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Trivia Tidbit Of The Day: Part 156 -- U.S. Job Creation.

American Versus European Job Creation-

In the past couple of years, the American economy has added about 4 million jobs. The E.U. economies, meanwhile, have seen flat employment numbers.

But what about the past three decades or so?

Same general story.

And taking a closer look at Germany, we can see that recessions drive unemployment upward, while stronger economic growth barely budges unemployment downward.

The primary causes of sluggish job growth in Europe are high labor costs, both direct and indirect, both financial and otherwise. Many people think of labor costs strictly in terms of wages and direct benefits, but labor costs entail so much more. The cost of terminating an employee tends to be much higher in Europe than in the U.S., so employers are cautious in hiring people in the first place.

Look at the coincidence between indirect labor cost growth and unemployment, in Germany.

In 2002, the labor costs for a German industrial worker were 22% higher than an American worker; simultaneously, though, after-tax take-home pay in Germany was 16% lower in Germany than in the U.S. (not to mention that Germany is just more expensive than America, so an American wage goes further than a German wage).

And the Germans are ready for some sort of change. Gerhard Schroeder continues to lag in the polls behind Angela Merkel in the upcoming German election. And Merkel has recently taken on the "Art Laffer of Germany," signalling she means to make very real changes in Germany's tired economy.

Astonishingly, Germany is debating the flat tax idea with some seriousness. Whatever Germany-- and the rest of Old Europe-- do, they need to think about how indirect labor costs affect employment.

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Posted by Will Franklin · 1 September 2005 10:53 AM

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