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There is an endless stream of papers trying to understand why, on average, unemployment rates are higher in Europe than in North America. I have reported here about several of the recent ones, and there seems no shortage of new explanations. In fact, if one were to build a model with all those explanations, one would probably be left to explain why after all the unemployment rate is not even higher in Europe...
So what is the latest explanation? Peter Rupert and Etienne Wasmer pick up the ball where several left it: high unemployment is due to low mobility: Europeans are much more attached to their region and are less willing to move for a new job. This begs the question as to why. This calls for a model that explains both unemployment and mobility, based on some friction that differentiates North America from Europe (and does not involve taste shocks, the catch-all for the unexplained). Rupert and Wasmer argue that differences in unemployment insurance benefits and taxes are not sufficient to explain the differential, one needs also to factor in commuting costs. While commuting time is a little shorter in, say, France, fuel costs are much higher, which explains the shorter commute and the lower mobility.
Calibrating this labor search model, Rupert and Wasmer find that indeed they can explain both the unemployment rate and mobility differentials. But I have a feeling this is not the end of the story. If the cost of commuting is so high, why not move closer to the job? European housing markets are much less liquid than in the US. Why? It seems the economic force discussed here should make them more liquid.
Wednesday, August 5, 2009
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3 comments:
Interesting I wouldn't have attributed this to cost fo travel, housing etc. but my gut says it has to do with cultural differences. Perhaps the sociological differences inhibit Europeans from travelling as much as their melting pot brethren.
If someone told me hey you can get a job but it may cost twice as much to commute, I may take it. If I was told, hey you can get a job but you need to learn a new language and set of social mores I would be less apt to accept.
I think the point of the paper is not about moving to a different country, where indeed cultural aspects become important, but about getting a job on the other side of town and the commuting costs involved therein: a potential job that would not imply a move.
Remember that a few decades ago unemployment rates in the US exceeded those in Europe, or at least in the most important continental countries. The mobility explanation that you mention seems not to fit that, but maybe the paper (which I have not read) has something on that point, and perhaps even something on the most obvious explanation which is restrictive policy in Europe and expansionary policy in the US, a matter of aggregate demand.
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