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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (95017)	4/19/2003 4:06:30 PM
From: w0z	Read Replies (1) \| Respond to of 281500

A comparison of unemployment systems in Europe and the U.S. shows that net income replacement rates do not vary greatly. However, minimum and maximum benefit duration are typically much greater in Europe. A comparison of benefit generosity, based on a computation of net wage replacement rates at two income levels, three durations of unemployment, and three types of families, shows dramatic differences between the U.S. and Europe. (See Figure 2.) One might expect that very generous unemployment schemes, in addition to shielding families from the cost of unemployment, would at the same time reduce the incentive for job search. In fact, the most serious unemployment situations are seen in countries that have generous benefit schemes, but provide little administrative pressure to encourage reemployment. Funding generous benefit schemes in the face of very high unemployment obviously requires high taxes. The impact of taxes is to create a wedge between the effective wage earned by the worker that is, the purchasing power of wages after taxes and the effective cost of the worker to the employer. In the U.S., the tax wedge averages 35 percent, with most of that accounted for by income taxes paid by the worker, not payroll taxes (nominally) paid by the employer. In Europe the tax wedge averages 55 percent, with payroll taxes making up nearly as large a share as income taxes. The high tax wedge in Europe implies that production for the market needs to be more than twice as efficient as do it yourself production if a market exchange of labor is to be advantageous. A high tax wedge gives rise to increased home production and black or gray market activities that escape taxation. Higher real wage growth in Europe has come at a high price. Large numbers of workers have been locked out of employment, the number of working age adults on the dole has increased, and nearly all new jobs created have been in the public sector. The cost of this bargain looks increasingly unsustainable. From the last reference I cited previously: epf.org