
I Win My European Unemployment Bet - shubhamjain
https://www.econlib.org/i-win-my-european-unemployment-bet/
======
anentropic
Correct on the numbers, but the conclusions don't necessarily follow

> Most of the harm of unemployment is psychological, not material. Holding
> income constant, the employed are much happier than the unemployed. Hence,
> no sensible person would want to see U.S. workers’ wages rise by 10% if the
> unemployment rate rose 3.5 percentage-points as a result. And psychology
> aside, remember that the welfare state forces active workers to support the
> idle. So when regulation forces wages up, even the lucky workers who keep
> their jobs ultimately forfeit much of what they gain.

If the goal is to improve happiness through applied economics then you should
measure happiness, not make ad hoc justifications based on some other metric

~~~
ajross
Yeah. It's also somewhat incomplete analysis about happiness because it views
it as steady state. I mean, anedcotally, sure, being employed is good and
being unemployed (even with a good safety net) is bad. But _being laid off_ is
much worse than either because of the disruption it causes.

Consider, would you rather spend a career with a single 1-year blemish where
you had to live on the dole because you couldn't find work after changing
career paths or whatever, or one where you were laid off four times for three
months at a time? Those don't seem as symmetric to me as they do to the
author.

That said, I think the points raised are valid. It does seem like in 2009 the
market of academic economists was too bearish on the long term US unemployment
situation.

~~~
valuearb
Being laid off is temporary. And it can result in a better outcome, esp. when
your previous employer was dysfunctional.

Source: I was just laid off.

~~~
alchemism
In early 2001 when I was laid off from a startup for the first time, the CTO
told me "Don't worry, it is __always__ for the best," which I took to be an
empty platitude at the time.

18 years, 4 layoffs (and 1 walkoff) later, I can reflect back and say that he
was only being emphatically honest. Each departure led to generous
advancement, the sort that does not seem to come, these days, from loyalty to
one's company or present role.

------
sametmax
> Europe has higher unemployment than the U.S. because it has stricter labor
> market regulation

French here. I think he is stating the obvious, nobody is denying that. It's
also the same reason it's hard to find a house in France: protective laws make
both tenants and employers worried, and they filter quite hard the
hiring/renting prospects.

On the other hand, once you are hired, being fired is pretty hard. So you
don't have to worry about your boss being as abusive as you can find in the US
because you can talk back.

Well, that's the theory. In practice I've rarely been talked badly by most
people, the one time somebody was abusive, I told them to piss off, and they
fired me. And I've never had any trouble finding a gig in my life ever since.

So your milage may vary as usual, but most people around me do report having a
hard time with hiring/renting because of high steaks for both parties.

~~~
geezerjay
> On the other hand, once you are hired, being fired is pretty hard. So you
> don't have to worry about your boss being as abusive as you can find in the
> US because you can talk back.

If your boss is abusive then the solution is not to talk back but to pack your
stuff and move to a better job, and leave your boss with the problem of
replacing you.

~~~
avbanks
In France you're also obligated to give your employer 1-3 months notice before
leaving by law.

------
carleverett
> I’m not afraid to repeat that I have publicly demonstrated that my judgment
> is good. And in my demonstrably good judgment, radical deregulation of
> Europe’s labor markets is long overdue. I’m happy to make the Quiggin bet
> all over again with anyone who’s interested, but what’s the point? My
> homeschooled sons understood all of this when they were 12.

Is this satire?

~~~
hirundo
Brian Caplan is well known for placing long term bets on such things and
having won all of them so far. Though his bet against Brexit happening is in
jeopardy.

As for his pride in his home schooled sons, and their agreement with their
teacher, I'd call that expected and understandable bias.

------
schizoidboy
I think the meta-point is that betting on intellectual ideas is an underused
tool in the toolbox of decision making. Endless academic journal debates don't
seem to help much in moving people across ideological divides.

