America and Europe, continued

by on November 9, 2006 at 6:23 am in Economics | Permalink

Many readers have asked for more on the U.S.-Europe comparison. In the CT comments, John Quiggin writes:

...the key variable [is] output per hour worked, Europe matched or surpassed the US some time ago. The faster US growth of the past decade is in part catchup.

If we at look at gdp per hour worked, the US has a clear lead over Europe; the broader data link is here.  That measure for Europe includes Greece but not the former Communist countries.

Furthermore the greater number of hours worked in the U.S. is not just a labor-leisure preference.  Some of the difference stems from the higher tax rates in Europe, as argued by Ed Prescott (plus Europeans have to work harder at shopping and at home, see the link).  Admittedly this question is not fully resolved, but it is wrong to attribute the entire hours difference, or even most of it, to preferences.  In other words, measured output per hour is not the key variable.

Many stories can be told about why the US is gaining on Europe.  Most plausibly they involve greater micro-productivity in R&D, higher education, and the use of information technology.  In fact, some of these stories can be told from a pro-government point of view.  These stories are not just seen in the statistics, they are confirmed by a wide range of case studies and more impressionistic accounts. 

But it is not plausible to suggest that the U.S. has been growing more rapidly because it is playing catch-up to Europe.

There is more, but this post is running long...

It is true that some European nations are at a par with the United States, and Norway (oil) and Luxembourg (financial services and small population) are above the United States.  But keep in mind that these figures for the top European performers are averages.  Creating low-wage jobs or taking in immigrants will lower such an average butthis effect should not downgrade the true economic performance of the United States. 

A further question is how much "cherry-picking" in Europe should be allowed (e.g., ruling out Greece), while not doing the same for within the United States.  Louisiana and Mississippi are a drag on U.S. averages, and DC probably looks like Luxembourg.

Note also that high rates of government employment, as we find in many parts of Europe, tend to overstate measured gdp.

If we look at recent rates of growth, whether of productivity or of gdp, the U.S. clearly is ahead of Europe, although a forthcoming U.S. slowdown may change that ranking at least for a while.  Much of this seems to stem from information technology, as best we can determine, not "American catch-up."  Try also the Lewis book on productivity.  The micro-evidence all suggests that the U.S. has obtained an ongoing flexibility lead in certain key categories, most of all retailing.

In short, if we view the numbers in context, they still indicate a serious economic problem for social democracy.  Try some demographic projections as well, and their implied economics, a topic on which Quiggin and CT commentators were conspicuously silent.

None of this is counting the America’s greater future capacity to either respond to globalization or absorb immigrants.  I’ve heard many a European envying the future of the American economy, but I’ve never heard of an American envying the future of the French or German economy (except perhaps at CT). 

As I said in my original essay, I still see two "plausible" scenarios for Europe not collapsing.  Eichengreen is yet more optimistic than I am.  But if defenders of social democracy continue to deny the problem, there is no reason to be optimistic at all.

John Thacker November 9, 2006 at 8:02 am

A further question is how much “cherry-picking” in Europe should be allowed (e.g., ruling out Greece), while not doing the same for within the United States.

One might argue that the very high-wage, high-union, high-unemployment labor market of certain social democratic countries results by itself as a “cherry-picking” in the data in the first place. It is, I reckon, a bit misleading to price out low productivity labor from the market and then brag that the labor that does retain jobs has high productivity and high wages. Well, it is true, at the cost of unemployment for those without skills.

mic November 9, 2006 at 8:11 am

I wonder why one is not making a risk adjustment here. It is true that both income and output of the average US worker are higher than in Europe. However, with wider and bolder safety nets, european average income is less volatile: unemployement or long-term illness downsides are more limited.

theCoach November 9, 2006 at 8:35 am

Thanks for continuing this. I have not had a chance to follow the links yet, but I want it known that your effort in clarifying is appreciated.

theCoach November 9, 2006 at 8:47 am

One thing I will grant on the cherry picking front – the US should not be required to include the occupied territories in Iraq.

