Europe’s welfare society

Over the last half century, Western Europeans have gradually opted to work less and take longer vacations. They have put in place varying national versions of public universal health care, education and retirement benefits. They have set up a complex web of minimum income legislation, including unemployment subsidies and disability benefits, and basic social welfare, in an effort to limit the risk of destitution.

Still, some economists say Europe's social model is costing it dearly. According to the Organisation for Economic Co-operation and Development:

The unemployment rate in Europe was 7.8 percent in 2003, as compared with a 6.1 percent rate in an America recovering from a recession.

Economic growth in Europe over the next decade risks being stuck at 2 percent – one percentage point or 50 percent lower than the expected growth of the U.S. economy.

Productivity per hour worked trails that of the United States (once differences in the economy are controlled for), though it has made significant gains over the last 30 years.

High minimum wages coupled with high payroll taxes and strict job protection laws have priced low-skill workers out of the labour market, say researchers. Martin Bailey of the Institute for International Economics explains “the notion of social cohesion has tended to protect existing workers to the detriment of those out of a job.”

Of course, Europe’s culture of leisure and a generous welfare state does not come without its benefits. According to the OECD, Europeans have a slightly longer life expectancy and can hope to spend more of their old age in good health than Americans.

Source: Katrin Bennhold, Love of Leisure, and Europe’s Reasons, New York Times, July 29, 2004.

For NYT text (subscription required) http://www.nytimes.com/2004/07/29/international/europe/29euro.html

For OECD report: http://www.oecd.org/document/39/0,2340,en_2649_201185_33618087_1_1_1_1,00.html

For more on Economic Freedom and Growth http://www.ncpa.org/iss/int/

FMF Policy Bulletin\10 August 2004