Ten years on and we still have the same problem that Europe does not seem to be flexible enough to provide an adequate rival to the world superpower the USA. “Whilst there appears to be general agreement that increases in flexibility are necessary to increase the competitiveness of European Economies, there is no such consensus about what constitutes a ‘flexible’ labour market” Adnett, (1996).
For a long time now Europeans have been told they need to make their labour markets more like the USA, in the USA things tend to be much more flexible when it comes to “hiring and firing”. However many Europeans do not want a system like that in the USA, as put in an article from The Economist, on European Unemployment, “…many Europeans reject the American “hire and fire” model, arguing that it means wide income inequalities and dismantling the welfare state” Neighbourly Lessons (2002).
Other reasons why Europe is not as dynamic an economy as the USA
Inflexible labour markets is just one of the reasons why Europe’s economy is not considered as dynamic as that of the USA. Other issues are high taxes in Europe, product market rigidities, and a large welfare system. In the Euro zone regulation is high.
Europe demands different things from its economy it has different expectations. An article in The Economist newspaper puts it like so, “America has been the world’s economic leader for over a century. Economic theory suggests that Western Europe should be catching up. Yet average GDP in the European Union, measured at purchasing power parity, is only three quarters of that in the United States.” Chasing the Leader (2003).
Living standards in the United States compared with European countries tell us a lot. A good example is Germany compared with the United States, in Germany GDP (gross domestic product) per hour is 1% higher than that of the United States but on the other hand GDP per person is 25% lower.
Looking at high taxes as a reason for Europe being less dynamic than the USA, there is a lot of information explaining the reasons why high taxes might hold back the European economy. It is well known that in the United States taxes are significantly lower than that of the countries within the Euro Zone. Europeans tend to believe that the effective way of doing things is to look at the wider picture and include political, social and cultural issues. The American Business Model is one of little state intervention and keeping tax levels at there absolute minimum. Renowned economist John Kay is an advocate for embedded market systems these, are not individualistic like the American business model but hold on to market diversity. “The embedded market describes the successful market systems of western Europe and the reality of the United States. It does not function with a minimal state: productive economies have the largest most powerful, and most influential governments the world has ever seen.” John Kay (2003).
Job security versus flexibility
Job security versus flexibility tells a lot about the differences between Europe’s economy and the USA’s “dynamic economy”. In the USA the average is that workers have a lot less job security than their European equivalents. The Americans are more likely to resort to “layoffs” than Europe, European workers rely on alternatives such as reduced hours and short-term workers. “Many Americans believe that layoffs, and weak job security, are the price that must be paid for a strong healthy economy. Many also believe that strong job security in Europe reduces labour market flexibility, thereby obstructing change and inhibiting growth” Houseman, (1994).
Comparing Labour Adjustment in manufacturing sectors in European countries such as Belgium, Germany, and France to that in the United States, it is simply just the way that labour is adjusted that is different this has been proven statistically. In Europe work sharing is common when there is a downturn in manufacturing.
A main consideration when discussing the difference in labour markets is the tighter policies that are applied in Europe. “Although U.S. congress passed legislation in 1988 requiring that employers notify workers sixty days before mass a mass lay off, this legislation is quite week by European standards. A company need give no advance notice if the layoff is due to unforeseen business circumstances or if the company has been seeking capital to avoid or postpone a shutdown. And US law does not require companies to compensate laid-off workers or consult with worker representatives.” Houseman (1994). Lay offs in Europe are more costly because of the tighter legislation.
The short-term compensation helps workers in the US, this is not available to the workers in Europe that get their hours cut rather than a laid off. As William A. Douglas summed up the American situation “The United States has unusually weak provisions for job security, both in its labour legislation and in the contents of many collective-bargaining agreements. For decades it has been common for US employers to “lay off” workers for weeks or months during times of slack product demand, and then bring them back” Douglas (2000).
On the other hand there are many countries in Europe that apply policies that encourage companies to train workers. “Workplace training increases job security in several ways. Employers are more reluctant to lay off workers in whom they have heavily invested, particularly during a temporary downturn.” Houseman (1994). Europeans therefore tend to have more transferable skills but overall the United States is still more dynamic an economy.
Evidence shows that the United States is a more dynamic Economy than Europe. There are several contributing factors to why this is histioric reasons, issues of welfare playing to great a role in Europe, also the United States