One other thing that is not clear to me, is exactly what policy differences we are talking about, whether they are all or nothing and whether or not variance in those policies within relative zones provides evidence either way (Ireland and Scandanavian countries seem to be policy outliers, and we can probably atribute more catching up to Ireland. In the US, what weight do you give to the relative difference in policy from the higher productivity areas?)

theCoach November 9, 2006 at 8:54 am

I meant to include in my above comment and example of policy difference – for example, on healthcare, which seems to me to be one of the major pillars of social democracy, the US will soon be moving more toward the European model, and the European model will be making some market reforms. In my estimation I see this as only helping US productivity, but it is a major policy difference that exists now, but probably will not well within the scope of the original article – actually, given current levels of funding, the US, when it moves toward universal care, will likely go in much more thoroughly.

theCoach November 9, 2006 at 9:33 am

Another thing that is not clear to me is the sustainability of accumulated wealth, and its relation to higher productivity growth and depreciation.
The assumption seems to be here that it is extremely significant, but it goes strongly against my intuition, an intuition I would gladly concede could be wrong.

theCoach November 9, 2006 at 9:56 am

David,
Thanks for the kind words. I am out of my element here, but I find this stuff fascinating.
On 1) the big one is healthcare no? For the purpose of argument, I am going to assume that european-style healthcare and US style healthcare are equally efficient (I think that is generous to the US, but I am aware of arguments offsetting arguments). In that regard then the US spends significantly more in that area, and if you grant the efficiency argument, it does not matter whether it is in the private or public ledger. As I mention above, the US looks poised for a change in this area toward the Euro model in any event.
The other part of 1) is welfare, where Europe appears o have two different models – the scandanavian make work government jobs and what apears to me badly flawed French-style of relatively high pay for non-workers (although I badly informed about, say, French participation in the economy of the young relative to extending education), and maybe they have a better argument than I am aware of.
2) Strong unions – this is another one where I think things are a bit complicated. I continue to hold out hope for perhaps pony-filled dream that unions can transform into better partners with business giving labor more bargaining power, but also being more flexible. Less defined pensions, but more paid retraining. Regardless of my hopes, the US also seems poised for some sort of a correction to labor/corporate profits.
I do not know enough about 3) to comment, except to say that I think Europe has pretty wide latitude in this area, and with protectionsim in genreal before I would declassify it as Social Democracy. The big question seems to me, can europe choose leisure over wealth, and redistribution.

Thanks.

PS – Tyler appears to be very concerned about population growth, something that I simply cannot see, except for a brief period where there would be a baloon in the retirees. It strikes me that a decrease in population increases natural resource wealth per capita, and that land will become increasingly valuable, but I am obviously missing something here.

economistatwork November 9, 2006 at 10:05 am

“However, with wider and bolder safety nets, european average income is less volatile”

How do you mean, volatile? Our average income has been “stagnant” according to critics, not “volatile”. However our top wages keep going up.

Or do you mean over a lifetime of an individual? In this case it certainly is less volatile in Europe where it is much more stagnant – i.e. in the US an individual is able to move several income quintiles up during the course of a lifetime corresponding to tens of thousands of dollars per year in real income. In Europe the individual only moves in “relative” income – he moves up compared to his peers of the same age – corresponding usually to almost no change in income (a few thousand dollars per year). It is less “volatile” in Europe because real wages are very low and very stagnant compared to the US.

Not Gandhi November 9, 2006 at 10:34 am

As Tim Smeeding’s work suggests, median and lower incomes in the US are actually quite similar to those for the bulk of Europe. Ditto for wealth. It is at the top where you see huge differences. These numbers are also biased against the US because of the large number of low income immigrants at the bottom of the US distribution. A comparable measure of white, non-immigrant Europeans and Americans from 1980 to 2000 would undoubtedly favor the US even more strongly.

See the following link from Mankiw

http://gregmankiw.blogspot.com/2006/10/us-and-european-inequality.html

“The bottom line: The poor in the United States have about the same real income as the poor in western Europe. The rich in the United States, however, are much richer.”

economistatwork November 9, 2006 at 10:49 am

“And volatility measures the scatter arround a trend, so a steadily increasing income would not be “highly volatile” — it would have precisely zero volatility.”

But who said that increases in individual incoem in the US are “steady”? In a highly dynamic marketplace, often incomes must be more volatile even as they trend upward over the lifetime – e.g. people lose their jobs but after short term unemployment (at 0 or low income) they get a job that pays higher than the last job. This is because it is a (labor) sellers market with low unemployment and near-zero long-term unemployment. In europe it is a buyers market and people glue themselves to one job at a stagnant wage for a lifetime, to avoid a lifetime of welfare unemployment.

