Why is Swiss unemployment so low?

by on January 12, 2012 at 2:27 am in Economics | Permalink

Why does Switzerland have a low unemployment rate?

…is a question from Really Curious.  Here are some data, but right now it is at 3.1%.  I see a few factors:

1. The Swiss have few ZMPers, so their natural rate is fairly low to begin with.

2. The Swiss do not have the same kind of welfare state and labor legislation that you find say in France, which also lowers their natural rate, and which makes adjustment to negative shocks easier.  Unemployment benefits are not so generous and they pretty much force you to try to find work again.

3. In the past the Swiss have managed their immigration policy in accord with the domestic unemployment rate.  For instance if unemployment was rising they would send some Italian guest workers back home.  Immigration into Switzerland is now so substantial, however, and integrated into so many sectors, that this procedure has lost its potency.

4. Swiss jobs are relatively permanent, compared to the United States.  You will note that #4 interacts with #3; immigration is by no means always or even usually zero-sum with respect to the jobs in a country, but it can be for some well-defined pockets of manufacturing jobs in Switzerland.

5. The Swiss central bank does not hesitate to engage in sophisticated schemes of quantitative easing when an appreciating exchange rate is squeezing their export industries or they otherwise face unpleasant macroeconomic situations.

Here is a JSTOR piece on said question.  Here is a good paper on the overall topic (pdf).  I have never seen a good paper on why the Swiss unemployment rate rose somewhat in the early 1990s, falling again in 1996 or so I believe, but MR readers can help us out here.  I also do not have knowledge of exactly how the Swiss calculate their unemployment rate, though it is unlikely that the difference in rates is a mere statistical artifact.

1 RM January 12, 2012 at 4:31 am

In an economy without bubbles, isn’t Point 1 circular?

2 MikeP January 12, 2012 at 4:57 am

I think many of their major industries are downturn-robust: banking, (high-end) tourism, and international bureaucracy. Swiss banking is more of safe-haven banking instead of investment banking, so does not get caught up in bubbles, and is probably counter-cyclical. The high-end tourism is also less sensitive to downturns. And international bureaucracy is as steady as it gets.

3 the spam robots are getting better and better January 12, 2012 at 5:01 am

You do realize that UBS and Credit Suisse are…in fact Swiss banks.

4 Bernard Guerrero January 12, 2012 at 2:27 pm

+1

5 Bernard Guerrero January 12, 2012 at 2:29 pm

Though to be fair they were merely participating in other people’s bubbles rather than inflating a domestic one.

6 Andreas Moser January 13, 2012 at 3:36 am

Not every country in the world can have beautiful landscape, be a safe haven for criminals’ and dictators’ money and have the UN, FIFA and other big organisations.
I am afraid the lessons that can be drawn from Switzerland can’t be multiplied that easily.

7 Swissie January 12, 2012 at 5:20 am

The official measure overstates the unemployment rate by about 0.5 percentage points. Believe it or not, the working population figure (i.e. the denominator of the rate) is from the 2000 census. Since then, it has grown significantly.

8 david January 12, 2012 at 5:26 am

Mundell-Fleming small open economy; how plausible is it that the Swiss central bank influences the domestic real interest rate anyway?

And the exchange-rate lever has no zero bound.

9 NAME REDACTED January 12, 2012 at 6:40 am

Why isn’t the united states a “small open economy” it is a very easy country to move capital in and out of.

10 david January 12, 2012 at 7:21 am

That satisfies open but not small; the US real rate has an appreciable impact on the world real rate.

Regardless real rates over the US border do not appear to equalize so capital isn’t perfectly mobile over the US border.

11 dan1111 January 12, 2012 at 5:29 am

How much does selection bias create (or at least amplify) this effect? People likely move into Switzerland to get jobs, while unemployed move away to get better welfare benefits. There are no controls on this type of movement, since Switzerland is in the Schengen area.

12 mvdc January 12, 2012 at 5:43 am

Schengen just means, that you don’t have to show your passport at the border. While it is true, that unemployed Swiss people could move to some other european countries (Germany, Netherlands, Austria, a few others) which allow swiss people to collect unemployement benefits, I would guess, that this is a pretty rare behavior.
I would also like to note, that the swiss unemployment benefit system is actually quite generous. You get 70% of your last wage (after some deductions, up to a maximum of 6500 CHF) for a year. Afterwards you can get (lifelong, as in all other european countries) social assistance of around 1000 CHF + rent.

13 Swissie January 12, 2012 at 6:00 am

Actually, if you have children under 25, you get up to a max of 100’000 USD for one year. Pretty generous indeed. The downside, not evident in these numbers, is the strong pressure exerted on the recipients to accept the first job available.

