Euro-Sclerosis in America

The financial crisis appears to be over along with global recession, and yet the hangover persists into the summer on stock markets and in the global economy. The culprit is the threatening weakness of the U.S. economy that, according to many economists, could cause a relapse into recession.

This gloomy prognosis is causing panic among U.S. Democrats in the run up to November’s midterm elections where the economy may prove to be the deciding issue at the polls. But behind that there is a deeper, more basic concern. The once highly celebrated American jobs machine is faltering and fear of losing one’s job is the primary fear now affecting the American consumer in addition to being the main factor in retarding economic growth.

For the first time in decades, the United States has a higher unemployment rate (9.5 percent) than does Germany with its 7.5 percent rate. That’s due not only to a higher rate of growth among the exporting nations of Northern and Central Europe, it’s more attributable to structural changes on both sides of the Atlantic.

In Germany, at least, the infamous Euro-sclerosis — stagnating job growth despite economic growth — was overcome, largely due to the unpopular Hartz-IV welfare reforms that placed strict new rules on those receiving unemployment benefits. For the first time, the industrial boom has resulted in job growth in the service sector as well. The wage scale may be puny, but a low-paying job is still better than no job at all.

That’s precisely the phenomenon that has characterized the American job market for such a long time. But meanwhile, many things have taken a turn for the worse. Unemployment should have long since begun to subside. Companies are making decent profits and even if many of them are reluctant to increase their workforce because of uncertainties on the economic front, there is no lack of job offers in many areas of the country. Yet many employers complain that they’re unable to fill their vacancies.

One important reason for this was the bursting of the housing bubble: Millions of Americans are unable to sell their homes and move to those areas where jobs are plentiful because they owe more on their current mortgages than their houses are worth. The senseless push for home ownership in the United States is hampering the mobility of job seekers.

Lack of qualifications is also an important factor for many of the unemployed. The American economy is finally beginning to feel the impact of decades of decline in school systems.

“Jobless growth,” which for many years was Europe’s fate, has now struck in the United States and is spoiling an otherwise passable balance sheet. Germany, on the other hand, has begun to reap the benefits of ex-Chancellor Gerhard Schroeder’s controversial Agenda 2010.* But even there more needs to be done, for example in the area of laws regulating the dismissal of workers. And in France and much of southern Europe the problem is a fossilized labor market.

After the season of the macroeconomist during the financial crisis, now it’s time for the labor economists to show how this growth can create more jobs. And for the first time in decades, the United States has to figure out how to revitalize its labor market.

*Translator’s Note: Gerhard Schroeder’s Agenda 2010, in brief, was the German government’s version of Reaganomics in the USA and Thatcherism in Great Britain.