Does Security Mean Greater Unemployment?

In general, the social safety net for working people is tighter in the capitalist democracies of western Europe than in the United States, where a tuna might easily slip through. Rates of poverty are lower by about half; the rich-poor gap is far smaller (more on this topic in chapter 7); all Europeans in every country are covered by national health insurance; retirement pensions are more available, more secure, and more generous; and unemployment and welfare benefits usually extend for longer periods. Europeans call their more generous welfare approach the social contract.16

Since the 2008 recession began, American and European unemployment levels have been similar, though levels in Europe generally have not risen as much as in the United States. In Germany, they actually fell. But before that, official unemployment levels in western Europe were higher than in the United States, especially in the larger countries. American conservatives charged that the social contract and more rigid rules protecting labor rights were responsible for the earlier gap and that greater job security here would actually lead to more unemployment as in Europe. But even before the crash, this argument was flawed; U.S. unemployment figures were systematically underreported.

Since early in the Clinton administration, the official unemployment rate in the United States has not included those workers who give up looking for a job. Even earlier, in the 1980s, an underclass of Americans, with few skills or opportunities for employment and without support from the welfare system, turned to illegal activities such as the sale of drugs. Many of them are now behind bars and also not counted in the unemployment figures. Counting those who have given up looking for work, and our prison population, would actually have added at least two points to the official unemployment rate, bringing it roughly to European levels even before the recession.

In their book, Raising the Global Floor, Jody Heymann and Alison Earle examine the impacts of generous social benefits for workers on unemployment rates.17 Comparing the world's richest countries, they find no correlation between stronger safety nets and greater unemployment. It is true, as some conservatives argue, that in several European countries, especially Germany and France, rigid labor rules make it hard to fire or lay off workers. In such cases, employers may be more reluctant to hire. But it's not impossible to provide greater security for workers and flexibility for businesses under the social contract model.

Here, the world's happiest country points the way forward. The Little Mermaid in Copenhagen harbor knows a secret or two.

Prison Population Rates

Does Security Mean Greater Unemployment?

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