14 mvdc January 12, 2012 at 6:08 am

Absolutely. I just wanted to show some numbers, as I know from experience, that American (and British) audiences often underestimate how much assistance you actually get in Europe and that nobody will be left hanging in the air after unemployment benefits run out, finally.

15 Rahul January 12, 2012 at 6:59 am

It would totally make sense to qualify for payments, in say, Zurich canton and then go and spend them in, say Berlin or Hanover due to the gigantic cost-of-living arbitrage.

So far as I know, for a period of about 3-6 months a person could move to another EU nation yet continue to draw the Swiss rates of benefits. Even beyond this period I am suspecting that people “show” a Swiss residence but effectively live elsewhere. I think the devil’s in the details of how they are measuring unemployment.

Argument #3 yet has a lot of potency due to the substantial number of non-citizens in the Swiss economy. Perhaps these are the first let go at every recession?

16 Someone from the other side January 12, 2012 at 8:44 am

You have to regularly show your actions to get a new job in person. So living in a low cost of living area won’t work all that well. Also, residency generally implicates you paying rent where you are a resident.

17 dan1111 January 12, 2012 at 6:11 am

I looked this up before posting and got the impression that there are also no restrictions on moving and living anywhere for residents of the Schengen area. Please correct me if I’m wrong about this.

18 dan1111 January 12, 2012 at 6:16 am

Here is where I got my information:

http://en.wikipedia.org/wiki/Visa_policy_in_the_European_Union

“Nationals of European Union member states, and of Iceland, Liechtenstein, Norway and Switzerland are not only visa-exempt but are legally entitled to enter and reside in each other’s countries, following the requirement of the EU’s freedom of movement provisions, the European Economic Area Agreement and bilateral accords with Switzerland.”

19 mvdc January 12, 2012 at 6:22 am

True. You’re right, but that doesn’t automatically make you eligible for payments from the state. I’m pretty sure, that you are entitled to social assistance payments wherever you reside in the EU but not to the much more generous unemployment benefits. Social assistance is everywhere on a pretty low subsistence level and doesn’t differ dramatically between Switzerland and its neighbors.

20 prior_approval January 12, 2012 at 9:50 am

‘that there are also no restrictions on moving and living anywhere for residents of the Schengen area’
Well, as always, the details matter. For example, one can move to another EU country – but the only way to collect benefits in that country may require having had a job in that country first – possibly for a period like a year. Second, getting a place to live in Europe is generally much more difficult/time consuming in the short run than in the U.S. – simply packing up and looking for opportunities in a new country is not exactly the same as simply moving from NYC to Chicago and looking for a job to pay the rent.

21 Andreas Moser January 13, 2012 at 3:40 am

Moving can also be easy within Europe. I just moved to Malta from the UK with less than a month’s preparation: http://andreasmoser.wordpress.com/2011/11/13/leaving-london-moving-to-malta/
As an EU citizen, I needed no visa, no registration, nothing. Now I am a resident of Malta. (But I don’t claim any benefits.)

22 prior_approval January 13, 2012 at 9:01 am

‘I just moved to Malta from the UK with less than a month’s preparation’
A good number of Americans (admittedly, generally younger, generally without children) have moved with less than a day’s preparation – they just decide to go somewhere else, and see what works (family and friends do play a role, of course). Canadians in the Maritimes (though the number I know personally is smaller) will do the same thing, though they often have a destination (Vancouver/BC – maybe Alberta these days) and people they know.

Such mobility may not be exactly common, and may be declining, but the idea of some German just packing everything up in a Black Forest town and then going to Munich is conceivable, but not exactly common – the same is equally true of just moving to France. (Malta and the UK share a history and a language – making the moving much easier than between a county like Spain and France.)

23 Andreas Moser January 13, 2012 at 3:41 am

We must not confuse the freedom of movement for EU citizens and the Schengen rules.

24 Steve January 12, 2012 at 5:43 am

What does ZMP mean?

25 affenkopf January 12, 2012 at 8:55 am

Zero Marginal Productivity

26 anon January 12, 2012 at 11:00 am

black

27 CBBB January 12, 2012 at 11:31 am

It’s this bullshit hypothesis of Tyler Cowen pay no attention to it

28 Bernard Guerrero January 12, 2012 at 2:32 pm

Losers.

29 CBBB January 12, 2012 at 3:05 pm

No I think the term for that is “economists”

30 Bernard Guerrero January 12, 2012 at 6:58 pm

Not if they’re employed. ;^)

31 CBBB January 12, 2012 at 8:56 pm

On the contrary they’re Losers for all seasons

32 JNieboer January 12, 2012 at 5:48 am

Re point 4 – I thought flexible labour markets were a good thing? Fair enough if unemployment benefits ‘pretty much force you to find a job’, but the jobs still have to be there. And if every new job is a permanent one, employers will tend to create fewer of them.

