECSC)—
Germany,Italy,France,Belgium,Luxembourg,Holland
(Coal and steal were needed for weapons)
• 1975 Treaties of Rome
– European Economic Community & European Atomic
Energy Community
Did it work?
• Yes!
Example
Early 1970s through Mid 1990s
• Jobless Growth through Investment
• 1950s and 1960s saw extensive growth
– Growth from bigger and better factories and more
workers
• Starting in the 1960s they had more intensive
growth
– Gains from workers doing more and a shift from manu
to services
A Change in the Social Compact?
How Did Unemployment Change
They Needed to Switch to Intensive
• They need to switch, but did not want to
• Europe continued with high investment and paid
increasingly higher wages—for those who had
jobs
–
–
–
–
–
US—71 million employed in 1965
US—107 million employed in 1985
Germany—26.2 million employed in 1965
Germany—26.0 million employed in 1985
Similar for the rest of Europe—No New JOBS
– We increase the number of hours worked per capita
by 21% (Women) Europe decrease by 21%
Investment
• Europe’s stock of physical capital per hour
worked was 82% of the US level in 1973
• It was 100% by 1995 Some above 100%
– Austria,Belgium,Finland,France,Germany,Holland
Growth of Per Capita Real GDP
• Between 1973 and 1995, the US and the
nations of the Europe Union both grew at
1.8% per year
– Germany had same number of people producing
more
– US had many more new workers
• We had little increases in productivity and
they had unemployment
Unemployment in Europe
• Germany, France, and Italy
– Each had unemployment at or above 6% between
1980 and 2000
– Many years were above 10%
Why Was Europe Unable to
Create Jobs?
• In this period they also created very high
paying unemployment
– Why work when you can collect money
• US replaced ½ your income for 6 months
– It is longer today with the recession
• Germany replaced 2/3 for 4 years
• Denmark replaced 90% for 2.5 years
• Spain replaced 70% for 3.5 years
Do Not Forget About the High Taxes
• If you get a job in Europe, taxes are very high
• The percentage of GDP collected in the US and
spent by governments is about 33%
• In Europe it is 50% or more
Europe is Highly Regulated
• Rules that require high levels of benefits to
workers
– Very high minimum wage
– Day care, Maternity leave, Layoff protection
• Rules that limit the freedom of businesses to
operate
–
–
–
–
–
–
Some countries can not have Christmas sales
Belgium rules allow only 2 sales per year
Rules that limit hour open
Rules that limit length of workweek
Maybe forbid stores to be open on Sunday
Prevent large stores from opening
Or Maybe Europeans Want
More Leisure
• US averages 2 to 3 weeks per year for vacation
• Europe is 10 week or more of vacation
– About 1 week of vacation per month for some