Bryan Caplan  

I'll Bet On It: In the Long-Run, European Unemployment Will Be Higher

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I'm going to offer the following bet to the authors of the CEPR report:

The average European unemployment rate for 2009-2018 (i.e., the next decade) will be at least 1% higher than U.S. unemployment rate.  The bet will be resolved when Eurostat releases its final numbers for 2018.

I'm happy to bet each of the three authors $100 at even odds.  Will they accept?

P.S. By 1% I of course meant 1 percentage-point.


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COMMENTS (21 to date)
Stephen S writes:

Myself and some of the other commentators have been talking, and we think that you are developing a gambling problem.


Boadicea writes:

But Prof. Caplan, Europe has high immigration! You said that immigration increases employment! How can Europe have both high immigration and high unemployment?

BlackSheep writes:

Boadicea, what did Caplan say exactly? Saying that immigration doesn't increase unemployment isn't equivalent to saying it decreases unemployment. It just has no affect on unemployment, or need not have depending on the policies.

I didn't think there was much discussion between economists about the causes of the involuntary unemployment in Europe. I mean, even Paul Krugman and Bryan Caplan agree on those.

ardyan writes:

If the probability of winning is asymptotically approaching 1, it's no longer gambling habit.

Justin Ross writes:

What black sheep means to say is that increases in employment is not the same thing as a decrease in the unemployment rate.

Europe has high immigration? That would surprise me, but I don't know either way. It would also seem to be important to the claim to distinguish between non-Europeans immigrating into Europe, and Europeans just moving among different European countries.

Caplan: You may want to consider distinguishing between unemployment rate weighted by population vs. unweighted, and other details of how that figure is calculated.

libfree writes:

Believing that your probability of winning is approaching 1 is a symptom (or cause) of a gambling problem.

Bill Kruse writes:

With a 1 point differential, you probably wouldn't get them to bite. How about 2 or 3 points, like it has averaged since the start of CEPR's chart? However, given the emerging policies of the Obama administration, 1 point is probably more realistic.

Americans will probably always have more entrepreneurial spirit than the Europeans, so even if our taxes and other government controls head up to their levels, we'll still do better . . . but not much better.

Bob Murphy writes:

Bryan,

Will anyone care about $100 in the year 2019? Got your eye on a nice loaf of bread?

rkillings writes:

You have very little chance of losing a bet that the European unemployment rate will be (only) 1% higher.

If you were really confident of a big differential, you would bet on a difference of *one percentage point*. A whole point, not a 1% difference!

Neal W. writes:

Bryan,

Why are you so confident that the U.S. won't increase labor regulation to the extent that unemployment recovers as slowly as Europe?

Taras Smereka writes:

The dollar is going to be toilet paper by 2018

Bryan Caplan writes:
Bob Murphy writes:

Bryan,

Will anyone care about $100 in the year 2019? Got your eye on a nice loaf of bread?

At risk of confirming concerns about my gambling problem, I'm also happy to bet that the price of a loaf of Wonder bread in 2019 will be under $20.
Zac Gochenour writes:

Before anyone takes Bryan's bread bet, let me know, I'll give you 10:1 odds.

Niccolo writes:

Bryan,


I think there's a problem with this whole "US vs. EU" measurement in unemployment.

By the numbers, perhaps you're right, there PROBABLY will be higher unemployment in Europe than the US, but as it is with the argument about how unemployment levels do not reach the levels they were at in the 1930's, I think there could be some issue with HOW data is measured.

Too often we cite statistics without first asking ourselves, how are these statistics measured and what do they contain as far as their objectives and benchmarks?


Also, I think it's worth noting that in Europe, much more of the economy is unreported than in the US. I am from Italy and I can tell you that those of us who do more than half of our work in the underground economy live better than similar individuals in places like Germany, France, the UK, or even the US for the simple fact that we get more things cheaper and do more things with higher percentages of net profit.

Snark writes:

Niccolo,

Your last paragraph sums up why Bryan is confident in making this bet. The unintended consequence of an over-regulated labor market is growth of an underground economy that provides those benefits you describe.

If Europe deregulates or the U.S. becomes more regulatory over the the next decade, Bryan's position might well be compromised. The former is not likely to occur, but given recent trends in U.S. domestic policy, the latter could cost him three Franklins for a slice of humble pie.

jb writes:

Zac, are you offering at 10:1 that the price of a loaf of bread will go higher than $20, or that it won't?

