I’ve Seen the Future, And it has a Lot of Unemployment

Europe’s labor market is a mess. Now, authorities are actually looking at common-sense solutions that will actually work. Some in Spain, for instance, are calling for a suspension of the minimum wage laws. Perhaps the US should take note. After all the data show us that unemployment typically increases proportionately after minimum wage is increased:

From AEI:

The minimum wage in Spain is currently 645 euros a month. Spain’s jobless rate hit a record 27.2 percent in the first quarter, with 6.2 million people out of work, an increase of almost one million since the ruling Popular Party’s labor reform was introduced. The youth unemployment rate also reached a record 57.2 percent.

According to figures released Friday by the European Union’s statistics office, Eurostat, Spain accounted for 31.5 percent of the 19.375 million people out of work in the euro zone in April. Unemployment stood at record highs of 12.2 percent in the single-currency block and at 11.0 percent in the EU. The rate in Spain was 26.8 percent, with joblessness in Portugal 17.8 percent.

Earlier this week, the Paris-based OECD also called for further reforms in the labor market after predicting the jobless rate would hit 28 percent this year when it expects the economy to contract by 1.7 percent. The Organization for Economic Cooperation and Development has long been an advocate of abolishing the widespread practice of including clauses in collective bargaining agreements compensating workers for a loss of spending power as a result of inflation, an arrangement known as indexation. The European Commission also asked Spain to complete an evaluation of its 2012 labor law overhaul by July, and to propose necessary modifications by September. The labor reform made it cheaper and easier for companies to sack workers, allowing firms to pay 20 days’ wages for every year worked up to a maximum of one year’s wages in situations such as falling sales. The reforms also give more flexibility to companies to negotiate collective agreements.

It makes me think of Lincoln Steffens’s quote after he got back from the newly formed Soviet Union, “I’ve seen the future, and it works.” Evidently, his future-telling only extended a couple years as he failed to see the collapse of the Soviet Union or the unsustainable unemployment in the European Soviet Light Countries. I’ve seen the future, and it has a lot of unemployment.

The governor of the Bank of Spain, Luis María Linde, on Friday called for even more flexibility in the labor market than afforded by the reforms approved in February of last year to tackle rampant unemployment, suggesting that new formulas could be found beyond the reach of collective bargaining agreements and, in some circumstances, leaving the statutory minimum wage in abeyance.

Hopefully, the Europeans can avoid unemployment catastrophe and we can learn from their lesson.