Wages, labor or prices : How do firms react to shocks ?

Survey results in 15 European countries for almost 15,000 firms reveal that Belgian firms react
more than the average European firm to adverse shocks by reducing permanent and temporary
employment. On the basis of a firm-level analysis, this paper confirms that the different reaction
to shocks is significant and investigates what factors explain this difference. Although the
explanatory value of the variables is limited, most of the explanatory power of the model being
associated with the dummy variables coding for firm size, sector and country, the variables
investigated provide valuable information. The importance of wage bargaining above the firm
level, the automatic system of index-linking wages to past inflation, the limited use of flexible pay,
the high share of low-skilled blue-collar workers, the labor intensive production process as well as
the less stringent legislation with respect to the protection against dismissal are at the basis of the
stronger employment reaction of Belgian firms. On the contrary, employment is safeguarded by
the presence of many small firms and a wage cushion. Read the complete Research Paper from the National Bank of Belgium here.

L’Ecole d’Administration publique voit le jour

Lisez cet article sur le site de l'UVCW ici.

Me Medicine

Donna Dickenson develops some of the amazing possibilities of genetic personalized medicine but fears that resoureces will not be invested on the most effective health interventions, but on the most personalized and profitable, which nowadays go hand-in-hand. Read the complete opinion article on Project Syndicate here.

The Great Recession's Labor-Market Lessons

Opinion article by Marc De Vos in yesterday's Wall Street Journal:

The Great Recession is showing some unexpected results on the unemployment front. The irresistible job machine that used to be the U.S. labor market continues to sputter. Job creation remains disappointing. A decidedly un-American unemployment rate of close to 10% leaves almost 15 million Americans unemployed. And that is not counting the millions more who are underemployed, or the numerous jobs that are officially and artificially "saved or created" by stimulus spending.

Across the pond, on a European continent traditionally lambasted for its outdated and stifling labor rigidities, the picture is surprisingly less bleak. For sure, European countries have had their fair share of the employment hemorrhaging and have also seen something of the frosty hiring slump that has been the crisis fallout throughout most of the developed world's labor markets. But in relation to their economic performance, many European countries have registered less unemployment increase than the U.S. The list covers almost the entire Old Europe, including such otherwise notorious labor market underperformers as Italy, France, and Belgium.

It used to be different. For decades, Europeans have been told that they need to become more American if they want more growth and more jobs. That conviction eventually morphed into an official European Union agenda for so-called "flexicurity," seeking to combine flexible labor markets with supportive policies for personal employability. Whatever its merits, flexicurity was always more a hype among policy wonks than a reality on the European work floor. The recent reversal in labor-market fortunes has now brought a number of observers to question the mantra altogether. European politicians did not go on a Keynesian spending spree to save jobs. Instead, they to point their countries' built-in labor protections as the reason for their recent outperformance. Union experts have joined the chorus, labeling flexicurity a fair-weather friend and reclaiming old-fashioned restrictions as the guarantors of stability.

This trans-Atlantic comparison is premature. There is simply no quick labor market fix for an economic recession, whatever your policy persuasion may be. Economic differences go a long way toward explaining today's differences in labor-market outcomes among countries. Some countries have been hit more by the Great Recession than others, some have had a major domestic real-estate crisis to add to the global contraction, and some have been able to take better advantage of the rebounding economy in the developing world. Germany's ability to export to Asia helps its domestic employment. A real-estate crisis weighs heavily on unemployment in Ireland and Spain alike, notwithstanding big differences in their respective labor-market models. Beyond the economy there is demography. Aging and immigration affect different countries differently, with ramifications for their respective labor forces and—consequently—unemployment figures.

