Australia’s Miracle Economy or is it?

Australia has had a very successful economic decade with declining unemployment, low inflation and fairly strong economic growth. Are Howard and Costello right to argue that it was mostly the Governments doing and in particular that it reflected some hard political decisions such as on tax reform, budget policy and WorkChoices. With less competent or more timid captains at the helm, they claim, the ship of state would flounder.

The best way to assess this proposition is to compare Australias economic performance with other developed countries. At the start one needs to accept that Australias resources boom has given us a spectacular advantage. In a recent speech, Saul Eslake points out that “the terms of trade gains since 1999 have been worth $3316 pa to each Australian on average” and that “parameter variations” (mainly unexpected improvements in terms of trade) added nearly $400 billion to Costello’s revenue. True, bouts of drought and water shortages have pulled back some of this advantage but overall, fortune has dealt us a fairly lucky hand in the last decade relative to other countries.

The economic indicators I have looked at are:
workforce participation ratio (latest);
unemployment rates (latest);
inflation (latest); and
growth in productivity (GDP per hour) over the last five years or so.

On all these indicators, Australia has been an average but not outstanding performer in the last five years despite our considerable good fortune! For example, on workforce participation we have generally not performed as well as Sweden, Denmark, Netherlands, Austria and Norway all countries with more regulated labour markets. And they currently have a more favourable unemployment-inflation trade off too (e.g. Denmark 3.9% unemployment and 1.8% inflation and Sweden 4.8% unemployment with 1.9% inflation, compared with Australia 4.5 and 2.5 respectively). As well they are recording equal or better productivity growth. Nor have we generally outperformed USA, Britain and NZ (e.g. NZ unemployment 3% with 2.5% inflation). The last two countries strengthened their workplace and wage regulation regimes in recent years.

In brief, if our Prime Minister wants to know why voters are unimpressed despite the economic good tides, it could be because they are smart enough to realise it is happening everywhere in the world and that perhaps we have not taken full advantage of our extraordinary good luck with the commodity price boom.

Having said that, I acknowledge that boom times can sometimes create inflationary headaches for governments and that the Governments fiscal and workplace reforms may have helped a little to keep these under control (although wage and price inflation is subdued elsewhere too). I also acknowledge that our economy leaves for dead many other countries like France and Germany. On the other hand I have avoided highlighting our huge external account deficit (6% of GDP) and external debt (equalling about 50% of GDP) where we are among the worst in the developed world. These indicators worry many economists (although I am not one of them).

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barney
barney
14 years ago

it has also been achieved by hitting the national plastic. foreign debt has been used to pay for the prosperity and there is a reckoning coming.

Robert
Robert
14 years ago

Fascinated by economics, when it doesn’t include numbers, I wonder if economists might regard Howard and Costello as having boxed themselves in by not engaging the public in a deeper – or even slightly wholesome – conversation about this worshipped “economy”.

Ten years, and what is an amazing organism of not only money but behaviour and a host of wondrousness has been reduced to a simplistic ten to fifteen (no numbers, see) second grab.

For one, when Howard now says the word “economy” it’s like he’s latching into it as a liferaft – not in control at all, and nowhere is the word in perspective.

He can’t expound any further on what are the important economic matters of the day or decade because he would look desperate, he’s given the public the message “we look after it, they don’t, leave it all to us” and now he’s got nowhere else to go.

Like me, the public aren’t into figures and numbers, but i believe they get the gist. The gist is a lot about how they feel when they hear the word economy or similar triggers, and what’s in their bank account, what they imagine their future may hold, how they imagine or receive their countryfolk to be in those sorts of regards, a general sense for the future of the country including matters more than money, and how that stacks up with what the PM and Treasurer tell them. I think this duo has sold the public short, and it’s catching up with them.

One area where Howard, especially, talks is through big picture billions. Costello tends to wrap his conversation up as the god of fortune for families, business, workers, the future. When has one of them related to the punter in such a way as a carton of milk, pack of smokes, night out at the pics, or something for the kids? The only thing I can recall just now is talk of a tank of petrol – which comes across as in the govt’s interests.