I think you make some valid points, some of them supported by relatively low unemployment rates in some countries (point 2 & 5 are a valid for the UK, too; point 3 applies to the high end of the US labour market; point 2 applies across the modern world). But none of them explains why Switzerland’s unemployment rate is THAT low.

33 mvdc January 12, 2012 at 5:54 am

Well, Switzerland has fewer inhabitants than London, a very restricitve immigration policy (except for EU citizens) and a lot of international companies reside in Switzerland, mainly for tax reasons. All in all, that makes Switzerland pretty much incomparable to other countries, besides from Liechtenstein or Luxemburg, which have comparable unemployment rates.

34 Swissie January 12, 2012 at 6:07 am

Restrictive policy? 25% of the population has been born outside Switzerland.

35 mvdc January 12, 2012 at 6:11 am

I know, I’m one of them 🙂
It is indeed very easy to move to Switzerland, but only if you’re from the EU or are highly-qualified. I would guess, it would be a different matte and pretty hard if you are an unemployed North-African economic refugee, right?

36 Rahul January 12, 2012 at 7:01 am

Yes, but now we are debating the source and kind of immigrant and not the number.

37 Cliff January 12, 2012 at 9:41 am

No, mvdc just said there was a restrictive immigration policy, which is true.

38 Rahul January 12, 2012 at 10:48 am

Every policy is restrictive in some sense; what’s an objective measure of “more and less”? To me the % of foreign born population seems a good surrogate.

39 Berliner2 January 12, 2012 at 5:20 pm

It’s not 25% of the population that haven been born outside Switzerland. It’s 25% of Swiss residents who don’t have Swiss passports. A significant majority of them were born in Switzerland and failed, or neglected, to obtain citizenship (which is sort of hart to get even for legal residents).

40 mvdc January 12, 2012 at 7:25 am

Another point on the side: 25% of the population are “foreigners” not “foreign-born”. Given the relatively complicated and strict process of naturalisation, this might make a difference (but not for this debate, IMHO).

41 RZ0 January 12, 2012 at 6:00 am

Can’t comment on the whys and wherefores, but in re how the Swiss measure the unemployment rate, I thought I’d add this link, which shows the Swiss employment rate to be highest of OECD countries: http://www.oecd-ilibrary.org/employment/employment-rate_20752342-table4

42 NAME REDACTED January 12, 2012 at 6:05 am

Maybe its way simpler than that? The Swiss don’t have a minimum wage.

43 Rahul January 12, 2012 at 7:12 am

They do. It just seems legislated a bit differently:

>>>There is no national minimum wage rate in Switzerland, minimum wage rates are set in: 1) collective agreements; or 2) standard contracts contrat-types de travail. Collective agreements and standard contracts may apply nation-wide; or to specific regions.A standard contract is a decision passed down by a competent body, following the request of a tripartite commission that establishes certain standards such as minimum wage rates for a particular sector or occupation. These contracts may be established if the sector or occupation concerned is not covered by a collective agreement and the Commission finds that wages in that sector are persistently low and exploitative.<<<

44 NAME REDACTED January 12, 2012 at 10:56 am

ah

45 Pierre-Louis January 12, 2012 at 6:16 am

They do have a mimimum wage. You earn like 25$ an hour at McDonalds!
I think one explaing factor is high regulation. Indeed after living in Geneva for 6 years I got exasperated at the lack of markets in housing, construction, supermarkets, restaurants, etc… Switzerland is below its potentiaal but it never overheats, so people never lose their job… makes sense?
And yes, unemployment benefits, especially if you take them aborad with you (as many do) and immigration policy restrictive (as a North American, you can’t just move there even if a provate company offers you a job)

46 NAME REDACTED January 12, 2012 at 6:49 am

Just because you make that much at mcdonalds, doesn’t mean the law requires it so.

47 Pierre-Louis January 12, 2012 at 8:31 am

I’m not a lawyer but I know that a friend wasn’t allowed to get a work permit cuz the “internship” he was offered did not pay enough (3000$ a month), though my friend wanted the job… there may not be a minimum wage, but all kinds of complicated regulation that keeps wages very high. It’s like for import protection, Switzerland seems to be quite open when we look at tariffs, but obscure non-tariff barriers make it a very tough place to export to…

48 Tom West January 12, 2012 at 8:41 am

Switzerland is below its potentiaal but it never overheats, so people never lose their job… makes sense?

I think this is an important point that gets easily lost.

Generally speaking, there’s a trade-off between efficiency and robustness. Pretending you can have free-market like efficiency using all available resources and then complain when disruptions cannot be absorbed without suffering is missing the point – we should consciously choose where in the spectrum we’d like society to lie and fight for that.