For all of those that disagree with his methodology or conclusions, if you can
reach him, I recommend putting your money where your mouth is and proposing a
different bet with Dr. Caplan.

I see a lot of people in the comments offended by his tone. I see his tone as
analogous to a soccer player celebrating after a goal. We should socially
encourage such behavior for those who win fair intellectual bets. (Although
there is such a thing as unsportsmanly gloating, although I don't think this
is such an example.)

~~~
exolymph
everybody read Robin Hanson and google "futarchy"

it won't work because people don't like it, but super interesting ideas that
could potentially be applied in narrow domains

------
TomMckenny
Are prisoners counted as unemployed? Are they employed when assigned to "penal
servitude"?

The are at several other reason US unemployment numbers are lower: they have
different percentages in prison and, on the opposite side, nonstandard
employment like the military. They have more clout to enforce favorable trade
agreements. The numbers are calculated differently.

There maybe a difference in real employment numbers but these are not the
figures and the conjectural cause for this unknown difference is just a
conjecture.

~~~
harryposner
Prisoners aren't counted at all---not even as "not in the labor force" [0].
The employment statistics are based on the civilian non-institutional
population, and prisoners are institutionalized.

[0]
[https://www.bls.gov/cps/cps_htgm.htm#concepts](https://www.bls.gov/cps/cps_htgm.htm#concepts)

~~~
TomMckenny
Is "not in the labor force" the right category? Treating it that way will
reduce unemployment numbers by reducing the counted population.

No matter what category you put these groups in, you will have an
uncomfortable discrepancy similar, although to a lesser degree, of comparing
apples to oranges. This is because prisoners are not identical with non-
exsistant people nor are they identical to employed people.

Additionally, since military is considered employment, Europeans could boost
employment just by expanding their military: as if unemployment is caused by a
small military. I sense this is not the conclusion the authors would like.

So I too will bet that 10 years from now, European unemployment numbers will
be higher than the US. My explanation: the counting techniques, prison ratios,
relative world influence, military sizes as well as greater employment
security will remain about the same.

~~~
candiodari
Governments have a vested interest in keeping the numbers low. Right now
people who don't want a job (e.g. stay-at-home-parents) aren't in the
workforce. Also it's counting jobs vs people in the labor force. Meaning if
someone has 2 jobs, there's really also an extra unemployed person. Also
1h/week counts as a job.

Without those modifications US unemployment is over 10%, EU unemployment well
in the 20% even in the Netherlands.

An even fairer measure would be "active population" which is number of people
working on jobs divided by the full population. Of course at that point babies
and comatose patients count as unemployed, but I think it's fair because it
correctly points out that the employed have to pay (in work, not money) for
the entire population.

At that point US is high 30% unemployed, EU low 40% (about a 5% difference).

------
kevin_b_er
How do either statistic handle people are are slightly employed or have given
up working? Barely employed doesn't make ends meet.

[https://www.investopedia.com/financial-edge/0609/what-the-
un...](https://www.investopedia.com/financial-edge/0609/what-the-unemployment-
rate-doesnt-tell-us.aspx)

Does this bet mean anything if the only employment you can get is 10 hours a
week at minimum wage?

~~~
dv_dt
I find it odd that the article references the BLS, defines terms for
discouraged worker and underemployment, but doesn't mention that the BLS also
tracks that data and more, like labor force participation, omits the terms
under which the BLS tracks the data (e.g. U-6 data), as well as omitting links
to the data too. The last is maybe understandable, but the article leaves a
general impression that the BLS misses that when the opposite is true.

------
y7
Wow this author sounds smug.

> Most of the harm of unemployment is psychological, not material. Holding
> income constant, the employed are much happier than the unemployed.

This doesn't factor in that employed workers might be much happier in
countries where they can work without the possibility of being fired at any
moment for no reason hanging over their heads.