I may be wrong here but I think this pair are lacking a common touch, where others in their positions have had at least something of it. I don’t believe it’s a case so much of punters realising this spoken prosperity is “happening everywhere in the world”. So while the noises Howard and Costello make are supposed to sound good, and facts may support it, the average Australian doesn’t personally relate to it – doesn’t feel it, or think in terms of what would be exciting about it. Certainly there is a point of public apathy and taking things for granted in this, as well, and probably being spoiled a bit, too.

Keating lost his job in no small part by slowly excising himself from his public. Inspired by his vision, he left the public behind as he spoke about the big things. Howard came along and talked about the little things that matter, and so they felt comfortable and trusted him.

Now, Howard and Costello are, like Keating, talking big picture punter-personally-unattainable talk, and that could be more the reason why the average Australian has turned away.

That change of conversation from Howard has been as slight and incremental through the decade as has been his radical alterations, and therefore goes largely by unnoticed. But Howard now is found by Australians who originally didn’t think so to be very different from the man they first elected.

Dave Bath
14 years ago

Good going Troppo.

I’ve also been on a bit of crusade on debunking the “Liberal Are Better Economic Managers” line.

In http://www.deadroo.com/index.php/econometrics-101 I’ve concentrated on non-labor metrics that explain my bearishness about the Oz economy, and have a questionnaire that should give the Howard lovers pause, and lefties some ammunition.

In http://www.deadroo.com/index.php/subtle-criticism/ I go through an interesting bit from last week’s “The Economist” that gives Keating credit, and damns Howard with faint praise.

p.s. The Economist has just offered a free 24-hour day pass to their premium content, which I thoroughly recommend to anyone interested in comparative performance between countries.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Fred,

I don’t know why you take the argument seriously. The Howard Govt has not done anything to vandalise the economy – as Bush has for instance in the US. They’ve even showed real courage – on the GST and WorkChoices.

I think (and I think you think) that WorkChoices might have some substantial payoffs at least in the short run, but the GST was (paradoxically) a big achievement economically.

And in almost every other area they’ve dawdled around improvising. So it seems pretty clear that they couldn’t be the main explanation for the health of the economy.

I’m intrigued as to why you are not a worrier about the current account – can you say more?

observa
observa
14 years ago

With consumer cofidence off the scale historically Robert
http://www.news.com.au/business/story/0,23636,21740785-31037,00.html
it may simply be the Govt are now a victim of their own success. A bit like the managers/board of a very successful corporation in fairly good times admittedly(although how quickly we forget). After a while the shareholders want that bit extra and takeovers seem more and more attractive.

Sorting out the waterfront and union power at the same time, the ubiquitous WST and more flexible IR was probably inexorable reform, given the earlier reforms of Hawke/Keating. Even Rudd has recognised this reality with the backdown on AWAs today. Nevertheless these reforms didn’t appear as easy and inexorable at the time. This govt has left the books in a very healthy state and with wall to wall Labor on the cards after Nov, they will have no excuses for messing things up. The Govt can’t be held responsible for private debt Nic, although the Austrians at Brookesnews would ultimately disagree(via the Reserve Bank) Would you agree with them re the easy money time bomb?

It might be interesting to speculate whether this last decade is more a return to the norm like the long boom of the 50s and 60s, after the demographic shock (stagflation) of the 70s and beyond washing through the world economic system. That may yet have another act to run with the baby boomer bulge hitting retirement. In that respect this govt was wise to think of Future Funds in stable times.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Fred obviously your points on the CAD are entirely valid. I just think there’s reason for a fair bit of caution. Markets can get large things like Australia’s exposure to foreign borrowing pretty wrong – everything’s fine for a long time and then all of a sudden it’s not.

So I’d rather be a bit more cautious on the CAD. A pity we’ve not been ratcheting up compulsory super and if you don’t like that then at least default super.

Damien Eldridge
Damien Eldridge
14 years ago

Why do we keep having this “foreign debt is bad” debate every so often? I remember it cropping up in the late 1980s and early 1990s where some people kept parroting on about twin deficits despite the fact that we had a floating exchange rate (albeit a “dirty” float). The traditional logic behind worrying about the external balance was based on the fixed exchange rate version of the Salter-Swan tradable and non-tradable goods model. It does not apply when you have a floating exchamnge rate. Furthermore, John Pitchford put forward a strong case for not being overly concerned about the CAD or foreign debt if that debt was private in a floating exchange rate regime. In such situations, the debt CAD is largely a function of the intertemporal optimising behaviour of private agents. Unless there is some form of market failure, then there is no need to worry from an efficiency viewpoint. If there is a market failure, then the focus should be on correcting the market failure, not on the level of the CAD or foreign debt.