49 Urso January 12, 2012 at 1:15 pm

We want it all of course

50 Peter Whiteford January 12, 2012 at 6:55 am

See http://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=iipf2005&paper_id=94

“In Europe cross-border commuting is a widespread phenomenon
that has been subject to publications in law and geography in the past
years. Across Europe, more than 380.000 workers are employed in a
country different from their country of residence. From these, around
150.000 commute to Switzerland which is the biggest in-commuting
country in Europe: around 3.8% of people employed in Switzerland are
frontier workers.”

These workers are counted as employed, but are not counted in the resident population, thereby boosting the employment to population ratio and also reducing the unemployment rate somewhat.

51 Really Curious January 12, 2012 at 7:02 am

right but presumably they go to Switzerland for jobs because jobs in Switzerland are there to be had. So that still leaves the original question unanswered, why is it that jobs are there to be had in Switzerland.

52 dan1111 January 12, 2012 at 9:47 am

Actually, no; the original question was, indeed, why the unemployment rate is so low.

53 dan1111 January 12, 2012 at 9:51 am

Oops, I feel a little silly, as I see that you were the one who asked the original question. Sorry about the tone of my last comment. Nevertheless, it still seems to me that Peter Whiteford’s link does answer the question as you posed it: “Why does Switzerland have a low unemployment rate?”

54 Sam P January 12, 2012 at 12:04 pm

Those numbers sound like small potatoes, I would guess the number of commuters across the New York-New Jersey border is larger than 300,000.

55 dan1111 January 13, 2012 at 4:26 am

Switzerland’s workforce is about 4.5 million, so these numbers would be enough to significantly distort the unemployment rate.

56 anonymous... January 12, 2012 at 4:34 pm

Yes, but a lot of these border-crossing “frontier workers” are actually Swiss themselves. For instance, rents in Geneva are exorbitant with a low vacancy rate, so many young Swiss workers live in France and commute to work in Switzerland. Meanwhile actual foreigners often reside in Switzerland, and are resented for driving up rents and property prices.

57 Dennis Delay January 12, 2012 at 6:56 am

New Hampshire has a low unemployment rate. Right now it is 5.2%, but the three decade average has been closer to 3.5%. I am trying to consider how many of Tyler’s points also apply to the Granite State.

58 NAME REDACTED January 12, 2012 at 10:58 am

NH (Switzerland) has low taxes, is near to Massachusetts and NY (Germany and France) and is generally more free market than either of those two places?

59 Urso January 12, 2012 at 1:16 pm

Also everyone owns a gun

60 Andreas Moser January 13, 2012 at 3:43 am

Israel has high economic growth as well.

61 Really Curious January 12, 2012 at 6:57 am

I asked the original question. As far as I know, Switzerland does not have a minimum wage. My stab at the answer is as follows, in order of increasing importance:

1) low investment taxes
2) no minimum wage ( so you can actually higher someone for on the job training purpose without paying them )
3) education system which does not send people to major in basket weaving at Useless College, but rather sorts them early in their primary school years into high ability and lower ability and lower ability people to to technical schools which are run in partnership with industry and graduate people with employable skills. Higher ability people then go on get an actual University education which is free or really cheap, so that nobody is left by the wayside just because they can’t pay

the unemployment benefits are no worse than in the US so I am not sure how much that matters, although certainly they are less generous than in Europe.

The reason I am curious is this: How come we can’t just make our system work the same way and poof – unemployment is gone. Is it some secret genetic/cultural sauce in Switzerland or is it actual policies that makes unemployment low? if it is the former, then wouldn’t it be an argument that policies matter less than people think ?

62 mvdc January 12, 2012 at 7:12 am

I agree with your points, with the exception of 2). You can’t have somebody working for you without paying them. That would be illegal. But it’s a moot point anyway in the state the labor market is in right now: if employers wouldn’t pay decent wages, workers would move really quick to better paying companies – the causation remains unclear, though.

63 Jon Murphy January 12, 2012 at 9:18 am

“You can’t have somebody working for you without paying them. That would be illegal.”

Internships?

64 mvdc January 12, 2012 at 9:41 am

Interns get paid. At least all the interns I have heard of. I am certain, that you could find a way to legally employ an intern without paying him, but this is not the way employees are treated here. As a funny side note: a friend of mine from university did a six-month internship at UBS for 6000 CHF per month! Before the crisis, though…

65 NAME REDACTED January 12, 2012 at 11:05 am

It is currently illegal in the US to get an unpaid internship in a for profit company that pays less than the federal minimum wage.

66 Jon Murphy January 12, 2012 at 12:15 pm

Thank you. I was unaware of that little wrinkle in the law. I only got paid for one of my internships, but they were all at non-profits.