~~~
smsm42
If you can correctly predict economic developments for 10 years on a world
scale, I think you'd be entitled to sound a little smug too. I've read a lot
of economists much more smug that utterly failed to predict something right
under their noses, and still are regarded as respected and asked for more
prediction. I'd rather take one that can predict stuff, smug or not.

~~~
komali2
But we exist in the world where he was right - the article doesn't point to
any methodology. It was 50/50.

~~~
omegaham
Considering that he's won 19 of these bets, he'd have to be a very, very lucky
person if it was just a 50-50 bet.

~~~
TheCoelacanth
They aren't all independent 50/50 bets. There are a few clear trends in the
wagers (bullish on the US economy, Eurozone/EU will not completely go to
shit), so predicting just a few trends correctly wins most of the bets (though
being wrong on those same things would lose most bets) and there are some bets
at very long odds (e.g. 200:1 odds on Ron Paul becoming president) so even the
person on the other side of the bet doesn't think it's a _likely_ outcome.

------
komali2
> while the people currently in American prisons might not be model workers,
> most of them could easily be gainfully employed on the outside.

A point easily refuted

PDF -
[https://www.urban.org/sites/default/files/publication/59416/...](https://www.urban.org/sites/default/files/publication/59416/410855-Employment-
Barriers-Facing-Ex-Offenders.PDF)

[https://money.cnn.com/2015/10/30/news/economy/former-
inmates...](https://money.cnn.com/2015/10/30/news/economy/former-inmates-
unemployed/index.html)

[https://www.nytimes.com/2015/03/01/business/out-of-
trouble-b...](https://www.nytimes.com/2015/03/01/business/out-of-trouble-but-
criminal-records-keep-men-out-of-work.html)

Even if the excons are model, PERFECT employees, the conviction could prevent
them from getting a job.

Even if they have the greatest work ethic in the world, they might have gone
into prison at 18 due to mandatory minimum sentences, came out at 23 with no
skills and no money for education (or housing as a base of operations).

And, often the case, the system has fucked them, and they have no desire to
participate in the system that fucked them.

I appreciate the author making such clear and well-stated points, that makes
it easy to use to simple facts to refute his/her argument.

~~~
chimeracoder
> Even if the excons are model, PERFECT employees, the conviction could
> prevent them from getting a job. I appreciate the author making such clear
> and well-stated points, that makes it easy to use to simple facts to refute
> his/her argument.

It's pretty clear in context that this isn't actually what they're talking
about at all.

Caplan is responding to Quiggin's claim that mass incarceration has a
measurable effect of targeting people who would otherwise have been unemployed
_if they had never been arrested and incarcerated in the first place_. He's
not literally arguing that releasing those people from prison overnight would
result in them getting a job.

------
sveme
Subdivide it into economies that are broadly similar and the conclusion does
not hold anymore. Germany‘s unemployment is smaller than the US despite having
a much more regulated job market. Problem is, the EU isn‘t really one
homogeneous entity when it comes to job market regulation (Denmark is pretty
laissez-faire, France much less so), so it‘s disingenious to treat them all
the same.

On another note, his smug tone doesn‘t really help.

------
andrepd
I would very much like to see Quiggin's reply to this, or some kind of
independent rebuttal. His arrogance, the pejorative way he refers to those who
disagree with him, the blatant one-sidedness and poorly concealed rhetoric of
his arguments, all that leads me to not believe a single thing he says without
independent commentary.

------
mangecoeur
this guy has a very one dimensional view of labour regulation, there's a lot
more to it than just how easily you can be fired. Things like minimum paid
leave of 20 days or more.

------
jerven
I think it is much more interesting to look at the inverse. i.e. employment
rate and it is quite a surprise to see this in the last 10 years between a
slight growth in the euro area and decline in the US.

Also the difference between unemployment rate over time and labour force
participation is interesting.
[https://d3fy651gv2fhd3.cloudfront.net/charts/united-
states-l...](https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-labor-
force-participation-
rate@2x.png?s=unitedstalabforparra&v=201903081350a1&d1=2004&d2=20190308&url2=/united-
states/unemployment-rate)

------
pickle-wizard
Humm. I find his assertion that employed people are happier than unemployed
people interesting. I wonder if this is because a lot of people live pay check
to pay check and the loss of income puts them in a serious bind.