Andrew Norton
Andrew Norton
14 years ago

Excessive worry over the CAD contributed to the policy decisions leading to the early 1990s recession; a mistake we have so far avoided making twice.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Andrew I’m not sure that’s quite right.

There was concern there, but there was also grave worry about inflation taking off.

In any event, and more importantly, as plenty of people from various perspectives said at the time, if you were concerned about the CAD, tightening monetary policy was a bad option because of its effect on the exchange rate and, through that on the productive structure of the economy.

Better responses would have been targeted towards slowing the economy without these side-effects which would have occured with tighter fiscal policy. Everyone said that was impossible because budget surpluses were already hefty at the time. That seems ridiculous to me, relying as it does on the idea that people were prepared to take the pain of higher interest rates but not higher taxes (or lower expenditure).

But there was another way that I in fact advocated – not with hindsight but at the time – which was increasing compulsory superannuation (which was quite low at the time). The policy offered an excellent confluence of short term needs with long term achievements.

swio
swio
14 years ago

Are you sure its correct to say ?

Sweden, Denmark, Netherlands, Austria and Norway all countries with more regulated labour markets

My understanding is that the Scandanavian countries actually have very unregulated labour markets where it is very easy to fire people. However they trade this off with very generous welfare benefits. Its a balance or policy they call Flexicurity. More here

Whethere the CAD is a problem or not is really related to our savings rate. My feeling is that down the track Costello’s legacy will be how he managed to preside over getting our savings rate down to practically zero during excellent economic times while having one of the world’s best superannuation policies.

James Farrell
James Farrell
14 years ago

(e) If there are structural imbalances driving the deficit such as under-saving or skill mismatches, these should be dealt with at source.

When you say that structural imbalances should be dealt with at the source, you must mean one of two things.

Perhaps you mean that if the current account is a problem we shouldn’t just treat the symptoms through meausures to restrict imports and promote exports. But you’d be arguing against a straw man in that case. No one thinks that way any more.

Alternatively, you mean that there is a current account imbalance only insofar as there is a savings problem. In this case, either you’re splitting hairs, or you’re implying that it’s only the particular housholds and firms with unsustainable debts who have a problem — that is, it’s not a macroeconomic problem.

But this is not the case. If foreign lenders worry that we can’t service our debts, and so charge us higher interest, dump our currency, force down our terms of trade, and oblige our central bank to contract the economy, this imposes an externality on other residents whose finances were sound.

To conclude: I say there is a current account problem, that it’s properly so called, and that we should deal with it the source: undersaving, due to excessive credit.

JC
JC
14 years ago

There is an old saying in trading circles. You only have a problem when it is a problem. In this case you only have a problem with the current account when it becomes a problem.

Right now we’re going swimmingly well. However the real problem is the RBA is creating too many dollars: M1 growth since 1994 has grown about 360%. So if you’re looking for the culprit, go take a good look at Martin place one day.

The trouble is that every major central bank has cottoned on to this ponzi scheme so we’re not able to see the problem as clearly as we would if we were the only ones doing this. However commodity prices do reflect this inflation- or rather this credit mis-pricing. i would hate to think what China’s MI growth is these days, but it would be out of control.

We have found a new export industry, which is not a bad one actually. We are now in the business of exporting a large amount of dollars. Some day this export business will end but lets enjoy the ride while it lasts.

James F, I think you have your terminology confused. There is no externality involved. In fact if you think this paradigm of never ending money supply growth comes to an end the people who will be able to best catch the falling knife will be those who saved. In that environment asset prices will come down big time.

An example: Commercial buildings were selling at 2% yields in the 80’s. These yields rose to 15%-20% in the early 90’s. There will be cheap assets around for those who were lucky enough to have saved. If it’s an externality, it will be a damn good one for savers when the hard times hit.

hc
hc
14 years ago

This is a strange post. You start by asking whether Howard and Costello can claim credit for the success achieved and then say, well, there is not that much success anyway. Really two different points.