67 Rahul January 12, 2012 at 7:15 am

Not true that a min-wage law is absent. There seems a sector-to-sector minimum wage law. See my reply above to “Name Redacted”. Not sure if the sector coverage is spotty or comprehensive.

68 Really Curious January 12, 2012 at 7:42 am

Rahul: so there is no actual law. Do the agreements allow for the following: “I’ll hire the worker for half the usual salary for 3 months, if she works out, I’ll raise the salary to normal level, if not, I’ll fire her”. That would certainly all things being equal, lower the risk of hiring an additional worker

69 Someone from the other side January 12, 2012 at 8:49 am

Hiring at a discount generally does not work, but by law there is a three month probationary period during which both sides to the contract can exit it with 1 week notice. So the risk is not that high for employers.

70 Really Curious January 12, 2012 at 9:08 am

ok, but in the US we generally have employment at will, so you can exit any time. So that shouldn’t account for the difference

71 Cliff January 12, 2012 at 9:45 am

I wonder why there is no good system of technical schools in the U.S. There are certainly many well-paying technical fields that do not require you to be a genius, but no one seems to be pushing low-achievers in that direction.

72 vic January 12, 2012 at 7:20 am

Point 3: It is true that Switzerland exported part of its unemployment after the first oil schock in the 70’s, at a time when foreign workers were hired on short time contractual basis, but this possibility has not existed anymore since the 80’s.

Point 5: What the central bank does is only partly compensating the pro-cyclical behaviour of the Swiss franc, which tends to appreciate in times of world (financial) crisis. At present for instance, monetary conditions (inc. exchange rate) remain quite restrictive in Switzerland. Thus, this can’t be an explanation for the low Swiss unemployment.

Other reasons that could play a role for the low unemployment rate: Performance of the Swiss dual education system (apprenticeship, schools) ; Nudging incorporated in unemployment benefit policy ; decentralized wage negociation system, selection biais toward highly motivated workers in migration policy.

73 Hoover January 12, 2012 at 7:35 am

Why do the regions adjacent to Switzerland also have below average unemployment rates? For example Piemonte in Italy (3%).

In other words, Tyler’s explanations all concern policy, except possibly number 1 (for those inquiring, ZMP denotes zero marginal producers).

Personally, I wouldn’t discount historical and cultural explanations so enthusiastically. When unemployment is 3% at one end of Italy and 14% at the other end (Campania), yet policy is approximately homogeneous across the country, the effect of policy may be weak.

Perhaps the people in the Swiss area and its neighbours are simply better mentally organised or more industrious. If that offends you, we can say it’s the result of a long term policy – education, for example.

Note that Switzerland allows its cantons to set their own tax rates. This may have important side effects on local policy which have been summed up like this: “tax competition is the discovery procedure for the exploration of new and innovative policy designs. Successful strategies are imitated and adapted. Their creators are invited to international events. Unsuccessful strategies, by contrast, are avoided.”

74 Really Curious January 12, 2012 at 7:46 am

Comparing unemployment of regions within one country is problematic because people can move freely with no restrictions whatsoever. But the most explanation of low unemployment of Italian regions close to Switzerland is that those regions benefit the most from plentiful jobs in Switzerland, which doesn’t answer the original question of why that is

75 Someone from the other side January 12, 2012 at 8:53 am

Similar story for Austria and Southern Germany. I think there is a cultural dimension to it. A to be founded “United States of the Alps” would be an economic powerhouse far in excess of what current Germany demonstrates..

76 prior_approval January 12, 2012 at 10:15 am

‘A to be founded “United States of the Alps” would be an economic powerhouse far in excess of what current Germany demonstrates’
Maybe, maybe not – Hamburg is not exactly meaningless in the context of Germany (though Hamburg is a lot like GE – makes a lot of money, but none of it seems taxable), and a big reason why places like Switzerland or Austria remain reliant on someone else’s largesse in allowing overseas imports/exports.

77 Bill January 12, 2012 at 8:00 am

Not true: Switzerland has in fact a much longer term for unemployment insurance than the US. 18 months. See yesterday Ecomix section in the Nytimes.

78 Name January 12, 2012 at 8:17 am

Off topic, but Swiss:
Euler accounts for 25% of 18th century scientific literature?
http://www.johndcook.com/blog/2012/01/03/25-of-18th-century-science/

79 Michael January 12, 2012 at 8:28 am

I quickly skimmed over all the comments and I didn’t notice anyone mention the Swiss system of internships as a factor. As I understand it, you cannot work in almost any industry, even a simple job like running a cash register, without doing an internship. Internship don’t pay well at all so during an economic downturn, a lot of people who would be unemployed are simply underemployed doing low paying internships.