I was laid off last year, and I've been fortunate that I had a good salary and
have been able to save a lot. Those few months I was unemployed were the
happiest I've been in a decade. I did some traveling and projects around the
house I've been wanting to do. In fact I quit claiming unemployment because
the required job searches were killing my buzz.

~~~
maxxxxx
Same here. When I was unemployed for a while the only thing that made me
unhappy was the fear of running out of money. If I had a guaranteed income of
some level that allows me to survive I would not need a job to be happy.

------
driftonhedgehog
I would just like to point out that many people who have been incarcerated
have little chance to build a career outside of starting their own businesses.
Once they get out of jail they would actually be unemployed most likely for
some time if it wasn’t for sheer necessity of some paycheck. Often people
would rather stay incarcerated for 3 meals, a bed, a roof, and basic medical
care.

------
maxxxxx
People like this author are the people who give economists a bad name. What
arrogant writing and totally one dimensional thinking.

~~~
schizoidboy
Dr. Caplan is a big proponent of betting. Disputes in academic journals are
endless and inconclusive. Betting gets people to put their money where their
mouth is. I think this is the best part of the economics profession and needs
to be applied to more parts of society.

~~~
maxxxxx
I am ok with betting. But the writing is horrible and the thinking is one
dimensional.

------
telchar
No mention here of the fact that European governments went much harder on
austerity policies than the US after the financial crisis? I seem to recall
reading for years that European countries were lagging in recovery rate due to
policies of austerity while the US largely resisted calls from erstwhile
deficit hawks to do the same.

------
ww520
That's an interesting bet. It would also be interesting to see how UK fares
compared to Euro zone in the next 10 years after the breakaway with Bexit.
Some economists should do a bet on it. Nothing invigorating academic debates
more than when money is on the line.

~~~
tonyedgecombe
I’d like to see some politicians on both sides of the Brexit argument lay down
some bets.

------
ggm
I like Quiggin. He's an almost lone voice of reason about privatization and
the shocking effects on public utility functions like electricity supply. I
wish him well even if he is down $1k on the bet.

------
ddebernardy
> What does this all mean? To me, this bet is just a small extra piece of
> evidence in favor of the orthodox and blindingly obvious theory that Europe
> has higher unemployment than the U.S. because it has stricter labor market
> regulation.

Insofar as I'm aware it mostly means that US unemployment is under-reported.

The labor force participation rate has yet to fully recover from its pre-2008
levels, and you're not counted as unemployed if you worked an hour the
previous week.

European countries, by contrast, have mostly not changed their definitions of
unemployment since, and have a relatively sane definition of what it means to
be employed. This is not to say it's perfect -- far from it. But at least
they're not counting 1h/week Uber drivers as employed.

See e.g.:

[https://qz.com/877432/the-us-unemployment-rate-measure-is-
de...](https://qz.com/877432/the-us-unemployment-rate-measure-is-deceptive-
and-doesnt-need-to-be/)

~~~
kevindong
> European countries, by contrast, have mostly not changed their definitions
> of unemployment since, and have a relatively sane definition of what it
> means to be employed. This is not to say it's perfect -- far from it. But at
> least they're not counting 1h/week Uber drivers as employed.

To quote directly from an official EU website [0] (which I presume is how
employment statistics is defined within the EU):

> Employment (persons in employment):

> Employed persons comprise persons aged 15 years and more who were in one of
> the following categories:

> (a) persons who during the reference week worked for at least one hour for
> pay or profit or family gain.

> (b) persons who were not at work during the reference week but had a job or
> business from which they were temporarily absent.

\---

From reading how the US government defines employment/unemployment/labor force
participation [1], the definitions appear to be materially the same (employed
means working for at least one hour in the EU and for at least 1 second in the
US or being temporarily absent, unemployed means not being considered employed
and having actively looked for work in the last 4 weeks, and not being in the
labor force means not being employed and not being unemployed).

[0]: [https://ec.europa.eu/eurostat/statistics-
explained/index.php...](https://ec.europa.eu/eurostat/statistics-
explained/index.php/EU_labour_force_survey_-_methodology#EU-
LFS_concept_of_labour_force_status)

[1]:
[https://www.bls.gov/cps/cps_htgm.htm](https://www.bls.gov/cps/cps_htgm.htm)