I think (i) the economic success achieved is dramatic given the dramatic fall in unemployment and the striking increase in our living standards and (ii) that Howard and Costello can claim some credit.

Some of the reforms Labor introduced have helped Australia maintain the longest period of economic expansion in many decades. So Howard and Costello can’t claim all the credit but after more than 10 years they can claim some. They did not create a recession when house prices galloped away gave the RBA its head and have improved the efficiency of our labour markets.

Fred you criticise me for showing political bias but what about you? What about the ongoing attempt to denigrate almost anything achieved by the current government? It isn’t accurate or fair.

And perhaps we have not taken ‘full advantage’ of the resources boom. This claim is not backed up with anything and is pure politics not analysis.

On one point I agree – the current account issue is an irrelevancy given the current Australian investment boom. Again you have avoided ‘highlighting’ this issue and the issue of private debt. But you mention it as if it is a negative.

Otherwise not an accurate account.

Mark U
Mark U
14 years ago

Nicholas,

What about the argument that in a small open economy with flexible exchange rates, like Australia, fiscal policy is ineffective? This is the standard result from the Mundell-Fleming model.

To quote Wikipedia:
“An increase in government expenditure shifts the IS curve to the right. The shift will cause the local interest rate to go above the global rate. The increase in local interest will cause capital inflow and the inflow will make the local currency stronger compared to foreign currencies. Strong exchange rate also makes foreign goods cheaper compared to local goods. This encourages greater import[s] and discourages export[s] and hence, lower[s] net export[s]. As a result, the IS will return to its original location where the local interest rate is equal to the global interest rate. The level of income of the local economy stays the same. The LM curve is not at all affected.”

What framework do you have that reinstates the effectiveness of fiscal policy?

JC
JC
14 years ago

Mark u

What is it that you want fiscal policy to do?

JC
JC
14 years ago

Harry

You’re practicing economist. How is that most you guys totally ignore the growth of money supply these days acting as though money is neutral.

Honest question here and not trying to suggest anyting personal.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Mark U,

I’m not really trying to argue in favour of a big role for fiscal policy in macro-management. As for a small role – well it’s a no-brainer. It’s one of the considerations in framing fiscal policy – as it was this year. Will it exacerbate or dampen the electoral cycle? At least if the pundits are to be believed, the Govt didn’t throw more money at the electorate because it thought it would be inflationary.

I guess they didn’t think we live in a perfect Mundell-Fleming world. Neither do I. But just to repeat, I don’t want to be seen to be arguing any stronger line in favour of an activist fiscal policy than your average Treasury official and economic journo who thinks its potential contribution should not be ignored, but that monetary policy remains the major tool for managing the macro-economy.

Mark U
Mark U
14 years ago

Good grief. Don’t you people ever go to bed!

JC: I want fiscal policy to effectively and efficiently deliver programs that are deemed by the electorate to be ones that the government should deliver. I see very little role for short-term fiscal fine-tuning. The lags between policy announcement and delivery are often too great and policy ends up being pro-cyclical rather than counter cyclical. There are already a number of expenditures and taxes which act as automatic stabilsers when the economy slows down. A policy of maintaining fiscal balnce over the economic cycle is a sensible one. Then the debate can shift to the scope and size of government and the associated amount of taxation required.

Monetary policy can then be used primarily to control inflation – which the RBA has been pretty successful at since it was given this as a clearer objective.

Nick: I realise we don’t live in a perfect Mundell-Fleming world, but I would argue that, from a practical standpoint, policy has been more successful when we have behaved as if we do.

paul frijters
paul frijters
14 years ago

I heard the Chilean ambassador to the WTO argue a couple of years ago that the boom they were experiencing in the 00’s was due to the ‘tough but necessary measures’ a guy called Pinochet enacted in the 1970s. This illustrates the truism that politicians will attempt to claim succcess for themselves using whatever fanciful argument the public might believe.
I think we’re much less certain about the sources of growth than we pretend. Let me mention some potential sources of growth so far not in the discussion:

– immigration I. Australia gets in over 100,000 immigrants each year, mainly on skilled visa. That’s 0.5% of the population every year of people whose educatino was paid for by someone else, and who are in prime age healthy conditions. That’s a lot of capital imported for free. I tend to think that the very good and successful immigration program as a factor in economic growth has in these last 15 years far outwayed the tinkering with labour laws. That tinkering at the end of the day has amounted to little else than replacing the unions as work condition negotiators by lawyers who enforce new and complicated legislation. To think that that job-replacement scheme really achieves much is a bit silly and I’m not surprised to note that labour force participation in this country has not behaved abnormally compared to comparable OECD countries.
– immigration II. Australia is exporting quite a bit of education by promising visas to people who come here as a student. Other countries dont do that. We fleece these foreign students by shoving them into large courses, charging them through the teeth, and giving them a shiny certificate after 3 years. That’s a multi billion dollar industry driven mainly by visa policy and university structure.
– Luck. Above it was already said we have been lucky in the resource boom though that can be a mixed blessing. Remember the Dutch disease, or should I say Gregory thesis? We’re also lucky to be in the region where the world economy is growing at its fastest. We’re in the same timezone as China and Japan, making us attractive as a tourist destination, education destination, and a golf course park. We’re finally lucky in being a large island a long way from low-skilled populations on the move. That saves us a lot of costs that European countries have had to make in terms of dealing with large numbers of migrants who had to be housed and educated and integrated into their societies. Australia has avoided that cost (or should I say opportunity to do its bit for the worlds humanitarian situation?) by sheer luck of geography.

These are just 3 examples.

Our knowledge about how to attribute growth to the many short and long-term policy measures taken in the immediate and distant past is very scant and we can at best make educated guesses. Mine is that Australia has some really excellent policies in some areas that are the envy of the world (PBS, HECS, Visa schemes) and some pretty mediocre ones in other areas (DSP, PPS, caps on university tuition fees for domestic HECS students).
Like many commentators above, I dont worry much about the private foreign debt. Its not really that big and at the end of the day its someone else paying us now for part of our future production. It just real growth of national income will be lower in the future, but you wont see that in the GDP figures and there’s likely to be considerable overspill (i.e. foreign investors coming to live here permanently, effectively giving Australia back what we owed them for nothing). Having your companies owned by foreigners doesnt make it more likely that they’ll go bankrupt in one wave than if they’re owned domestically. In fact, a foreign collapse is to some extent less likely than a domestic one.

JC
JC
14 years ago

Fred

The swedes count government financed make work programs as being off the dole and not counted in the stats. They have a lower participation rate and an unuusally large number of people on permanent diability pensions.

Several swedish economists have noted that the real unemployment rate is about 20-25%.

Look Fred, there is nothing in economics that says a government can’t create jobs through fiscal spending programs and setting the base pay lower than the clearing rate.

However those aren’t the well paid productive jobs you want in an economy. You want jobs like the ones the mining companies here are creating where a tradesmen can earn 150k per year going bush for a while.

rossco
rossco
14 years ago

Just on a slightly different tack. Costello keeps saying you can’t trust Labor because they don’t have experience in running a large economy. So what was Costello’s experience before he became Treasurer? Student politics where he was a bit of a leftie before he realised there was more of a future for him on the other side. A Melbourne barrister where he made a name for himself with the Dollar Sweets case, but was there anything else? A backbencher in Opposition, shadow treasurer, deputy leader under Downer (the Dream Team), Deputy Leader under Howard, then Treasurer under Howard as PM. Not a lot of experience there for running a large economy. How much did Costello rely on advice from Treasury in the early years (even if he doesn’t want it now). How much did he benefit from the Hawke-Keating reforms? How much has he benefited from good luck with the mining boom and other external factors? I don’t think we can really judge how good a job Howard-Costello have done until we have a period with someone else running the show and/or we hit serious economic turmoil.

JC
JC
14 years ago

Fred

I would suggest that you steer well away from using the US to support your thesis as it would be quite problematic.

The US has had to contend with 11 million illegals who are mostly of working age with little skills so the downwards pressure on low skilled wages this groups places on the bottom 20% of the US labor pool (about 20 million of 110 million workforce) is enormous. In fact it is a testament to the productive capacity of that place that it has been able to absorb such a huge influx of illegal workers and still maintain high employment levels. However this doesn’t take away the fact that wages for the low skilled have been clobbered by this illegal crossing of the border. In fact it has lowered living standards for poor Americans on a relative basis.

It’s interesting how many analysts of the labor market conveniently forget this huge elephant in the cupboard.