Yes the two concepts are independent, but in reality they may trend together.

S November 9, 2006 at 11:51 am

See Revel: Antiamericanism .Or why the USA is the true Social Democracy

Finnsense November 9, 2006 at 11:58 am

Surely the most impoirtant issue for the “end of the European” model is competitiveness. It is whether firms in Europe can compete with firms in other parts of the world or whether the welfare state makes that literally impossible. I don’t recall where I read it but I do recall reading that European companies are no less competitive than US companies except at the level of SMEs and that is changing.

A further question is the extent to which the US should have higher productivity and GDP than Europe. The practical barriers to all aspects of business and the distribution of know-how are much greater in the EU than the US and that will not change. A huge single-market with a single culture is obviously advantageous.

I have to say that Tyler seems peculiarly ignorant of the economics of small countries. Go around the EU and the successes and failures of each nation and of many areas of each nation have an awful lot to do with factors beside welfare and labour policies. The idea of a European model misses the important differences that make the difference between the relative success and failure of nations. People often talk of the Nordic model but Finland, Sweden, Norway, Denmark and Iceland all have very different stories to tell about why they are successful that cannot be explained by high taxes. Discussion on the level of EU vs US lack nuance to degree that makes them practically worthless.

Michael Sullivan November 9, 2006 at 12:05 pm

“The poor” do not become the rich.

Some percentage of the poor become rich during their lifetime. But the number of people who make the whole leap is vanishingly small. The climb up the economic ladder generally takes more than one generation. The model goes: start poor, work your way into a decent job and save enough money that your kids grow up feeling solid working or low middle class, don’t have major nutrition or untreated health problems and have a home to fall back on when they are starting out. They now have a reasonable shot to go to college or do well in a trade. Their kids then become the privileged middle class folks that will sometimes strike it rich. At each stage of the game, making the leap generally requires being smarter, harder working or more frugal than most of your compatriots, and at the last stage a fair bit of luck is required as well.

I’m okay with that. That still represents mobility. True rags to riches stories are extremely rare and the image they foster is highly misleading. A lot of the “rags” aren’t poor at all, but people from middle class or even quite wealthy families who are in grad school rather than working. But grad school isn’t poverty, it’s an investment.

OTOH, this does mean that income stats have to be taken with a grain of salt. Some of our bottom income group are not poor people, but those with very good long term income prospects who happen to be in school, between jobs in volatile high-paying industries, experiencing short term losses in business, etc. Cafe Hayek had a pointer a few months back (that I’m too lazy to look up) to a study that attempted to adjjust for these things. It indicated that the number of poor people is much less than it would seem when just looking at raw income distributions.

Mr. Econotarian November 9, 2006 at 12:59 pm

Average Length of Unemployment in 2002

US: 3.8 months

France: 12.8 months

Switzerland: 14 months

Spain: 19 months

Norway: 4 months (the “Northern Way”, or massive government hiring of the unemployed, you decide!)

Source:
http://www.ncpa.org/pub/ba/ba475/ba475.pdf

And from:
http://www.bls.gov/opub/mlr/2002/06/art2full.pdf
there is this:

“Almost half of Europe’s unemployed remain jobless for a year or longer, while less than 10 percent fall into that category in the United States. (See bottom panel of chart 2, based on OECD data.) In 1983, the United States, Canada, and Japan had about the same proportion of long-duration unemployment, while Europe’s was far higher. During the 1980s, the proportion declined somewhat in the United States and Canada, rose in Japan, and remained very high in Europe. All countries except Japan showed a rising trend in the early 1990s. Japan’s Long duration unemployment worsened in the last half of the decade, while the other G7 countries showed some small improvement. The data on duration of unemployment reveal an important difference in the nature of unemployment in the United States compared with Europe. The proportion of long-term unemployment in Europe remains persistently high even during and after recoveries. In the United States, it is relatively low even during downturns in the economy.”

Mr. Econotarian November 9, 2006 at 1:12 pm

Then there is youth unemployment…

From:
http://econblog.aplia.com/2006/03/bringing-french-unemployment-picture.html

“for every 1000 20 to 24-year-olds in France, 540 say they want to work and 84 of them are unemployed, which leads to an unemployment rate of 84/540 or about 15%.

