Language and unemployment
I like maps. Randy Olsen recently linked to an interesting map of European unemployment:
Before seeing this map I knew that Germany had higher lower unemployment than France. And indeed you see a dramatic change in the unemployment rate right where the two countries meet—at the Rhine.
My assumption has been that the lower German unemployment reflects better labor market regulations. But this graph hints at another difference—language. Let’s suppose that Germanic language areas have lower unemployment than Romance language areas. How would we test whether language or government policies are more important?
One approach would be to note that some countries have multiple languages. Thus southern Belgium and southwestern Switzerland speak Romance languages, and the rest of those countries mostly speak Germanic languages.
Now look at the map. I see a sharp unemployment divide in Belgium, right on the line between French and Flemish. And in Switzerland, I see much higher unemployment in French-speaking Geneva, Vaud, and Valais, as well as Italian-speaking Ticino. Below is a map of Switzerland, so you can see the cantons more clearly.
I also notice an area of very high unemployment from Greece to southern Italy to Sardinia to southern Spain. So maybe it’s not language, maybe it’s latitude. Or maybe both language and latitude are proxies for culture.
Before we fall in love with this theory, however, there is just one problem. As recently as 2005, Germany had about 11% unemployment and was regarded as the “sick man of Europe”. We should be suspicious of cultural explanations that apply in one decade, but not the next. Surely culture doesn’t change very much in 12 years!
In the end, I’m included to think, “it’s complicated”. There are probably lots of factors that are playing a role here. Southern Belgium was once richer than northern Belgium, but today it’s more of a rust belt, as its old heavy industry is less competitive than the newer firms in the Flemish areas to the north. Perhaps there are similar explanations for Switzerland. Perhaps culture and government policy interact—thus people in the far south of Europe have a culture that leads to political outcomes associated with excessive labor market rigidity.
So no easy answers, but the map is certainly food for thought.
PS. Unemployment is related to wealth, and indeed probably more closely related than in earlier decades. But the correlation is still far from perfect. Northern Italy does better on wealth than employment (check out my “rich heart of Europe” post.) For instance, Lombardy has more unemployment than northern England, despite being richer. Or compare (rich) Paris with the Czech Republic.
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2. May 2017 at 06:25
First sentence: “Before seeing this map I knew that Germany had higher unemployment than France”
“Higher”? You mean “Lower”? Darn those comparative words!
2. May 2017 at 06:43
Typo: before seeing the map you knew Germany had Lower unemployment than France.
2. May 2017 at 08:28
I am curious just how sick Germany was when they were “the sick man of Europe.”
If we took this picture 10 and 20 years ago how much has changed. My hunch is that the patterns would still look very similar.
2. May 2017 at 09:39
Funny you can even see it in Romania. The northern (historically Hungarian-speaking Transylvania & Szekelyland) have a lower unemploymentrate than the rest of the country.
Anyway, having grown up, worked and ran a business in the Netherlands, now living in the Valencian area, I can really tell the difference in work-ethics.
The manyana-lifestyle is very much alive and kicking. Why work today if you can work tomorrow? It is not so hard to find Spanish employees, they all want to have a job. It is very hard to hang onto these Spanish workers, because as soon as they get a contract, they lose motivation, or just from work in general. The attrition-rate is just horrible.
Initially, I would blame the climate. Life is so much easier here, why work hard? In The NL there is very little that grows just by itself, a roof is not a luxury, but a necessity. Spain, the opposite.