80 mbka January 12, 2012 at 8:38 am

According to a good friend who lived there for decades, Switzerland has two economies – an international competitive one (Nestle, Novartis et al., the banks) and a huge, very protected, and very inefficient domestic one (farming and small trades). I agree with above posters that have suggested that the Swiss performance is much more likely due to a combination of local idiosyncratic factors than to some kind of one size fits all policy induced predictable macro effect. Also compare the similarly low unemployment rate in Austria, a largely social democratic country for decades with huge inefficiencies in its labour market, major licensing requirements for small businesses, high taxes, low mobility, and equally high percentage of foreign residents as Switzerland. And yet, per capita GDP is high and unemployment is low (though both not at Swiss levels).

81 Really Curious January 12, 2012 at 9:14 am

precisely – not at Swiss levels. So if we assume cultural factors in Austria and Switzerland are similar, the difference must be due to policy, no ? I wonder then, which policies.

82 Johann Grabner January 12, 2012 at 11:55 am

The labor market in Austria is not that inefficient. You can hire and fire almot at will here. Since 2002 or so, you don’t even have to pay severance anymore, not even if you fire someone after 20 years of employment. And the minimum wages are also set by collective agreement which means that in some trades it’s quite low, like some 800€ in certain low paying sectors.
And although jobless benefits are paid for quite a long time, the state employment can cut your benefits if you don’t follow up on job offers they send you. I was once umemployed for 3 weeks some 20 years ago and the first offer came in the 2nd week after filing for benefits.

and it’s not that hard to set up shop here. yes, some professions have legal barriers to enter, but this has been liberalized in the last 20 years. its definity not harder than in Germany, Italy or Switzerland to open up a business.

low mobility had been a problem on the countryside after state run enterprises collapsed in the 80s. A lot of workers were sent into early retirement back then. And early retirement is still in use today. So some of the low unemployment figures are due to converting unemployed into retirees.

high taxes on labor are a problem, but workers still cost some 20% less in Austria compared to Germany, so we had a lot of headquarters being moved to in Vienna instead of Berlin.

Some other factors for Austria and Switzerland: almost zero strikes. well run infrastructure. almost no corruption in a quite efficient legal system. and yes, I guess the culture here has also a lot going for: work ethics are mostly high and one just don’t want to be unemployed here. It’s already different in let’s say Berlin but in the southern Germany, Austria, Switzerland, northern Italy region, it is bad for your reputation if you are collecting benefits. not so much retirement, people very much like to retire before they reach 60 years of age, but very few do not want to get out of unemployment as fast as they can.

83 JL January 12, 2012 at 9:04 am

One factor could that while women have a high workforce participation rate in Switzerland, the majority of them work only part-time.

84 Armin Mueller January 12, 2012 at 10:32 am

As a Swiss citizen I would say: There’s no easy answer, but a variety of favourable factors. Crucial factors are
1) first of all the dual education system (good schools, apprenticeships) – young people get the newest knowhow and best skills, and are much better prepared for the job than their colleagues for example in France (who on paper have higher degrees). The statistical data like high school diplomas is very misleading: Switzerland has one of the lowest quotas of “higher education entrance qualification”, but the lowest unemployment rate of young adults. So really very few ZMPers.
2) active programs for reintegration into employment: If you loose your job, you get paid unemployment insurance of 70% of your last wage for 400 days. But you are forced to take upgrade training courses, to write several applications for a job per week, to visit regularly the employment agency in your region, and so on.
3) liberal labor market laws: you can get fired without specification of the reason, the legal period of notice is 3 months. But there is no “hire & fire”-mentality, on the contrary, there is a normally very good social partnership between corporations and workers. On a new job, employer and employee have the right to dissolve the contract immediately during the first 3 month. In most industries wages are negotiated on plant level, negotiations are decentralized. Unions are rather week (except in construction). In some industries, about half of the workforce, there exist different minimum wages. Next year we will probably vote on an initiative for a national minimum wage (with a very high minimum, launched by the unions). So I would partly agree with point 2 from Tyler Cowen.
4) Switzerland was very open to the structural change of the economy (except agriculture)
5) Good governance, direct democracy, federalism (the people is much better informed about economic coherensis than people for example in France, Italy or even in Germany; normally the people votes against radical initiatives launched by the unions; in March we will vote on a new law for an extension of the vacation from a minimum of 4 weeks to a minimum of 6 weeks per year).
To point 3/4 from Tyler Cowen: immigration in the 1960s till the 1990s was low skilled. Since the opening of the labor market for all EU-immigrants, it is rather high-skilled and cannot easily be replaced by enough Swiss people.
To point 5: The Swiss National Bank intervened only twice since the end of Bretton Woods: in 1978 with a lower limit to the DM, and on September 2011 with a lower limit to the Euro. In both cases this was an emergency case after an extremely fast surge of the Swiss Franc.