For every 1000 20 to 24-year-olds in Canada, 790 are in the labor force and 57 of them are unemployed, which leads to an unemployment rate of 57/790 or about 7%

For each 1000 young people in France, take the 84 who are in the labor force and unemployed. Of these, 34 have been unemployed for more than 6 months.

Of the corresponding 57 people who are unemployed in Canada, only 5 have been unemployed for this long.

This tells you that on average, spells of unemployment last much longer in France.”

Barkley Rosser November 9, 2006 at 1:58 pm

Tyler,

Over the last decade average US per cap GDP growth has
beaten average European per cap GDP growth, although
given the much greater increase in inequality in the
US, this may not have (and certainly has not compared
to some countries) led to a better performance at
the median levels.

However, over the longer term all this is way overstated.
So, the US surpasses pretty much all of Europe in real
per capita income around 1900, when the US, Australia,
and Argentina were the top income per capita countries.
In 1950, in the aftermath of WW II, the top three were
Switzerland, Sweden (neutrals in WW II), and the US
(largely unattacked in WW II). Today the top three
are Luxembourg, Norway, and the US. Not much has happened.
The US has been ahead of most of Europe for over a
century, except occasionally for a country here or there.

The Prescott argument is not very impressive. We
know that most individual labor supply curves are
backward bending. A tax cut could lead to less
labor supplied. Actually the most careful studies
of the Reagan tax cuts in the US suggest that we
were probably on the nearly vertical portions of
our labor supply curves: no extra work or less
work as a result of the tax cuts. Do any of you
remember people rushing out to get second jobs or
work overtime after their income taxes got cut?

To the extent that what is going on with labor
supply involves preferences some of this shows up
as longer vacations and more time off on weekends
(Sundays) in Europe. Average vacations (for those
with jobs of course) in Germany are six weeks. It
is well known that places like France simply have
almost nobody around working in August, especially
in the middle (Aug. 15, Assumption of the Virgin Day),
although in the Nordic countries it is July that
one finds few people around working. The widely
stated attitude in many places is “we work to live
while you Americans live to work.” Some truth
to that jibe.

I do think it is important to be clear about
distinguishing sub-models in Europe. There is
much greater variety in both policies and in
outcomes across Western Europe than there is
across the US. Mississippi is much more like
Connecticut, or even Manhatten, than southern
Greece is like Luxembourg, Oslo, or London.
Of course an irony here is that income inequality
within the US, and within individual US states
and cities (Manhatten is the most unequal county
in the US) is greater than it is in any western
European country, even the UK.

I think one can look broadly at some models,
even if there are a bunch of countries not easily
categorized. So, I think your discussion, Tyler,
is most relevant for the “Rhineland” model,
France and Germany (and maybe more extremely,
Italy), despite some large differences between
them (more state ownership and direction in
France, more codetermination and bank control
in Germany). Both have fairly high taxes and
pretty extensive safety nets, but not nearly
as much so as the Nordics. What they really
have in common in contrast to the Nordics and
the UK and Ireland (which are somewhat more like
the US) are much more regulations, both in the
labor markets but also on enterprises. The
Sunday closing rules in Germany are just one
example. The Nordics are much freer in these
areas, and this is probably a major source of
their better performance.

Of course, given that Germany and France are
the two largest economies in the EU, what happens
to those two is important. But one should be
careful to specify that one is talking about them
and not Netherlands, Ireland, Switzerland, Austria,
Denmark, Finland, etc. etc. etc….

Finally, you and some other commentators fall into
this libertarian vice of arguing that government
output/jobs are not as real or “productive” as
private sector ones. Certainly many are not,
but many private sector ones are not either.
I note all those people in doctors’ offices who
are filling out forms demanded by our wonderful
private medical insurance companies in the US
who are looking for ways not to pay people, who
are not there in doctors’ offices in the entire
rest of the high income world where there is some
variation or other on universal government health
insurance coverage. I could easily list a lot of
other unproductive private sector workers, while
there are certainly plenty of people in D.C. doing
things that most citizens are glad they are doing.

economistatwork,

The poor in the US may not be any poorer than the
poor in Europe. But they are a much higher
percentage of the population than in Europe.

Mr. Econotarian,

Of course these numbers only count the “officially
unemployed,” that is those in the labor force. It
does not include those in prison, and the US has
a noticeably higher (by several percentage points)
proportion of its population in prisons. That,
along with our higher military employment, goes
part of the way to narrowing differences with
some of the higher unemployment European countries,
especially the Rhineland plus Italy (plus Spain)
crowd.