None of these factors relate to labor-market policies per se, but all of them heavily impact labor-market outcomes. Moreover, the traditional view of the inflexibility of European labor markets is really outdated. Virtually all of the European countries that have rigid and inflexible labor regulations have also grown a wide penumbra of often extremely flexible atypical work. Companies in Europe thus have layers of flexible temporary workers that can be employed, re-employed, and laid off as a matter of course. Such is the legacy of rigid labor markets whose beneficiaries have never accepted overall modernization: a multi-tier market in which insiders enjoy cushy stability for most of their careers at the expense of incoming outsiders. Predictably, the brunt of any labor-market contraction then falls on the outsiders, who either lose temporary work or enter the labor market with very limited job prospects.

The labor-market lesson of the Great Recession so far lies not in the vagaries of unemployment statistics, but in the worsening of the divide between insiders and outsiders. For the responses of virtually all European governments to the current jobs crisis have primarily been aimed at protecting existing jobs even more. Across the Continent, subsidy mechanisms and regulatory measures have sought to avoid redundancies through working-time reduction, temporary-unemployment systems, cash-for-clunkers programs, and the like. As a result, the chasm between the haves and the have-nots on the labor market has only deepened further.

By entrenching existing employment, European politicians and employers have not demonstrated the uselessness of flexible labor markets in times of crisis. They have instead undermined the potential for a downturn to prompt useful job transitions in a period of profound economic change. Europe's internal-market rules did prevent a repeat of wholesale state support as a crisis policy. But its light-version in the labor market has similar consequences. Time will tell whether Europe is—once again—only slowing inevitable transitions and therefore undermining future growth and productivity to the detriment of all, or whether its job shielding will be a jump board and allow companies to grow anew with lower redundancy and recruitment costs.

Whatever the outcome, the bottom line is a labor-market preference for the incumbent at the expense of newcomer. This goes beyond reduced job opportunities as such. The niceties of increased employment protection and automatic stabilizers translate into deficits that will have to be paid by future workers. The same generational arithmetic obviously holds for deficit spending on expanded unemployment insurance and Keynesian job creation in the U.S. Labor-market realities on both sides of the Atlantic thus share what is becoming an overall tendency of our crisis epoch: our generation's unwillingness or inability to pay for its collective mistakes.

Can the NHS Be Fixed?

"To put it another way, in a free system, the government determines supply, but consumers and doctors want to control their own demand. The right metaphor for Mr. Lansley's reforms, then, is neither deck-chairs nor Trojan horses, but the straitjacket. Trying to fix the NHS without addressing this basic issue is like trying squirm your way out of one. You can wriggle and contort all you want, but you can't escape the central fact that one person writes the checks while another demands the services." Read the complete article in The Wall Street Journal here.

Het gevaar van een te lage rente

"Het paniekgevoel bij Ben Bernanke, baas van het federale hedgefonds van de Amerikaanse staat - vroeger bekend als de centrale bank - neemt toe. Hij vreest een double dip en wil daarom meer onconventionele wapens gebruiken in de strijd tegen deflatie. Daarmee kan hij de financiële crisis verergeren, ook in Europa," schrijft Geert Noels in Trends. Lees het volledige artikel hier.

Will the Next Generation be Better off Than Their Parents’ Generation?

Gary Becker and Richard Posner debate a timeless question: Will the next generation be better off than their parents' generation? Becker's take: "America has always been optimistic about its future. The decline in such optimism during the past couple of decades is understandable, but highly regrettable. The best way to restore this optimism is to promote faster economic growth. That is feasible with the right policies, but will not happen automatically. Even America has no destiny to be optimistic about the future without important redirection of various public priorities."Read the complete post on their blog here.

La "flexsécurité" à la peine

Si les chiffres inquiétants de l'économie américaine ou le redressement rapide de l'économie allemande monopolisent l'attention, l'état des marchés du travail des pays scandinaves de l'Union européenne est également instructif.

Lisez l'article dans Le Monde ici.

Berlin présente son projet de loi pour taxer les banques

Une semaine avant la présentation de son plan de rigueur en conseil des ministres, mercredi 1er septembre, le ministre des finances allemand, Wolfgang Schäuble, présente dès mercredi 25 août un premier projet de loi destiné, lui, à ponctionner les banques.

Lisez l'article dans Le Monde ici.