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Home Publications Blogs Beat the Press NYT Warns that Southern Europe Suffers from a Disastrous Shortage and Surplus of Labor

NYT Warns that Southern Europe Suffers from a Disastrous Shortage and Surplus of Labor

Saturday, 01 January 2011 22:28

The NYT can't quite decide whether the southern European countries (Spain, Portugal, Italy and Greece) suffer from too many or too few workers, but it is anxious to tell readers that the situation is disastrous. The article begins by telling the story of a young Italian lawyer who can't find a job commenting that:

"the most highly educated generation in the history of the Mediterranean hits one of its worst job markets."

This is the story of too many workers and too few jobs. It sounds and is really bad.

But then the NYT flipped 180 degrees and decided that the real problem is the opposite, too few workers:

"experts warn of a looming demographic disaster in Southern Europe, which has among the lowest birth rates in the Western world. With pensioners living longer and young people entering the work force later — and paying less in taxes because their salaries are so low — it is only a matter of time before state coffers run dry."

Okay, is the problem too many workers with too few jobs or too few workers, with too much demand? Either one of these stories is possible, but both are not, or at least not at the same time.

To help clarify matters, the NYT gives us this quote from Boston University Economist Lawrence Kotlikoff:

"If these [low] fertility rates continue through time, you won’t have Italians, Spanish, Greeks, Portuguese or Russians, ... I imagine the Chinese will just move into Southern Europe.”

According to Professor Kotlikoff, there should be a huge shortage of young workers, which would drive up wages, and plunging demand for homes, which will make housing cheap. This sounds like a great story for young people in southern Europe, as long as they are not prejudiced against the Chinese.

But then we get back to the labor surplus story:

"'This is the best-educated generation in Spanish history, and they are entering a job market in which they are underutilized,' said Ignacio Fernández Toxo, the leader of the Comisiones Obreras, one of Spain’s two largest labor unions. 'It is a tragedy for the country.'”

Then we shift back to a simultaneous surplus and shortage of labor with another quote from Professor Kotlikoff:

"For Dr. Kotlikoff, the solution is simple: 'We have to change the labor laws. Not gradually, but quickly.'” But the piece then complains that changes are coming slowly:

"New austerity measures in Spain, where the unemployment rate is 20 percent, the highest in the European Union, are further narrowing the employment window. Spain has pledged to raise its retirement age to 67 from 65, but incrementally over the next 20 years.

"'Now people are being sent into early retirement at age 55,' said Sara Sanfulgencio, 28, who has a master’s degree in marketing but is unemployed and living in Madrid with her mother, who owns a children’s shoe store."

Okay, so if the retirement age were instantly raised to 67, as this article is advocating, how is this supposed to create more jobs for young people like Ms. Sanfulgencio? In a context of an economy operating well below full employment it would seem her job prospects are improved by reducing the competition from older workers, which means keeping the retirement age low.

In short, the NYT clearly does not like the economic policies in southern Europe and it is anxious to tell readers that they are disastrous, it is just not sure why.

One important item missing from this picture is the European Central Bank (ECB). It could be buying up large amounts of public debt from Spain and other European countries both to boost demand and to alleviate their debt burden. (The interest on debt held by the ECB could be refunded back to European governments, thereby imposing no burden on their taxpayers.) This could help to increase employment. Also, if it leads to a modest increase in the inflation rate from its current new zero level, it would alleviate debt burdens and help to facilitate the necessary process of real wage adjustments between countries. 

It is also worth noting that the current downturn is the result of the incompetence of the ECB which opted to ignore the growth of dangerous housing bubbles in Spain, Ireland and elsewhere. Remarkably, no one at the ECB lost their job or probably even missed a promotion as a result of this disastrous policy failure.

Comments (10)Add Comment
I blame global warming
written by muckdog, January 01, 2011 11:49
As the weather warms creating more moisture in the air and thus more freezing weather and snow, unemployment rates rise. Just ask the IPCC.

In any case, maybe they need more immigration to come take the lower paying jobs and pay taxes that those well-educated Europeans have no interest in. Or maybe we're at a place in society we're we are so productive that we don't need as many people as we used to in order to get the day's business done.

Nah, global warming. That's gotta be it.
Too many for X, too few for Y
written by Simon C, January 02, 2011 12:03
Why can't you simultaneously have too many workers for the available jobs but to few to support the pensioners? Imagine you've got 10 jobs for 100 workers trying to support 900 pensioners. It comes down to a shortage of jobs.