To the
extent that what is going on is preferences, it shows
up in areas such as longer vacations in much of Europe,
six weeks the average in Germany. France and some
other countries are notorious for most people disappearing
during August for vacations, although it is July in the
Nordic countries. Most Europeans who have jobs will
say that they “work to live” while workaholic Americans
“live to work.” Also, they tend to have much stricter
laws or practices regarding closing businesses on Sundays.
Annoying if you need to buy something, but more leisure.

John Quiggin November 9, 2006 at 2:51 pm

I can’t respond to all of this at once but I will respond on the question of demographic projections (meaning in this context, mainly fertility). My conspicuous silence on this reflects the fact that I take the straight libertarian line – people’s fertility choices are up to them. Even if there were some economic advantage in larger families I wouldn’t favour intervention.

But as far as I know, there’s nothing in the literature to support the idea of a long-term benefit from higher fertility. Of course, there are life-cycle effects, like the ‘demographic dividend’, and these should be taken into account, but I don’t think they amount to much.

David Wright November 9, 2006 at 6:17 pm

Economistatwork says: “The percent that make it from bottom to top quintile is not small at all – in fact its almost 100%”

This is an extraordinary claim. Can you please clarify what you mean by it? (That nearly 100% of those born into bottom quintile households will die in top quintile households? That nearly 100% of those who enter the labor force in the bottom quintile will be in the top quintile at some point in their lives? Something else?) And can you please cite a source?

Matthew November 9, 2006 at 7:21 pm

Somehow, I think that if you took somebody of European descent who grew up in a stable household and has a college education and compared him/her to a college educated European who grew up in a stable household, such a comparison would strongly favor the US.

I know the usual responses to how the US is more wealthy than Europe, i.e. health care and Europeans work less. But let me give you an anecdote. My grandfather was a journalism professor at a small college who didn’t make all that much money and my father’s family definitely fell in the lower end of the income distribution.

Well, my father’s senior year in high school, my grandfather took a sabbatical to Ireland and took my grandmother, my father and my two aunts with him. Even though they were poor here, they lived with far less over there. They had no car and they had a very small house with one bathroom for five people.

I understand the arguments about income inequality and such, but the fact is that over the long run the US provides poor people with more purchasing power parity and with a higher chance to increase their incomes significantly. Perhaps not with the absolute poorest in American society, but studies have shown that poor Americans have more appliance, bigger living spaces, newer cars, etc. than even the middle class of Europe.

And by the way, the two things where America hurts worse, health care and K-12 education, are also the two sectors with the most government interference. Not to mention that K-12 education is also the number one thing hurting the prospects of the poor in America today.

alex November 10, 2006 at 12:34 am

Can someone explain to me the difference between gdp per hour work and measured output per hour worked? What is “measured output?”

TJIC November 10, 2006 at 7:33 am

I am hardly suprised that Europe is, according to some standards, ahead of the US in labor productivity. Productivity is the total amount accomplished divided by the total amount of hours worked. Europe has many laws that restrict the number of hours work, or allow people to opt out of the market.

The utility of labor declines at the margin: tell me I have 40 hrs to get my work done, and I will do important work, unimportant work, and a bit of screwing around. Tell me that I have just 20 hrs this week, and I will concentrate on the important work, skip the screwing around, and my average output per hour worked will be higher than if I had a full 40 hours.

I suggest that this effect, writ large, applies in Europe. Remove the people from the market who are most inclined to seek our and accept social welfare, then put either hard (France) or soft (other places) caps on the number of hours employees may work, and the average value of the hours spent is higher than if the regulations were not in place…even if the total amount of value generated by labor is lower than it would be without the regulations.

