Tuesday, January 1, 2013

Unemployment and its effect on culture

A recent article in the Economist talked about some of the negative realities surrounding France just after the countries debt rating was cut. Public spending accounts for almost 57% of national output, the public debt stands at over 90% of GDP and is rising. The country seems to be running a near-permanent budget deficit. It is no surprise that last January France lost its AAA grade from the Standard & Poor’s rating agency. Wealth, profits and high incomes are heavily taxed, the rich are routinely abused and people are instinctively hostile to capitalism.

As its public-spending numbers suggest, France is also more attached to a big role for the state than any other European country. Everything from the labor market to pharmacies to taxis heavily regulated it is understandable that would-be entrepreneurs feel discouraged. No entirely new company has entered the CAC-40 stock-market index since it started in 1987. France is a country where redundancies can lead to endless court proceedings; and trade unions and protesters tend to take to the streets at the first hint of reform. It adds up to a deeply anti-business culture.

Like many places throughout the world unemployment in France has recently risen. When the general population sees over 10% unemployment often unemployment in young people is closer to 25%, or higher. This is often in the areas around big cities where ethnic minorities are mainly concentrated. What struck me was a chart I recently saw that showed how many countries have had a substantial increase in unemployment after the world financial crisis of 2007 and never recovered. Unemployment is a trap people fall into, but can't fall out of. Indeed, the rate of new unemployment has stabilized at a terrible, but not quite-as-terrible, level, but long term this is a cancer on our culture, that will create a "permanent underclass" without hope.

Unemployment is a world wide problem. In developed countries it appears to be structural and caused by a lack of demand. Bad tax policies and government interference in the economy often favoring large businesses have added to the problem. Unemployment tears at the fabric of society as many of the unemployed become disheartened. Overtime their skills tend to become "rusty" and obsolete. This often leads to  problems with debt and homelessness that can cause the unemployed to fall into the vicious circle of poverty. This means that when the economy recovers these individuals may not fit the job vacancies that are created. My concern is the cultural damage this reeks.

Because of things like the minimum wage laws, across the world we are seeing gateway jobs vanish. These are jobs where young people learn to work and gain skills that will last throughout their life. We cannot underestimate how important it is to get young people started down this path. Long-term unemployment is a cancer on society, it robs us of our vitality. Young people and those who drift out of the workforce often move away from their responsibilities and are a financial drag on society. If big government, like that of France is part of the cause of this curse, then the "nanny state" is clearly not the answer. Sadly the trend towards bigger government is on track here in America and in many countries across the world.

Footnote; Creating real jobs is not an easy task, the post below comments on the issue,

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