85 mbka January 12, 2012 at 10:34 am

Really Curious: close enough, for once, and secondly, it doesn’t have to be policies. How about banking heaven and no devastation through two world wars? A 300 year peace dividend.

86 Really Curious January 12, 2012 at 11:07 am

that explains why Switzerland is wealthy, not why it has low unemployment

87 jpa January 12, 2012 at 12:17 pm

Both are your examples *are* policy choices…

88 fawful January 12, 2012 at 3:20 pm

That doesn’t really explain it. The peace dividend is nice, but it’s really pretty small. Sweden was also spared in WW2, yet their unemployment is twice as high.

89 anonymous... January 12, 2012 at 5:08 pm

Human suffering aside, Germany and Japan arguably benefited from the “war dividend” of having their destroyed infrastructure rebuilt to modern standards, unlike Britain’s rustbelt. Also, rebuilding was the mother of all shovel-ready stimulus programs.

90 Jon January 12, 2012 at 10:37 am

Unemployment benefits are not so generous and they pretty much force you to try to find work again.

It’s worth elaborating on the “force you to try to find work again” statement. The Swiss government looks at your resume, then attempts to find you a job. They WILL find you a job. The job may have a wage no better than the UI payment. If you refuse the job, your UI benefits end.

In this system, you’re incentivized to find a job before the government finds one for you.

91 Tummler January 12, 2012 at 3:05 pm

No shit?

92 fawful January 12, 2012 at 3:22 pm

So jealous of Switzerland now. I want the government to find me a job.

That’s customer service!

93 Hoover January 13, 2012 at 4:32 am

In capitalist Switzerland, job finds you.

94 Slugger January 12, 2012 at 10:38 am

This post examplifies what I find frustrating about many soft science ideas. Europe is big. There is no reason to think that any parameter of national performance will be distributed in a perfectly uniform manner. When some subdivision of Europe, or any other entity covering say more than a quarter of a billion people, has a higher/lower/better/worse rate than the whole, should we not analyze this to see if it is not just statistical noise? What is the p value for Swiss unemployment compared to the rest of Europe? Of the fifty states in the USA, one will always be the leader in whatever we choose to measure, and sometimes, perhaps many times, such rankings reflect the graininess of any data set.

95 Really Curious January 12, 2012 at 11:07 am

if it were statistical noise, it would not persist for decades and decades. Sometimes, it would be high, other times low. But that is not the case here

96 Bill January 12, 2012 at 5:28 pm

Slugger, Agreed. I was thinking of all the non-conservative things that the Swiss do that could explain low unemployment and make an opposing post, but that would be giving too much causation to bullet points, much in the same vein as this post.

The world is not simple.

97 mbka January 12, 2012 at 10:50 am

Slugger,

spot on.

98 Alan Crowe January 12, 2012 at 2:36 pm

How can we assess the importance of sitting out both world wars?

Looking back at my life, I’m 51, my childhood was blighted by strange and difficult parents. But their childhoods were blighted by violent and cruel parents, and that seems to have its origins in both of my grandfathers serving in The Great War and being damaged psychologically by the experience.

Societies seem to thrive or wilt based on fine details, missing from official statistics, and patterns of behaviour passed from generation to generation and too subtle for sociologists. Two countries keep coming up as examples of countries with sane citizens and sane politicians: Sweden and Switzerland. Both were neutral in both world wars. That suggests the hypothesis that wars damage the societies that fight them in ways that last for generations, perhaps through the mechanism of loss of fathers, resulting in loss of the collective wisdom of how to bring up boys (so they make poor fathers in their turn.) And perhaps, 70 years later one can still read the effects in the unemployment statistics.

99 charlie January 13, 2012 at 7:54 am

+1

All the craziness on my mother’s side was a result of her family loosing their money in 07.

100 Someone from the other side January 13, 2012 at 8:05 am

Or maybe the politicians were sane even before that to be able to manage to stay out of the war (not that Swiss politicians strike me as particularly sane, overall)

101 JSK January 16, 2012 at 10:56 am

+1 as well

102 ad*m January 12, 2012 at 2:57 pm

Obviously, racism and clinging to guns. Religion, less so (11% nonreligious http://www.swissinfo.ch/eng/specials/religion_in_switzerland/Non-believers_mushroom_in_Switzerland.html?cid=42432).