John F. Opie November 10, 2006 at 10:46 am

Hi -

Demography is everything. Why?

a) Aging populations consume less. Look at European consumption in countries like Germany and Italy, where the populations are at the threshold of declining (and the native-born population is already in decline), and you are lucky to see anything above 2% real consumption growth. Consumption is driven to a large extent by the establishment of households and demand driven by having children: older populations do not have these multipliers.

b) Aging populations work less. While this can be offset to a certain degree by productivity growth, the reality is that the labor pool is shrinking, especially in countries like German and Italy, once again, for the same reason. Given that a smaller labor pool doesn’t simply mean fewer workers are available, but more importantly that the proportion of trained and skilled workers declines even more rapidly (as the number of skilled workers is proportionately smaller, and given the patterns of reduced fecundity – skilled workers tend to have fewer children in their families than unskilled – and the large likelihood, given the school systems, that the children of skilled workers will also be skilled (and the children of unskilled workers will also be unskilled!), then you have increasingly serious undersupply of skilled workers. That is one of the reasons that countries like Germany, with over 10% official unemployment, have serious problems with skilled labor: there are at least 7 000 engineer positions open in Germany that cannot be filled because of a lack of skilled workers.

Given also that immigration practice in Europe discourages skilled workers and encourages unskilled workers, there is no easy solution to the lack of skilled workers: the problem is a demographic one and brokes no simple solution.

c) Demographics are making a shambles of both the health care system and the European system of public pensions. A rapidly increasing older population, not working and dependent on public health insurance and pensions, is already a very large minority in the voting populace and is heading towards a majority: this means that any sort of serious pension reform – the German pension system, for instance, is functionally bankrupt, kept alive only by the misuse of taxes on fuels as a stop-gap financing of obligations – is virtually impossible. Add to this the fact that the aging population also has proportionally much higher health-related costs and you are rapidly reaching a point where the majority of the voting-age population will be voting to maintain pensions and low-cost health insurance which the working generation will be obliged to pay: this is the upcoming intra-generational conflict of the next 30 years as the social systems in Europe vastly outstrip the ability of workers to pay for them.

Demographics really does define the differences between the US and Europe in many ways. Germany has already entered a phase of negative population growth, as has Italy and Austria: reduce the demography to exclude non-natives, and the picture expands sharply.

There is virtually no way for productivity to increase so rapidly that the system can re-enter equilibrium: the Europeans are living on borrowed time, borrowed from their children and grand-children.

And for those who think that all Europe has to do is to increase immigration in order to reach a new equilibrium, consider this: Europe is not immigration-friendly (I know, I live as an expat in Germany!), but rather raises serious hurdles for anyone who wants to come and work (in the odd belief that a highly trained Iranian doctor is going to take the job of a bricklayer away from them…) and there is no sign that this will improve in the mid-term.

theCoach November 10, 2006 at 12:15 pm

finally read the prescott stuff, although not the data. It brings up more questions than it answers to me. If European labor participation can be explained soley by tax rates, does that imply that the excessive employment regulation plays no part? Is he bundling those effects into some nebulous tax burden category.

It also, I think underscores a slightly prescious belief that if only we could remove the politics and let the technocrats run policy things would be much better. Politics is not going away, and as the US implements Minimum wage laws and probably enters a shift back from a long rightward trend, it is worth considering.
Prescott’s dismissal of targetting happiness by technocrats will be corrected for by the democratic process. People, in the long run, will tend to prefer actual happiness, to the right to pursue it.

theCoach November 10, 2006 at 1:08 pm

economistatwork,
“most people approaching retirement age are in the top quintile.”
“Median Net Worth 55-64 (1995) 141.9k
Median Net Worth of 80% percentile (1996) 157.7k”

This strikes me as less than half, not most. If I am reading the numbers right that means “almost 100%” has changed to “less than half”.

David Wright November 10, 2006 at 4:27 pm

Thanks for the pointer to your sources, economistatwork.

The contrast between Gottschalk and Cox & Alm is very interesting. Both studies follow a sample of subjects across time. But while Gottschalk computes the subjects’ quintiles relative to each other, Cox & Alm compute their quintiles relative to the population at large. Because people’s income tends to rise as they age, the Cox & Alm method gives much higher mobility figures than the Gottschalk method.

What Cox & Alm measure is much closer to what most people mean by mobility — when someone says “I’ve reached the top quintile” they don’t mean the top quintile of their age group, they mean the top quintile of the population — so I’m willing to accept their numbers.

Cox & Alm find that, after 15 years, 95% of the people who started in the bottom quintile are no longer in it, so that supports one of economistatwork’s claims. However, “only” 30% of those people finished in the top quintile. (Actually, none of the souces economistatwork cites say anything about the highest quintile achieved; they all only discuss initial and final quintiles. Because of the strong upward trend, the final quintile will usually be the highest achieved quintile, but it is not necessarily so). So economistatwork’s claim that the majority of those that start in the bottom income quintile achieve the top income quintile at some point in their lives remains an open question.