Another interesting divide is between Czech Republic and Slovakia. It’s not language, those are quite close. Not climate. Culture? But they were one country for decades (and before that under the same regimes). More German blood/historic influence? (maybe also partly in Romania)
2. May 2017 at 12:32
Note that the employment rate map shows a different picture as well: http://ec.europa.eu/eurostat/statistics-explained/images/0/07/Employment_rate%2C_persons_aged_20%E2%80%9364%2C_by_NUTS_2_regions%2C_2015_%28%25%29_RYB2016.png, much less contrasted. Would be interesting to play w/ the bands to see the influence
2. May 2017 at 13:42
Your hunch is right. This happened between 2002-2007 when Germany peaked to 11% and France remained around their usual 8%. In all the other years since at least the 80s Germany’s unemployment rate is better. In fact there are only two years in this whole period when France reached 7%, in 1983 and in 2008, those are their best years, in all the other years France oscillates between 8% and 11%.
And the reason why Germany got on its feed again seems to be regulation indeed. For example between 2003-2005 the Social Democratic chancellor Schröder enforced pretty drastic reforms of the German labor market, drastic at least by German standards.
2. May 2017 at 13:54
Besides regulation simple topology seems to be important as well. There seem to be huge hubs where most of the work is (like right in the center of Europe, and around London, and so on). And then there’s the periphery (like Southern Europe) that’s just to far away from the hubs. This explains the language barriers as well. Language is a real barrier. German hubs can be very close to the French border for example. French workers still don’t really profit precisely because of the different language.
2. May 2017 at 15:44
I like this map:
https://i.imgur.com/nzHYLB6.jpg
This is a map of the locations of terrorist attacks
Poland has very strict border and immigration laws
Hmmmmm
2. May 2017 at 17:59
Within a country, a lot of the differences have to do with long term bets. For example, Andalusia has huge unemployment because it doesn’t have much industry: The region bet on farmland an coastal tourism, so it has high unemployment, and its future looks bleak. A different picture appears in the north west: Asturias had great employment numbers back in the day… mostly due to coal mining. As coal required less people and was less profitable, the government decided to pay off people working in mining to retire early: It’s nice for them, but it leaves an industrial base in tatters.
Just like in the US we are seeing more regional polarization in economic outcomes, we see the same thing at a larger scale: If you work in software, you have to be nuts to stay in southern Europe, because there is no capital. The talent leaves, and growth patterns change.
I wonder what the long term effects of Brexit and Trump are in this: Right now, someone in Southern Europe wants to move to the US or the UK first, because if they’ve studied a second language, it’s English. When those places become less available, and probably less desirable, someone else gets to pick up the slack as a talent magnet, but nobody picks German as a second language.
I don’t know what the market of humans voting with their feet will do, but it’ll be interesting to watch.
2. May 2017 at 18:15
OT, U.S. inflation now at 1.56%.
“The BEA’s Personal Income and Outlays report for March was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index fell 0.23% month-over-month (MoM) and is up 1.83% year-over-year (YoY). The latest Core PCE index (less Food and Energy) came in at -0.14% MoM and 1.56% YoY. Core PCE remains below the Fed’s 2% target rate.”
2. May 2017 at 18:23
Cultures and gene pools that evolved with “real” winters seem to prosper in modernity and the business world.
Something about delayed gratification, meeting deadlines or dying.
Mañana did not work in Korea–you die when winter hits.
This does not make any group of people better or worse or more virtuous etc. And every human being is endowed with the same rights at birth.
Moreover, at some point, trading leisure for a lower material living standard may make sense.
After all, is working 60 hours a week sensible if you are well-fed and have the comforts at just 40 hours a week?
2. May 2017 at 18:47
Everyone, Thanks, I fixed the typo.
Doug, You said:
“If we took this picture 10 and 20 years ago how much has changed. My hunch is that the patterns would still look very similar.”
Not really, Greece and Germany had about the same unemployment during 2004-08
2. May 2017 at 23:44
Interesting how countries with their own currencies have a lower average unemployment rate.Bulgaria, Romania, Hungary, Czech Republic, Poland, Sweden all have shades of blue. The only exception in this stretch is Slovakia, which has the Euro.
2. May 2017 at 23:46
This map seems consistent with the view that the Euro acts as a demand siphon for the German speaking, high saving part of Europe.