I'm assuming you're offering that it won't, since a 10x increase in prices would pretty much make the bet even, and the 10:1 you'd have to pay out would be no more painful than the initial payout now. Very clever :)

the snob writes:

Bill:

As a small business owner in the US, I am continually frustrated by the amount of paper and bureaucracy I have to deal with. I am told Europe is much worse. If we become similar, then I would not do this again, I'll either take a salary at a big company or do consulting work and stay as small as possible. I enjoy making money, but not to the exclusion of all else. given sufficient hassle, I am sure I too could discover my inner French truck driver.

John Schmitt writes:

Hi Bryan,

As you mention in a later post, I did turn down your bet. For the record, I'm pasting below the email I sent you with my reasons for declining.

Thanks for calling attention to our work and for starting an interesting discussion.

John

----

May 21, 2009

Hi Bryan,

Thanks for your email. I won't speak for my coauthors, but as for me, I'm not a betting man, and even if I were, I wouldn't take the bet.

The purpose of our recent short report was not to argue that "Europe" is better at fighting unemployment than the United States is.

Our main purpose was to say that --if we use the benchmark common in the media and among some economists that a country has a serious unemployment problem if it has an unemployment rate as high as those in "Europe"-- then we have a serious unemployment problem in the United States.

A second purpose of the paper was to point out that since 2007 unemployment rates have increased much less in most European countries (Spain and Ireland are the exceptions) than in the United States. In several countries, including Germany, the unemployment rate is actually lower in the most recent data than in 2007.

If we want to offer the United States as an economic model to the rest of the world, our view is that we should be sure to examine important changes in the performance of the model along the lines of the US experience since the end of 2007.

A final purpose was to remind people that "Europe" is a collection of countries with fairly different economic and social systems that seem to produce different economic outcomes (including unemployment rates) both across countries and even within the same country over time.

My view is that the EU-15 (particularly Spain and France) have a serious unemployment problem. But, I think the main culprit is bad macroeconomic policy, at least since the early 1980s, but especially since the early 1990s.

Welfare states and labor-market institutions are not a persuasive explanation for Europe's unemployment problems because (1) several countries with large welfare states, extensive labor-market regulation, and strong union presence (Denmark and the Netherlands are the best examples) consistently outperform the United States on unemployment; (2) the country with the highest unemployment in the EU-15 --Spain-- also has one of the least developed welfare states and the lowest levels of labor-market regulation in the EU-15 (including about a third of the workforce employed on various forms of temporary contracts); and (3) countries with stable welfare states and labor-market institutions often see large changes over time in the unemployment rate (Germany is an excellent example since until unification, Germany had consistently lower unemployment rates than the United States; since unification, Germany has lost its edge, despite implementing a series of deregulatory reforms).

A large majority of the economics profession was convinced in 1995 that the United States could not keep unemployment below 6.0 to 6.5 percent without setting off accelerating inflation. The experience of 1996-2000 proved otherwise. My view is that the economics profession is similarly wrong about the situation across the EU-15, especially Spain, France, and Germany.

But, I wouldn't take your bet because the European Central Bank and European economic policymakers have been incredibly resistant to learning from much more sensible US macroeconomic policy approaches.

John

Willem van Oranje writes:

Isn't the US a gigantic "make-work" project? You pay enormous amounts of money to employ people in the military (the US pays more for Defense annually than the rest of the world combined). Plus you have an enormous prison population that is not included in the workforce.

When you combine those two statistics, it might very well be that the US is even performing worse than Europe. N'est-ce pas?

Justin Bowen writes:

A final purpose was to remind people that "Europe" is a collection of countries with fairly different economic and social systems that seem to produce different economic outcomes (including unemployment rates) both across countries and even within the same country over time.

Wouldn't it then only be appropriate to compare the constituent US states to the constituent EU states? I think it's safe to say that the US is a collection of states with fairly different economic and social systems that seem to produce different economic outcomes (including unemployment rates) both across states and even within the same state over time.

Laurent GUERBY writes:

* men aged 25-54

employment divided by population
France: 88.3% (hence 11.7% jobless)
USA: 87.5% (hence 12.5% jobless)

normalized unemployment rate
France: 6.3%
USA: 3.7%

So with a slightly higher relative working population in this age/sex group France has ... a 70% higher unemployment rate than the USA.

* women aged 25-54

E/P
FR 76.1
USA 72.5

unemployment
FR 7.7
USA 3.8

So here we have clearly more women working in France (3.6 percentage point) relative to their population but unemployment is 102% higher in France!

* conclusion

The bet is about the ability or inability of EU15 gov to manipulate unemployment numbers as USA gov does :).

Employment/population is an objective measure. Unemployment is an extremely subjective measure and so it's easy to get very wide discrepancies.

* question

Any paper studying this discrepancy in OECD normaized numbers? For male 25-54 there's no real reason not to work, so what are all those USA men doing?

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