We shouldn’t forget that this is a comparitive discussion between Europe and the U.S., so the real question here should be how inter-quintile mobility compares in Europe and the U.S. What I’ve been reading lately has claimed that, while the U.S. has had a slight edge in mobility for the last 50 years, recently Europe has had a slight edge. I have not, however, investigated those claims.

John F. Opie November 11, 2006 at 5:25 am

Hi -

Coach:

Demographics, unlike economics or politics, is not easily reversible: the trends are massive and attempts to change them are invariably futile or lie within the error variance. This isn’t speculation on my part, but rather the reality of demographics.

The idea that the difference can be made up by immigration is uniquely American: the Germans have shown by their policies – purportedly aimed at increasing immigration, but with the effect of making it very difficult for skilled workers – that they really aren’t interested in allowing literally tens of thousands of immigrants in each and every year. Most Germans are in active denial that it is a problem, and those aware of it do indeed call for increased immigration.

But Germany needs, right now, 60k+ immigration. Instead, they have a net emigration, i.e. more Germans are leaving Germany than immigrants are arriving to replace them. This needs to accelerate by 2010 to 200k per year, and there is absolutely no indication as to how the German government plans to achieve this, except perhaps simply allowing anyone in who makes it to the borders.

Which will only drive the bankruptcy of the German social system, which is already broken and bankrupt. Germany – and by extrapolation Europe – needs an immigration policy that not only gets skilled workers, but also assimilates them, as the US immigration policies are aimed at. Until then, the idea that immigration will save German demographics is a pipedream.

Hoping that technological breakthroughs will lead to massive productivity changes so that fewer and fewer workers will be able to support more and more non-workers is a nice idea. But given the fact that techological breakthroughs are not limited to the West, what are the chances that such a breakthrough leads to impoverishment of demographically challenged countries, since all that these countries can then offer are consmers, not creaters of wealth?

David Wright November 12, 2006 at 12:58 am

The generalization that European fertility rates are significantly lower than American fertility rates is not “vapid”; on the contrary, it is entirely accurate.

OECD fertility rate statistics for western European countries, in order of population are: Germany 1.38, France 1.88, Italy 1.24, Spain 1.24, etc. The U.S. value is 2.06.

So, Barkley, even by cherry-picking the western European country with the very highest fertility rate, you still didn’t manage to get close to the U.S. value. Furthermore, it is not true that the rates for natives and immigrants in France are comparable. Have you really not heard any of the fear-mongering lamentations from the French right that, under current trends, France will cease to be a majority Catholic country within a few generations?

David Wright November 12, 2006 at 4:26 pm

Let me get the straight, Barkley. According to both my figures (OECD for 2000) and your figures (source unknown for 2005) not a single European country has a fertility rate that equals or exceeds the U.S. rate. And yet you still maintain that (because while most rates are much lower, there are a few that are only somewhat lower, and if you count Iceland, well, there’s one that’s only barely lower!) the claim that European fertility rates are lower than American is a “vapid generalization”?

Barkley Rosser November 12, 2006 at 4:39 pm

David,

The higher fertility rates in the US are due to our
rising Hispanic population. Fertility rates in the
“local” populations in several European countries
exceed those of the white population in the US.
And, yes, that group is the more social democratic
of those European countries. So, yes, yours was a
vapid generalization. especially the part dinging
the social democracies on this issue.

Barkley Rosser November 13, 2006 at 12:59 am

David,

This will be my last post on this thread, which is getting
awfully repetitive. The point is that the generalizations
about “Europe” versus “America” on demographics have been
way overstated here, starting with by Tyler and continuing
with folks like you. Tyler warned against “cherry picking,”
which is fair enough. But, we are talking about a clear
subset of European countries compared with their effective
counterparts in the US, an ideal asserted by all kinds of
people in an earlier thread who insisted on comparing the
Nordic economies with Minnesota when it suited them rather
than the US as a whole.

So, Iceland is small, but it is only one of the set. Except
for Sweden at 1.66, all the other Nordic countries, plus
Netherlands, France, and some other smaller ones (including
the not-to-be mentioned Luxembourg) are all over 1.7, not
statistically significantly different (or lower) than the
1.8 rate for US whites. The story I told about social
democracy and birth rates is correct. They do as well as
the comparable group in the US.