3. May 2017 at 01:30
Speaking of successful economies:
From South China Morning Post today—-
“Companies’ first-quarter earnings rise as China trims industrial capacity
First-quarter profits at China’s publicly traded companies rise 21 per cent as a state campaign to eliminate excess capacity boosts prices
PUBLISHED : Wednesday, 03 May, 2017, 1:19pm
UPDATED : Wednesday, 03 May, 2017, 4:31pm
COMMENTS:
Mainland listed companies maintained fast earnings growth in the first quarter, as a government-led drive to cut excessive capacity bolstered profitability in industries from coal to commodities continued.
Profits for companies trading on the Shanghai and Shenzhen stock exchanges increased 21 per cent from a year earlier, compared with a growth of 24 per cent a quarter earlier, according to data from Industrial Securities.”
—30—
The China bust crowd looks in tatters.
Also yesterday, Yamaha, Japanese musical instrument maker, reported better-then-expected profits in part due to…strong high-quality guitar sales to China.
Yamaha is lying?
Chinese are buying high-quality guitars because they are dire necessities?
A troubling question for orthodox Western macroeconomists: Does mercantilism work, as a practical matter, especially if backed up by a growth-oriented central bank?
I suppose there is the counterfactual: “Well, China would have had even more-robust growth in the last 30 years, if they had Western-style macroeconomists in charge.”
3. May 2017 at 03:24
Scott,
One more data point – South Tyrol (Alto Adige), a german-majority province in Italy is colored blue in the map.
3. May 2017 at 06:00
I have a “Breakfast Theory of Europe”. In general, the divide in Europe is not a matter of Protestant vs. Catholic, but it’s a matter where you can get a good breakfast. French, Spanish, Italian, and Greek food are generally brilliant, but their breakfasts range from the awful to the non-existent.
Thus the Austrians and the Norwegians have good institutions, despite their many differences, because they’re both starting the day with a good hearty breakfast.
However, there is a lot more to unemployment than institutions. I think that the general (and boring) recipe is that good labour-market policy + exogenous labour market factors + stable NGDP levels = low unemployment.
So the North East of England (where I’ve lived now for nearly 4 years) doesn’t have big fluctuations in NGDP and it has good labour-market policies, but it has exogenous labour-market issues (like skills mismatch and a brain drain) that weaken its underlying economic strength relative to most of the rest of the UK.
Germany and France have good exogenous factors (their economies are basically strong and they have huge cultural/human capital resources) but Germany has had much better policies recently.
The UK in the mid-1980s was pretty good on the first two variables, but we’d just had a decade of NGDP fluctuating from about 7% to 27% and back again, so the transition to an unemployment rate <6% took quite some time. The Baltic States seem to have gone through the same sort of process, but more dramatically, with their "internal devaluation". Ditto Ireland, I think?
Greece, Spain and Portugal are examples of what you get when everything goes wrong.
The main morals of the equation are –
(1) Governments control at best 2/3 variables that determine unemployment; in the Eurozoen, they control at best 1/3.
(2) Regional variations are to be expected, since nominal spending and exogenous conditions typically vary from region-to-region.
Looking at the map, it's interesting how there's no uniform relation between capital-city status and comparative unemployment rate: London, Vienna and Copenhagen have relatively high unemployment (as does Berlin, even compared to the rest of ex-East Germany) whereas Sofia, Zagreb, Rome, Paris, and Madrid are doing no worse (and sometimes better) than their respective national averages.
And once again, thank God (and/or Eurosceptics and/or internal Labour party politics) that the UK didn't join the Euro.
3. May 2017 at 06:01
(Sorry Scott; I posted that first comment under a pseudonym by accident.)
I have a “Breakfast Theory of Europe”. In general, the divide in Europe is not a matter of Protestant vs. Catholic, but it’s a matter where you can get a good breakfast. French, Spanish, Italian, and Greek food are generally brilliant, but their breakfasts range from the awful to the non-existent.