Not saying there isn't faulty reasoning in the NYT article. It drives me nuts that people think raising the retirement age in a time of high unemployment makes sense. We should be doing the opposite. Open up the job market for the young, and get the stimulus of social security payments rolling.
Another Reporter With Zero Economics Experience
written by Hugh Sansom, January 02, 2011 9:25
Between the New York Times, NPR, CNN, and the rest of the usual suspects, there may very well be no more than a combined year of study in economics. Rachel Donadio, author of the report Dean Baker critiques, is a perfect example — little if any background in economics or experience reporting on it.

Can anyone think of any other field of endeavor where having no experience in a subject is seen as perfectly acceptable?
written by skeptonomist, January 02, 2011 9:35
Speaking of the Chinese, they have had a Draconian policy of population limitation for many years. It can be argued that their current economic boom is partly a result of freedom from the burden of excessive population growth. Some supposedly serious economists, as well as newspaper reporters, speak of the supposedly harmful economic consequences of reduced population growth as fact, but these consequences seem to be largely hypothetical. Are there any unambiguous examples of this in history?
problem is as stated
written by fred, January 02, 2011 9:36
Yes, there is both high unemployment, especially for the young, and a looming demographics problem. The demographics problem has not hit yet, and is being further postponed by the tendency of the boomers to remain in the workforce. When the boomers finally do retire, there will indeed be a need for workers. However, if tax rates are kept sky high on labor, in order to pay for the retirees, then many workers will join the underground workforce, which tends to be at a low level of economic development. Think farm work, cooking their own meals, taking care of the elderly in exchange for free rent--all sorts of simple activities which evade the taxman and contribute nothing to the Italian ability to export and thus pay for imports.
written by liberal, January 02, 2011 10:01
Simon C wrote,
Why can't you simultaneously have too many workers for the available jobs but to few to support the pensioners?

Because if the pensioners aren't being supported, there's unmet demand, which would lead to job openings and therefore not "too many workers".
Two-tier labor market
written by Jay Weiser, Assoc. Prof. of Law & Real Estate, Baruch College, January 02, 2011 11:32
Although the NYT article is not pellucid, the two-tier labor market in Italy and other Southern European countries offers a reasonable explanation. Full-time workers have generous benefits and near-ironclad protection from firing. Hence employers hire fewer full-time workers than they would in a less restrictive environment. In a downturn, employers can't easily lay off full-time staff and therefore need less contract staff. As a result, employers can get away with offering only unpaid internships to younger workers.

Of course, this exacerbates the demand problem in the economy, since skilled younger workers who can't break into the full-time market are effectively impoverished, living off their parents and state welfare benefits. Thus they defer childbearing and/or emigrate to places where they can earn a market wage, like Costa Rica. This ultimately risks a demographic collapse for the native population.

Immigration (predominantly from North Africa, not, as Kotlikoff suggests, China) is gradually populating the lower tier with less-skilled workers who work off the books and don't get the same social welfare benefits.
Kotlikoff is a quack ...
written by Benedict@Large, January 02, 2011 11:40
1) Kotlikoff is a quack and class warrior with a book to sell.

2) @Simon C - Read up on the lump of labor fallacy. Here's a variation on it. If there aren't enough jobs, give people jobs helping with all the services the retirees need. If the retirees don't have enough money to pay for those services, well then, how can they be too expense to support?
What do you expect...
written by libhomo, January 02, 2011 1:19
...from a newspaper that is too intellectually dishonest to acknowledge that New York and other states "fiscal crises" could easily be turned to surpluses by making the rich pay closer to their fair share in taxes.
Journalism that Slanders Government
written by Union Member, January 02, 2011 5:39
Everything Government is a Ponzi Scheme; so goes the New Washington Media Consensus; and they just find some " expert" - in this case Katlikoff -to slander Government ( programs) of any kind. But what they ultimately hope to undermine is democracy itself, one bad journalism piece at a time. And replace it with some Ideological Meritocracy.

The New York Times never has to be accountable for such libel, yet they rush to the defense of their own Steve Rattner in their lead story on Friday, twisting Rattner's questionable motives with New York Public Pension Funds into a personal grudge match with New York's new Governor. It has to be said that Cuomo was elected to do what he does where as all Rattner ever did to "merit" such attention from the democratic process is to throw a lot of money around the Democratic Party. But the NYTs doesn't even understand that Rattner isn't even the issue: THE ISSUE is journalism that serves the Public Interest so Government can best serve the Public Interest, in Italy or New York.

BTW: There should be a fine or something ever time a news out let refers to Italy, Portugal, Greece, Ireland and Spain as "PIGS," Especially since, as Beat the Press so often points out, these same news outlets never heard of the housing bubble that is the real cause of all the debt and political instability.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.