The US rate is higher because of the higher rates for
immigrant Hispanics particularly. Do you wish to hold up
Niger as an economy in great shape? It has the world’s
highest fertility rate (and also is currently dead last
on the Human Development Index of the UN in the entire world).

Mikis November 16, 2006 at 8:42 am

quote: “Almost half of Europe’s unemployed remain jobless for a year or longer, while less than 10 percent fall into that category in the United States.”

Why would they work? They earn more by doing nothing than most low paid (less than $3 per hour) workers in US do. Their (modern) apartments are being paid by socialcare, their healthcare is free and their (re-)education (new skills to prepare them for better jobs) is free.

Fine, I know many who are completely willing to be without work, even when there’re plenty of opportunities to choose from. But they sure aren’t going to get rich by doing so. Nor they get any pension. They’re ultimately biting their own hand. Im average Finn, earning 2500 € ($3200) per month, $38400 a year + bonuses = $40000 a year. I work 37,5 hours a week, not one bit more. Rest of the time Im doing something fun. I have 6 week vacation. I have 2 cars, 1 motorbike, and own house worth 220000 € ($281 600). Im poor.

Mogens November 23, 2006 at 2:37 am

Im am a middle class european living in Denmark. I am teacher and so is my wife. We have together a yearly income of 120.000$. We have raised 4 kids, 1 has finished his free education and the other tree are on the way. Besides free education, they recive about 660$ a month from the state.
I was operated in my shoulder last week, free of course plus salary during absense.
WE live in a modern apartment now (95 m2 to two people, rent about 820$ incl. heat), because our children do’nt live home any more, so wee have sold our house to our oldest son, who is married and have 3 children.
We have a cash fortune of about 100.000$ and a summer cottage worth 200.000$, car and other consumer goods.
We have also pension savings, that will guarantee us an net income in our old age of about 75% of our present level.
In the last tvelwe monts we have been 2 times on the Canary Islands and 1 time in Portugal on vacation.
We pay about 42% of our overall income in direct taxes, and for that we get social security, free health care, free education, part of our old age pension ang a lot of other services.
All that in a society with a GNP pc larger than that in US, a higher proportion of the population working, 37 hours working week and 6 weeks vacation. an uneployment rate of about 3%, surplus on foreign trade, no foreign debt and a very small and declining public debt, because the state has a yearly surplus of 3-4% pr. year.
Yes, it is surely hard to live ind Europe.

Thomas Riccardo January 27, 2007 at 5:13 am

Sorry for the above error, we have a 900 billion dollar current account deficit.

Erik May 17, 2007 at 5:33 am

I comment to what Matthew said:

“I understand the arguments about income inequality and such, but the fact is that over the long run the US provides poor people with more purchasing power parity and with a higher chance to increase their incomes significantly. Perhaps not with the absolute poorest in American society, but studies have shown that poor Americans have more appliance, bigger living spaces, newer cars, etc. than even the middle class of Europe.”

I have read about this too, but if you actually travel around and look for yourself it soon becomes clear that there is something wrong with this picture. It is quite clear I think that the hardship for the poor is much more severe in the US than in Europe.

The report that tries to paint the picture that poor Americans are just as well off as average Europeans falls in the trap of equating wealth soly to material things. A large part of peoples expenses is health care and schooling. Here Europes poor are much better of. Americas poor are also much more dependent on haveing a car to live normal lives. In short you can’t compare income of poor in Europe and the US just by dollar income since so much of the European poors “income” is in the form of services like free or subsidized health care, education and public transport.

According to the report Sweden and Missisippi should be equally good places from economic statistics. But from what I have read from people who have been both places it is totally ridiculous to claim people in Missisippi are as well off as those in Sweden.

With regards to income mobility, I read a study that showed that mobility was in fact higher in Scandinavian countries than in the US. I can’t find the study now but another one: http://www.ucm.es/info/econeuro/documentos/documentos/dt192002.pdf which was pretty much the first one I found when googling also said that the great income mobility in the US is a myth. In fact mobility is mid range.

So I wonder those who claim the US has such great income mobility (compared to others) is this just wishfull thinking or do you have any studies that back this up?

32rrfrtg October 7, 2007 at 11:24 pm
battery October 16, 2007 at 11:39 am
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