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The Cost of our New Corporate State

April 20, 2010, 10:48 am

As Obama pushes the US into a corporate state model like those in Europe, here is one cost we will face: increases in long-term unemployment.  Already we see higher structural barriers being created to employment (preference for preferred unions, higher minimum wage, reduced internships) combined with increasing incentives to remain unemployed (extension of unemployment benefits, subsidized medical services).

Most countries who move to this model experience very high long-term structural unemployment.   The costs to add an employee in Europe are really, really high, meaning that it is only done reluctantly and the preference is for highly skilled workers  (who is going to give a job for life to an untested, unskilled young worker?)  Further, these states are run by a troika of large corporations, unions, and government insiders who protect each other from competition.  Young unskilled workers are a competitive threat to established unions.  Since these unions workers get above-market wages, they are protected from younger workers who are willing to offer their admittedly less skilled labor much cheaper.

I was playing around with data released from the World Bank, and compared the US to a number of other industrialized countries on this metric.  Even in past recessions, long-term unemployment has remained low in the US (click to enlarge).  The metric is percent of total unemployed that are unemployed for longer than 1 year.

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Category: Economics
  • sethstorm

    The hiring entities for whom think they are damaged goods (and thus unemployable) by default, are part of that problem. Without so much as a consideration, they help make the problem worse. By refusing them(or only allowing disposable permatemps), they make it worse off - even if they are indeed not damaged goods.

    It's not so much a threat from unions in the US as much as it is a threat from citizens being on the wrong side of long-term unemployment.

  • DKH

    Interesting that most of the countries don't even touch the US. Might want to check the data set for Portugal, unless they had a huge paradigm shift in the mid-80s.

  • caseyboy

    As government grows and takes a bigger bite out of the economy is it any wonder that the dynamics that drive job creation are in decline? Why would someone take a leap of faith for that new business opportunity when they own all the downside, while being forced to share 50% of the upside with the government? America has achieved economic results that were the envy of the world. Why? Because we have more oil than the rest of the world? More minerals? Better land for agriculture? A more moderate climate? A better educated population? None of these things account for America's exceptionalism. What is the one thing we have that no other country enjoys? The Constitution and Bill of Rights that empowers us to pursue happiness and protects our inalienable rights. I just hope we haven't gone too far left to recover. We have been creating a lot of government dependencies.

  • http://www.griffin3.com/ Griffin3

    Sacred excrement! Color me naive, but how do these countries even survive at 60% long-term unemployment? You sure these folks are counting the same way, and not just taking some sort of minor mid-life retirement?

  • http://evilredscandi.blogspot.com Evil Red Scandi

    Griffin3 - I'm assuming you're looking at the chart as I was at first, as a percentage of population. It's actually a percentage of total unemployment. It's a useful tool, but I can't help but think that bringing overall unemployment into the visual picture would make it more effective. Unfortunately, that requires a third axis and it would be difficult to show.

  • Dan

    I'm not saying outright that you're wrong, but I'd love to see some facts behind your statement, "Obama pushes the US into a corporate state model like those in Europe."

    I honestly don't see that at all. Yes, he's expanded government's role in healthcare. I suppose that's your big talking point. However, the system under his plan would not be like those in Europe, which are single payer. In fact, most of us won't see much change in our coverage or how we are treated for medical problems.

    I'm not sure what else you may be referring to. As far as I can tell, Obama's spent little if any time trying to help the unions, which now only represent about 10% of private workers, anyway, so aren't a big factor in the economy. He does envision financial reform, but basically what he'd be doing is rolling back the regulatory free-for-all unleashed by the last four administrations that helped lead to the problems that almost pushed the U.S. economy over the ledge in 2008.

    All this talk about Obama being a socialist doesn't make much sense to me. I happen to be a big believer in capitalism, and owe my wealth to it. I voted for Obama (as did someone I know who happens to be CEO of a Fortune 1000 company, who should know something about capitalism vs. socialism, probably more than I do), and he doesn't scare me.

  • Fred Z

    Comparing statistics with Europe is very difficult. They lie, cheat and steal...from their governments. I have cousins in the UK, Eire, Germany, France and Switzerland.

    They all deal in cash, they all cheat on taxes, they all deny being employed or having employees, they never, never, never,...never tell the truth to any civil servant.

    Just exactly what you'll all be doing in a few years.

