High-Wage Policies
The second explanation for the riots in the Swedish cities that is linked to the higher unemployment rate, blames the unemployment status of immigrants on the high-wage and extensive social protection policies for the existing workforce (Siebert 1997; Rothschild 2013; Segerfeldt 2013; Svanborg-Sjövall 2013). The OECD, for example, argues that strong employment protection granted to permanent employees would inhibit employers from hiring workers, and that high minimum wages aided by collective-bargaining agreements would lock out many people from employment (OECD 2011b). This argument has been the leading mantra of many mainstream economists (e.g. Kearl et al. 1979; Solberg and Gill 1996; Gallaway 2010). The prescription has been that if labor markets could be made more flexible, if workers can be fired more easily, if they would move around geographically, if there was no collective bargaining, and if there was no minimum wage, then a free labor market will be created, which will finally drive away the scourge of high unemployment. Sweden with 41.90 Euro per hour ($53.90) has the highest average wages in Europe (Local 2013a; also consider Illustration 2 above ), but it has an 8.8% unemployment rate (Local 2013b), which is higher than Germany’s 6.8% (RTE News 2013). Since Germany does not have a minimum wage, allowing some workers in Germany to be paid as little as 55 cents an hour (Marsh and Hansen 2012), free-market economists are likely to proclaim that the job success of Germany is tied to the low wages that may be paid to workers, which produces an incentive for hiring.4 The argument of the economists is not sustainable. First, Germany’s phenomenal low-wage sector has not continuously kept the unemployment rate low. Between 1997 and 2009, Sweden had a lower unemployment rate than Germany.5 Second, while overall wages in Sweden are high compared to other European countries, it has also been among the most productive. Sweden’s labor productivity is 45 Euros per hour worked as of 2012, compared to Germany’s 42.4 Euros.6 Higher productivity generally allow higher wages. Third, greater labor flexibility contributes nothing to reduced unemployment. A comparison between Sweden and Germany, generally regarded as having less flexible labor markets, with Great Britain, generally regarded as having very flexible labor markets, shows that Great Britain has a higher unemployment rate than the first two countries (Nickell 1997, 57). Therefore, there must be other factors besides wages that determine hiring.
High-Wage PoliciesThe second explanation for the riots in the Swedish cities that is linked to the higher unemployment rate, blames the unemployment status of immigrants on the high-wage and extensive social protection policies for the existing workforce (Siebert 1997; Rothschild 2013; Segerfeldt 2013; Svanborg-Sjövall 2013). The OECD, for example, argues that strong employment protection granted to permanent employees would inhibit employers from hiring workers, and that high minimum wages aided by collective-bargaining agreements would lock out many people from employment (OECD 2011b). This argument has been the leading mantra of many mainstream economists (e.g. Kearl et al. 1979; Solberg and Gill 1996; Gallaway 2010). The prescription has been that if labor markets could be made more flexible, if workers can be fired more easily, if they would move around geographically, if there was no collective bargaining, and if there was no minimum wage, then a free labor market will be created, which will finally drive away the scourge of high unemployment. Sweden with 41.90 Euro per hour ($53.90) has the highest average wages in Europe (Local 2013a; also consider Illustration 2 above ), but it has an 8.8% unemployment rate (Local 2013b), which is higher than Germany’s 6.8% (RTE News 2013). Since Germany does not have a minimum wage, allowing some workers in Germany to be paid as little as 55 cents an hour (Marsh and Hansen 2012), free-market economists are likely to proclaim that the job success of Germany is tied to the low wages that may be paid to workers, which produces an incentive for hiring.4 The argument of the economists is not sustainable. First, Germany’s phenomenal low-wage sector has not continuously kept the unemployment rate low. Between 1997 and 2009, Sweden had a lower unemployment rate than Germany.5 Second, while overall wages in Sweden are high compared to other European countries, it has also been among the most productive. Sweden’s labor productivity is 45 Euros per hour worked as of 2012, compared to Germany’s 42.4 Euros.6 Higher productivity generally allow higher wages. Third, greater labor flexibility contributes nothing to reduced unemployment. A comparison between Sweden and Germany, generally regarded as having less flexible labor markets, with Great Britain, generally regarded as having very flexible labor markets, shows that Great Britain has a higher unemployment rate than the first two countries (Nickell 1997, 57). Therefore, there must be other factors besides wages that determine hiring.
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