US, Europe: Road to economic recovery

World economies in the past few months could be said to have reached the stage of recovery from the global recession.  But what do we really consider recovery? What criteria of a recovery from a recession can we put forth?

The question is a difficult one, and here is why: the recession affected many different aspects of the economy, and while it seems that some aspects are getting better, others are still in the transition stage. In some of my previous articles, I talked about unemployment. This is one of the most important factors when determining the level of the economic crisis. The unemployment rates for the United States and Europe are still about the same- close to 10 percent. But then why could we be talking about a recovery in global economies?

Riots over unemployment gripped parts of Europe in 2010

Tyler Cowen, professor at George Mason University, and Jayme Lemke, a doctoral fellow at George Mason University, co-published an interesting article in the New York Times on this topic:

 “Here’s a simple story to explain part of this complex picture. A business owner is hit hard in 2009 by the recession and for reasons of cash flow and profitability is forced to fire one of her 20 employees. Some time passes, 2010 comes around, and sales are all back to normal. The business owner has learned to make do with the smaller staff. In terms of output per worker, the business is actually more productive than before”.

 The problem was that many of the jobs had little economic value for the companies themselves, and if we look at the big picture, we can say that this was one of the problems that could have caused the recession in the first place. There could be several possible solutions to that problem.  Many people are now looking to change careers, and work in field where they will be needed more.

This is one of the pictures we see in the United States. Shifting to the current state of affairs in Europe, the European Center for Economic Policy Research, has pointed out that there are several reasons for the high unemployment rate in Europe.  According to the report “No single factor can fully explain why so many Europeans fail to find jobs, and many of the more widely touted proposals for reform are either likely to be ineffective or politically difficult to introduce”.

Some of the most popular explanations of the European unemployment rate blame technology and foreign competition.  Some claim that developing countries ‘steal’ European jobs. But many analysts, however, claimed that this fact cannot be true.  In a Europe Center for Economic Policy Report, they noted: “access to a cheaper source of some goods should allow Europe to shift resources into other lines of production in which it has a comparative advantage”. 

The fact of technology development is too rapid can also not be considered an argument, here is how this was commented in the report: “Another common claim is that Europe’s high unemployment is the consequence of an unduly rapid rate of technological change, associated with advances in information technology. The Report rejects this argument: Europe’s problem is, if anything, too little, not too much technological change”.

The report also compares the United States labor market and the European labor market. 

“It is often argued that the source of Europe’s unemployment problem is the high level of job security and the consequently `sclerotic’ nature of its labor markets. Many proposals to cure European unemployment, including the recent OECD Jobs Study, call for extensive deregulation to create US-style `flexible’ labor markets”.

It is a fact that US labor markets are relatively free and there are many training programs available for people who want to make a change in their careers.  So this is where we can see a difference between economic recession changes in Europe and the same changes in the United States.

There are visible differences in the economic situations in different regions, and the way we will be exiting the recession will perhaps be different.

Leave a Reply