  • http://www.alfin2500.blogspot.com Alice Finkel

    Corruption is an accepted everyday fact of life among European and third world civil servants. The Euro and third world populations are too sophisticated to get upset about it, so most wage earners simply lie to the system to get by.

    Americans are far less sophisticated, and are more likely to take offense when governments demand too much more than Americans think the government has a right to.

    Physical confrontations are a possibility. Public sector union dues explicitly fund an enforcement branch, which is tasked with breaking arms and legs when necessary, of anyone who may be perceived as a threat. Law enforcement will typically turn a blind eye to such enforcement, feeling that all government employees are beneficiaries of putting the citizenry in its place.

  • http://www.graemeklass.com LIbertarian Engineer

    Note how Australia's unemployment rate almost matches the US from the late 1990's. Our government implemented greater labour flexibility such as allowing contractors, flexibile contracters, exemption of small business "unfair dismissals". Our new government has since clawed some of these flexibilities back over the last couple of years, so it will be interesting to see what happens to the unemployment rate.

  • Dr. T

    I don't believe that the numbers and the graph are accurate. Our official unemployment statistics always have been based on the ridiculous criterion that a person must be actively seeking work to be considered unemployed. As soon as someone stops looking for work (even after two years of no job prospects), he is dropped from the unemployment roll. Most other countries keep people on the unemployment rolls until they find a job or reach retirement age. That's why the percentage of people in the USA who are officially unemployed for more than a year is so much lower than in other nations.

    At present, according to the U.S. National debt clock (http://www.usdebtclock.org/), official unemployment is 15 million (10%) but actual unemployment is 26 million (17%). Almost all of those "extra" 11 million people have been unemployed for over a year but stopped looking for a job and were removed from the official statistics. My guesstimate is that half of the officially unemployed have been out of work for over a year. (The recession began in Sep. 2007, and many people lost jobs in 2008.) That means that almost 19 million people have been unemployed for over a year. Therefore, ~70% of our 26 million unemployed have been out of work for over a year, which puts us at the top of the graph, not the bottom.

  • http://nooilforpacifists.blogspot.com/ No Oil for Pacifists

    1) The U.S. unemployment definition doesn't force-out instantaneously non-workers who stop looking; rather, anyone unemployed who engages in any job-seeking activities in the last 4 weeks will be counted.

    2) Yes, other countries use different methodologies. But the government publishes comparative estimates adjusted for statistical consistency; until the recession began, the U.S. consistently was on the low end.

  • epobirs

    Europe has a long term plan to reduce unemployment. It's called 'going extinct.' Much of Europe is looking at a contraction of population. Unemployment tends to stop being an issue if you've a desperate lack of potential workers. Mass immigration doesn't help if the new entries to the workforce lack the level of education needed to keep the nation running, and there are only so many third world doctors to go around. Plus, there is always furor over maintaining cultural identity to create resistance to immigration.

    Fumento was terribly wrong. The rest of this century is going to have a lot of history to record. The world of 2050 is going to be very different from that of 1950. Imagine an Italy where ethnic Italians are a minority. It's coming. Over time, the names on the map will have little to do with who lives there.

  • sethstorm


    Note how Australia’s unemployment rate almost matches the US from the late 1990’s. Our government implemented greater labour flexibility such as allowing contractors, flexibile contracters, exemption of small business “unfair dismissals”. Our new government has since clawed some of these flexibilities back over the last couple of years, so it will be interesting to see what happens to the unemployment rate.

    Sounds like that "Work Choices" program.

    The only flexibility it seemed to have is bending over people who didn't form businesses.

    Contractors, flexible contractors get turned into permatemps awfully quick.

  • caseyboy

    "However, the system under his plan would not be like those in Europe, which are single payer. In fact, most of us won’t see much change in our coverage or how we are treated for medical problems." Dan, Dan, Dan - I remember when I was young and believed that our leaders had our best interests at heart.

    Obama has said he wants a single payer insurance system with that payer being the government. He has also said he knows he couldn't get there in one step, but that it would be a transitional process. The current health care plan is the first step in that transitional process. It will disrupt and destroy private insurance to the point where the single payer government option will be the only option left. Why do you think the democrats didn't try smaller incremental steps to improve the system? Because they don't want improvements, they want control.

    "From each according to his ability, from each according to his need." Sounds so, so compassionate. Its a socialist's sentiment and a failed political/economic model.