Yes, we have had debate many times and for some reason i can’t seem to get it to you that there are lots of things the Swedes do that disguise what’s actually going on.

They don’t have enough high paying productive jobs over there, Fred, so they create these make work schemes that don’t get anyone anywhere. If their labor market didn’t have these support arrangements their unemployment levels would be huge. It’s a prime reason why there was a change of government.

One thing that saves them is that they have a free trade mentality and so they are not totally divorced from reality.

You don’t want make work schemes, you want high paying productive jobs that are not created by government interference..

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Fred,

JC – in this case I presume Joe C not Jacques C – is not known for the accuracy of his factual claims.

JC
JC
14 years ago

Fred

They have their most productive workers pushing up the aggregate. This isn’t asurprise by the way. It actually can at times be indicative of very tght labor markets as in France where productivity there is also very high.

Depends on what you want, Fred.

If your goal is to have restricted labor markets you can therefore expect that only most most potentially productive workers will find jobs while the all so rans are placed on dole lines wihout much hope of ever getting a job. 30% is the figure touted as the rate of unemployment for north african kids in the French cities. They spend a lot of time burning cars, Fred.

If your goal is to allow access to all who want to work by getting useful jobs then a less restricted model is what you would want to support.

you can bet your bottom dollar that America would have the least productive jobs at the low skilled level compared to say France. But at least those people are leading productive lives with a job to go to.

But we should stop pretending that Scandinavia has found the model of our dreams, Fred. It’s an open scandal what happens to kids who don’t have the smarts to make it through uni etc. in these European countries.

Let’s hope Sarko makes a difference here.

JC
JC
14 years ago

You can correct anything I said here, Nick. If I have said something which is incorrect, please point it out.

That’s a pretty sweeping claim to make without backing it up, don’t you think?

sdfc
sdfc
14 years ago

Fred

One thing that has been puzzling me but which never seems to be mentioned is the fall in the male participation rate. Do you have any thoughts on where they have all gone?

hc
hc
14 years ago

Fred, I have not banned anyone – its the new version of Blogger. If you have problems posting send me a copy and I will post for you.

I often disagree with you but I would never ban any comment from you.

What annoyed me was that you (and others) strongly criticise my pro-Liberal bias. This is something I have never sought to conceal. That I have a preference for the conservatives does not mean my claims are wrong. Nor does it imply any special status for those who don’t admit their specific preferences but have them nevertheless and allow them to drive their posts.

The blogosphere is overwhelmingly left wing and I tire of people getting annoyed because some of us utterly reject such values.

The overwhelming impact of your post is negative to the Coalition. Even your praise is faint. Be fair, you have had shots at me!

Dave Bath
14 years ago

Fred is obviously a CAD skeptic, but here is some skepticism (from The Economist: Economics A-Z)

Politicians in some countries, such as the United States, have argued that government should be required to run a balanced budget in order to have sound public finances. However, there is no economic reason why public borrowing need necessarily be bad. For instance, if the DEBT is used to invest in things that will increase the GROWTH rate of the economy–INFRASTRUCTURE, say, or education–it may be justified.

And on Sweden, I’ll refer people to The Economist headline from a few months ago that praised the high-tax, high-social-welfare, and growth of the Nordics: Fancy a Swedish Model?.

How many macho businessmen could say no?

JC
JC
14 years ago

Which of these headlines were you thinking of, David?

From the Economist

Outsiders look enviously at Sweden’s economic success. So why are the Swedes thinking of voting out the ruling Social Democrats next weekend?

Swedens shift to the right offers lessons to other European countriesand raises questions about the success of some parts of its social model

Sweden’s ruling Social Democrats face a poor election result

———————————

Sweden runs an income tax rate of 63% to pay for its high spending regime. Do you think its prudent to raise ours to the same levels? Or would it be better to allow our underemployed to find productive jobs instead of creating make believe make work schemes.

swio
swio
14 years ago

30% is the figure touted as the rate of unemployment for north african kids in the French cities.

…..

But we should stop pretending that Scandinavia has found the model of our dreams, Fred. Its an open scandal what happens to kids who dont have the smarts to make it through uni etc. in these European countries.

Lets hope Sarko makes a difference here.

When you are talking about the disadvantaged kids are you referring to just the French ones? or the Scandanavian ones or both? Its my understanding that France and the Scandanavian countries run different models and the problems you are talking about are not really relevant to the Scandanavian countries.

