Employment is the Goal

I read two conflicting articles yesterday about the levels of unemployment in Europe.  The one focused on the "Participation" rate as an explanation that things aren't maybe as bad as they appear.  The other suggested that changing labour laws to make it easier for employees to be fired would be the solution to Europe's unemployment dilemma.

First of all the discussion around the Participation rate essentially says that in looking at unemployment figures it is not only a question of how many people are employed but also measures the number of people either employed or actively looking for work as a share of the working-age population. Simply put if large numbers of people who could work have stopped looking and more importantly have stopped registering as unemployed then they fall off the radar and the unemployment numbers go down.

This is happening in the US apparently, while in Europe the participation rate is increasing ie more people are actively seeking employment and so even if the number of actively employed were to stay constant as a percentage of the employable population the unemployment rate would increase.

In any event all the article actually proves is that the statistics are eminently massagable depending on what you want to prove.  For those of you who care the writer of the first article works at a major UK fund manager and their sources, Bloomberg, claims that the particpation rate in Europe is rising while in the US it is falling.

The second article was written by an American geopolitical thinktank.  Their angle is that unemployment is the single most dangerous challenge the European Union faces and that the unemployment figures are understated as many Europeans are no longer looking for employment.

Go figure.

But their underlying assumption is that it is essentially a question of labour law regulations.  In one breath they support austerity and claim that reforming labour laws to allow companies to fire employees easier will boost employment.

To be fair, the argument is that if an employer knows that they can fire an employee if the market turns against him then that same employer might be more willing to take on a new employee in the first place. 

And they are probably right.

But it puts a lot of hope in the ethics of employers not to abuse the system. 

My next post will look at a class of employers for whom ethics are beyond the pale.