It will not last: fertility for Swiss born women = 1.33, fertility for foreign born women = 1.86. http://www.bfs.admin.ch/bfs/portal/fr/index/news/medienmitteilungen.Document.111200.pdf

103 Matt January 12, 2012 at 4:03 pm

I’m not an expert on Swiss monetary history, but a glance over at http://www.snb.ch/en/iabout/snb/hist/id/hist_wpc/13 might explain the unemployment swings of the early 90s. It looks like the SNB tightened in 1991 “in line with similar measures by other central banks.” They reversed policy soon afterwards and drove rates down to <1% by 1996. Finally in 1996 they took extraordinary measures:

"The unexpected economic downturn induced the National Bank to pursue a more expansionary monetary policy in 1996 than announced at the end of 1995. We endeavoured to provide the economy with sufficient monetary leeway for a rapid cyclical recovery and to counteract deflationary pressures emanating from the strength of the Swiss franc. At the end of 1995, we had expected the seasonally-adjusted monetary base to grow by more than 1% but considered it unlikely to reach the medium-term target path by the end of the year. In actual fact, between the fourth quarter of 1995 and the fourth quarter of 1996 the monetary base rose by 5%, thereby already exceeding the target path in summer."

1996 also introduced a new mandate for the SNB: price stability while taking into account business cycle concerns and the economic welfare of the country as a whole. They explicitly mention not tightening in response to an oil shock.

104 Stephan January 12, 2012 at 5:08 pm

1) Riches are to be found near navigable rivers. That has been so for centuries. The Rhine for example originates in Switzerland and all the regions that border on the Rhine in Switzerland, Germany, France and the Netherlands are rich. These countries have big navigable rivers all across the country. Italy has none south of Rome. By strange coincident Rome is the most southern Italian city that is both big and rich.
2) Mountains hinder trade. But Italy and Germany always had huge interests to trade with eachother. They are huge economies and subsidized the building of very important and very expensive trade routes through both Switzerland and Austria at the end of the 19th century. Once those were built and payed for both Austria and Switzerland were in favorable geographic positions and the return of the streets already built finances to this day the maintenance and expansion of the infrastructure. Spain and Greece -like Switzerland and Austria- have mountains in their core regions as well that hinder trade. But they have no neighbours with an interest to share the burden of building infrastructure because they are -well- periphery. Neither would the infrastracture return money as it does in Austria and Switzerland because -guess what- there are no neighbours to pay traffic charges in order to cross the country.
3) Never underestimate how much capital was lost in two world wars and how money went to Switzerland with owners dying in the wars and their children not knowing about the money.
4) This is a lucky circle. The rich poeple of Europe settle in Switzerland because of low taxes and based on all the capital that comes to Switzerland the country is able to keep taxes low.

105 mbka January 12, 2012 at 10:18 pm

Alan Crowe: that is another interesting and original point. A lot of capital gets lost in a total war, monetary, capital goods, social capital, human behavior. I think it is just too facile to look only at policy differences in the present without considering the contingencies of the past that helped to shape both the entire country, and also the enable precisely the current policy differences.

In order to make any useful point in this discussion one would need some means to quantify the effect of the various “policy bullet points”. Else it all turns into “just so” ex post explanations.

106 Andreas Moser January 13, 2012 at 3:45 am

Switzerland has 4 official languages.
English-only fanatics, take note.

107 Someone from the other side January 13, 2012 at 8:08 am

I think its more than overdue to add English as a fifth though. Or replace Rumantsch with it (I never got why one needs to subsidize THAT)…

108 Andreas Moser January 13, 2012 at 3:46 am

Switzerland has a very high level of direct democracy with nationwide, statewide and local referendums.

109 Pierre-Louis January 13, 2012 at 9:21 am

Those who think its low unemployment rate can be explained by liberal policies have obviously never lived in Switzerland. This is an extremely regulated economy that actually drove me crazy because of the lack of market mechanisms and drove me out of the country. For example, the Swiss voted in a referendum against a law that would extend opening hours for supermarkets from 7PM to 8PM. People were against the change as it was supposedly against workers rights as they would have to work too much (seriously!).

And unemployment benefits are extremely generous! Many of my friends worked a few months in restaurants in Geneva and then quit to travel the world on job-insurance money.

If Switzerland manages to keep unemployment low, it may be because of low taxes that don’t suffocate businesses, but all its other policies are much closer to red tape than free-market ideas.

110 mulp January 13, 2012 at 1:28 pm

Switzerland passed Obamacare in 1995 and is well underway in implementing the efficiency programs to increase health outcomes while reducing medical costs that are only possible with a universal health care system, thus giving Swiss employers at least a 5% employee cost advantage over the US based on the significantly lower burden health care places on the Swiss economy.

111 lb January 17, 2012 at 5:21 pm

There’s no magic.
You can’t emigrate to Switzerland without having an employment contract there.
A lot of foreigners live in Switzerland, and a lot of them get kicked out when they lose their job, because their residence permit is linked to it, or has a fixed end date…
Also, it’s such a boring, an unaffordable place, that if you lose your job and therefore a good chunk of your income, and have nothing to do all day, you just go back home by yourself.

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