The difficulty of firing people in France creates a static labour market which makes it difficult for new blood to get in creating the unemployment problems you mention for youth in minority groups. Does this apply in Scandanavia as well? I would have thought their easy hire and fire policies, which do not exist in France, would prevent this problem.

JC
JC
14 years ago

Swio
There is no great difference between the french model and the Swedish one. Sweden seems to hids its numbers better.

Here is a short paper on what actually is going on in Sweden.

http://www.neolibertarian.net/articles/sanandaji_20060414.aspx

Note that the paper tries to compare the US as more favourbaly to Sweden yet like I said earler lots of people don’t make any allowance for the huge number of illegals working in the US- roughly a 9% of the US labor force of around 120 million.
If we massaged those figures out of the US equation, treated them as people who should not be there and made an adjustment for what the US would be like without them and the constrast would be absolutely staggering.

It is also wrong in my figuring to look at the US and compare say Sweden to it. The US is a very large regional nation that has pockets of poverty like say the EU does with Portugal and other areas of southern Europe like the bottom of Italy.

It would be far more accurate to make comparisons to say CT or Mass when comparing Sweden to the “US”. Do that and one is left with their mouth wide open. CT’s median income is around $65,000 while Sweden muscles its way in at around $US 29,000 per cap on a ppp basis. Considering Sweden was in the top three wealthy countries in the world back in 1970 this is a huge leap backward. Now it’s about 15th. The down draft happened as the article says- when they began to make inroads in turning the place into a welfare state.

Sweden compares with the poorest area in the US in terms of per cap. It is about neck and neck with Louisiana these days.

Here’s another piece:

http://timworstall.typepad.com/timworstall/2005/11/swedish_unemplo.html

Mr. G. H. Schorel-Hlavka

As a constitutionalist and author of the INSPECTOR-RIKATI

sdfc
sdfc
14 years ago

Thanks Fred, I’m not convinced about older workers going on the pension though, the participation rate of older males is actually higher than what it was before the great labour market shakeout of the early nineties. As for the trend being reversed I think stabilised would be a more accurate description.

The fact that a fair proportion of potential workers in the prime age group aren’t in the labour force is a concern. Regardless of what what some like to believe welfare is not the path to an easy life for most recipients.

paul frijters
paul frijters
14 years ago

Fred says “those who were on disability pensions have started looking for work and found jobs.”
Nonsense. Blatant nonsense. I know of no data that shows this, and indeed the few studies on this (mainly from the Melbourne Institute using the 1% longitudinal welfare payment data) show that the majority of those on DSP that find a job, only find a short part-time job (sometimes an artificial job), lose it within a year and get back into welfare. As Bob G showed in 2005, you’re more likely to die than find a steady job from DSP. The fact that people almost never find a job when in DSP has been a big factor in the government trying to stem the flow onto DSP by making it harder to get into it from NewStart. The data of the 2004 inflow onto DSP I looked at revealed extremely low percentage of people reporting to be willing to work for a wage they were likely to be offered.

Backroom Girl
Backroom Girl
14 years ago

I think Paul’s right on this – going onto DSP is still associated in most cases with entering income support for life. If the numbers on DSP are finally going down (not sure whether they are), it will only be because the inflows have gone down (to less than the outflows). The destination of the outflows is likely unchanged – most likely to age pension, next likely death.

The question then is, why are inflows down? Is it because of the Government’s Welfare to Work changes that tightened access to DSP? Or is it just because of the healthy state of the economy, that means fewer older people becoming unemployed (the initial step on the road to DSP for many). I think I would bet on the second of these rather than the first. I’m not saying that it is not a good idea to tighten access to DSP, just that I have a suspicion that over time that will not prove to have been a very successful exercise on its own merits.

If you look at single parent numbers on income support you find the same thing (falling numbers on PPS even prior to the change in rules that is designed to get them off earlier). But again, I would guess that it is the healthy economy that is responsible (better economy means fewer relationship break-ups due to financial stress, plus lessening the risks associated with repartnering), rather than anything that the government has ever done policy-wise.

Graham Bell
Graham Bell
14 years ago

Fred Argy:
Damned interesting read. Thanks.

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13 years ago

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