Some social consequences of the financial crisis in europe and comparisons with the us
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Some social consequences of the financial crisis in Europe and comparisons with the US. Etienne Wasmer, Sciences-Po, OFCE, CEPR and IZA. Monday, April 20 at 4pm - Buffett Center Conference Rm , Northwestern University. Initial title/subject. Is America becoming France?

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Some social consequences of the financial crisis in Europe and comparisons with the US

Etienne Wasmer,

Sciences-Po, OFCE, CEPR and IZA

Monday, April 20 at 4pm - Buffett Center Conference Rm, Northwestern University.


Initial title/subject

  • Is America becoming France?

  • For an economist, social perceptions difficult to apprehend.

    • If no data, no reality?

    • At least, more difficult to « falsify » arguments and theories.

    • How to deal with that?


Dimension 1: lobbying


Dimension 2: trust (in govt.)


#3: labor markets and the manufacturing industry


Outline of the talk

  • Start with description of the French labor market, political implications.

  • Trust in institutions to deal with it.

  • Structural problems: the adaptability of labor markets and lobbying.


A: # unemployedB&C: # under-employment


Dual labor market view?

  • Male 25-49 traditionnally protected, employment rate higher than in the US.

  • Outsiders: lower skill women, youth, minority.

  • Now, the « core » is affected by the recession.


Surge in layoffs!


  • New type of recession, affecting the core of protected employed workers.

  • Political tensions to foresee!

    • Males below 25 are the ones to watch!


Yesterday


Europe and the world: OCDE forecasts, March 2009


America becomes France: labor markets converge!

  • What about 2: trust issues?

  • Work by Yann Algan (Sciences-Po) and Pierre Cahuc (Ecole Polytechnique)

    • La société de défiance


« Generally speaking, would you say that most people can be trusted or that you can’t be too careful in dealing with people»

WVS 1990, 2000


« No confidence in the justice system ? »


« No confidence in Parliament… »

NB: Harris Poll 2009

9% have « a great deal of confidence » in the Congress


Convergence again?

  • What about confidence in the ability to manage the current situation?


That was in April 2008

In March 2009: Harris poll: 36% have a great deal of confidence in the White House.

  • In this year’s survey the leaders of six institutions enjoy the most confidence:

    The military (58% have a great deal of confidence);

    Small business (48%);

    Major educational institutions (40%);

    The White House (36%);

    Medicine (34%);

    Organized religion (30%);

  • Leaders of the following institution engender the lowest levels of confidence:

    Wall Street (only 4% have a great deal of confidence);

    The Congress (9%);

    Law firms (11%);

    Major Companies (11%);

    The press (12%);


In terms of trust

  • France-US divide in terms of trust in major institutions.


Last point

  • Adaptability of the labor market.

    • Based on Wasmer and von Weizsäcker

      • « A Better Globalization Fund », Bruegel Policy Brief, Jan. 2007

        • European new fund to cope with Globalization, adapted from US Trade Adjustment Assistance created by Kennedy Administration in 1960’s.


Idea behind Glob. Fund

  • Some workers hurt by trade policy of EU

    • Left hand would repair what right hand did

  • Limited funding and activation schemes (mobility, training)

  • Different from original TAA (passive policies, income support)


The Costs of Job Displacement in the EU and the US

Source: Kletzer (2001), OECD (2005) and authors’ calculations. (*) The re-employment rates are not directly comparable: the US data is based on retrospective questions, while EU data is based on a panel and thus follows more accurately a cohort of displaced workers.


Accumulation of sector/job specific skills


Dots = sectors


Theory

  • Employment protection and « labor market frictions » raise the incentives to invest in specific skills.

    • In turn: higher demand for employment protection, in order to protect specific skills.

  • Good characterization of EU-US differences

    • Hall, P.A.; Soskice, D. (2001): An Introduction to Varieties of Capitalism. In: Hall, P.A.; Soskice, D. (eds.):

    • Wasmer, E. American Economic Review, June 2006.


Conclusion

  • Is America becoming France?

    • Not yet there!

  • But surely, political tensions.

    • Might resorb in 2010.

    • But implies a likely slow down of structural reforms (if possible!)


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