Thursday, May 03, 2012

I'm so mad, I want to reform Kevin Drum's labor market with extreme prejudice.

Labor market reform again. Last time I was puzzled but then noticed the key phrase "politically impossible.". Now you seem to think that further such reform is just plain necessary. I live in the European periphery (and have advised two PhD dissertations on labor market reform) and I just don't see it.

The key fact, to me, is that Core European labor markets are much less reformed than peripheral labor markets. Been there done that. Yes compared to the USA Spanish and Italian employment is highly regulated, but they aren't at all compared to employment in Stuttgart and Marseilles. Oh hell, I am typing on an iPad and won't be up to a decent comment, but here goes.

Labor on this continent. There are 2 key reasons I didn't type markets : laws against arbitrary layoffs and national (or Lanerwide) pay scales. In Europe it is generally not allowed to fire without cause. Cause can be missconduct like commenting on blogs during working hours or "economic reasons" which basically means some bureacrat has to agree that a firm has to reduce employment (so for one thibg no way to fire workers and hire others willing to work for less). Also collectively bargained wage scales have the force of law and apply to firms which did not participate in the bargaining (this is untranslatable into English as it is inconceivable to me even after all these years). Finally unions are still strong, so the laws are sometimes actually enforced (more by the threat of strikes than by hah?!? The courts which are a joke here as they never get around to actually doing anything (except send common and only common criminals to jail more than half of them when still presumed innocent).

This is the way things are in Northern Europe and the way they were long long ago in Southern Europe (especially Spain Franco liked free markets almost as much as he liked free speech and free love). Now there are exceptions which are the rule. In Spain and Italy employers can hire young people temporarily for training and screening (hah). For years (Italy) or decades this has been most of hiring. If Spain had a rigid labor market, it would have been impossible for unemployment to shoot up so fast (this is shown by data from 74-75 it isn't just theory although it is uncontested established theory among economists). In my view, Italy and Spain (but not so much Austria or Sweden) have chosen radical pro market labor reform. I don't really know, but I suspect that Ireland was relatively market oriented since forever.

OK an anecdote about my dughter's ex baby sitter (said daughter is now too old to sit). Ex babysitter got a new job (not laid off by us but forecasting). The only problem was that they didn't pay her the salary they owed her ( they don't contest this just said they didn't ave the money -- this is a firm with a fair numvpber of employees). There have been no consequences due to this very highly flexible approach to employment and contracts (a judge might find 15 minutes to spend on the case 10 years fro now -- the worst penalty will be pay plus market non punative interest but I assume she will give up long before as almost every plaintiff does around here).


I oppose Monti's labor market reform proposals and think he wa crazy to try (Italians love the memory of the dear departed firing restrictions -- most also claim to be Catholic and set the all time record for low fertility for any life form on Terra -- symbols and subsance are odd in the discorso).


OK how about "politically impossible" ? That is the core won't give without reform ? Look obviously most Germans do not want labor market reform in Italy (just think about all the US workers trying to weaken unions in Mexico and Columbia). German workers do not want to share a free trade zone with unregulated labor markets, so most Germans, if anything, fear labor market reform in the periphery (I admit not much as they think they are suprior with their tough work ethic which causes them to work 1,600 hours a year on average (US readers don't do the calculation -- the envy might kill you)). It may be that someone with power demands market oriented reform in exchange for loans. But that power is not Democratic power based on the wishes of a majority of voters anywhere. It is the power of unackountable elites in Frankfurt, Brussels and (to be fair) my home town Washington.

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