Thus the Austrians and the Norwegians have good institutions, despite their many differences, because they’re both starting the day with a good hearty breakfast.
However, there is a lot more to unemployment than institutions. I think that the general (and boring) recipe is that good labour-market policy + exogenous labour market factors + stable NGDP levels = low unemployment.
So the North East of England (where I’ve lived now for nearly 4 years) doesn’t have big fluctuations in NGDP and it has good labour-market policies, but it has exogenous labour-market issues (like skills mismatch and a brain drain) that weaken its underlying economic strength relative to most of the rest of the UK.
Germany and France have good exogenous factors (their economies are basically strong and they have huge cultural/human capital resources) but Germany has had much better policies recently.
The UK in the mid-1980s was pretty good on the first two variables, but we’d just had a decade of NGDP fluctuating from about 7% to 27% and back again, so the transition to an unemployment rate <6% took quite some time. The Baltic States seem to have gone through the same sort of process, but more dramatically, with their "internal devaluation". Ditto Ireland, I think?
Greece, Spain and Portugal are examples of what you get when everything goes wrong.
The main morals of the equation are –
(1) Governments control at best 2/3 variables that determine unemployment; in the Eurozoen, they control at best 1/3.
(2) Regional variations are to be expected, since nominal spending and exogenous conditions typically vary from region-to-region.
Looking at the map, it's interesting how there's no uniform relation between capital-city status and comparative unemployment rate: London, Vienna and Copenhagen have relatively high unemployment (as does Berlin, even compared to the rest of ex-East Germany) whereas Sofia, Zagreb, Rome, Paris, and Madrid are doing no worse (and sometimes better) than their respective national averages.
And once again, thank God (and/or Eurosceptics and/or internal Labour party politics) that the UK didn't join the Euro.
3. May 2017 at 06:43
One locality that bucks the trend is German speaking Alsace and Lorraine in France. Or maybe they don’t speak much German there anymore, I’m not sure.
Also a pretty stark divide between Deutsch speaking east and west Germany, but we all know why that is the case.
3. May 2017 at 08:47
Multinonde, Good observation.
Ben, Can you name a single country where mercantilism has “worked” in the sense of making the country richer than countries like Germany, Switzerland, Singapore, Hong Kong, Australia, USA, Canada, etc? Just one country where it worked?
Free trade is still the best policy.
W. Peden, Good post—both of them. 🙂
Bill, Good point.
3. May 2017 at 15:00
“Ben, Can you name a single country where mercantilism has “worked” in the sense of making the country richer than countries like Germany, Switzerland, Singapore, Hong Kong, Australia, USA, Canada, etc? Just one country where it worked?”
Not that I agree with mercantilism making a country better off, but given your methods can you name a country where it didn’t? The fact is you cannot.
3. May 2017 at 18:15
Scott Sumner:
I would say, as a practical matter, mercantilism is “working” in mainland China today. It appears living standards are rising rapidly, and in a very large nation to boot (not a city-state) with a troubled history.
China probably has many reasons for its success, including a growth-oriented central bank that doubles as an state investment bank and the extremely strong Han culture and peoples.
You could posit that “free markets” (if they ever exist in developed nations) would have resulted in even higher living standards in mainland China.
BTW, every large mainland company is effectively controlled by the CCP through board seats and voting stock—and if that is not enough, the new CCP committees that are being established within every Chinese company of note.
3. May 2017 at 18:49
Interesting article.
http://www.reuters.com/article/us-china-usa-business-idUSKBN16N0YJ
6. May 2017 at 05:58
Ben, So you claim that the poorest ethnic Chinese country in the entire world shows the success of mercantalism? Interesting. What do the rich Chinese nations like Taiwan show?
6. May 2017 at 12:03
Sumner,
Australia is poorer than some other country in the world.
This proves market monetarism makes us poorer.
Wait, you mean there are other factors?
K