~~~
chimeracoder
> From reading how the US government defines employment/unemployment/labor
> force participation [1], the definitions appear to be materially the same

They are the same. There are six different levels of unemployment which are
measured and published regularly. One of them, U3, corresponds to what the UN
uses and is the _de facto_ international standard. Back in the 1990s, the BLS
decided to start referring to this as the "official" unemployment rate instead
of one of the other five, in order to adhere to a common standard.

------
ergothus
> That said, I heartily commend Quiggin for actually making our bet. He towers
> above all of the apologists for European labor market regulation who refuse
> to put their money where their mouths are.

I know nothing of the people or personalities involved...but this does not
give me a good impression of the author. First, he never refers to anyone with
a contrary opinion in any way other than "apologist". Second, he never
addresses any other value than the unemployment rate as a number (for example,
I can easily imagine an "apologist" being uninterested in his bet if they
think he might be right about the numbers, but they value the regulation for
other reasons). In never addressing their views, he dismisses them as
unworthy.

I'm poorly versed in economics so I don't really have an opinion on the actual
matter under debate...but I can easily see him writing a smug and self-
congratulatory article on this topic that nonetheless gave me a better opinion
of him.

~~~
TimTheTinker
> First, he never refers to anyone with a contrary opinion in any way other
> than "apologist".

What's wrong with the term "apologist"? It simply means one who defends a
particular viewpoint or belief. (It comes from the Greek ἀπολογία, which means
a "formal oratory defense" of a position.)

~~~
gipp
That's just being deliberately obtuse. I don't believe I've ever in my life
heard "apologist" used in a non-pejorative sense. Etymology is irrelevant
here.

~~~
microcolonel
Maybe the term "apologist" is uncollegial out of context, but apologia without
stake is worthy of a ribbing when the apology matures into a confirmed
failure.

Also why can't people have fun battling with words and bets? It seems better
than revolution or fistfights to me.

~~~
ergothus
> Also why can't people have fun battling with words and bets?

They can, and it is definitely better than violence, but I don't conflate
"fun" with "belittling and demeaning" . (not to imply that you do, just
showing the distinction I am making). I can think of a few other "I won a bet"
posts I've seen over the years and they didn't have this negativity associated
with it, despite their authors clearly feeling proven justified.

~~~
microcolonel
> _They can, and it is definitely better than violence, but I don 't conflate
> "fun" with "belittling and demeaning"._

I'll let the targets... no... the _victims_ of the world's gentlest ribbing
speak for themselves.

------
cjbenedikt
In theory people incarcerated might be gainfully employed once released, in
practise they're not

~~~
RugnirViking
Why?

------
rawland
"Let’s all join hands, admit that labor market regulation is a scourge, and
tear down these paper walls."

This thinking is as cropped at it can be. The US is also the country with the
highest consumption of anti-depressants. And what not other social problems.

Besides the whole article being a bunch of patting one self's back.

------
nraynaud
Maybe it’s a sign of the times, productivity is so high that there doesn’t
exist work for everybody. Either you create bullshit jobs, or you have
unemployment.

This psychology thing is forgetting that being forced in a job that doesn’t
pay enough to survive is a huge drain on the worker and their family.

------
vertline3
I sort of see Quiggins' point about incarceration and employment.

------
RGamma
I'm sorry in advance to those economists who try hard to actually try to be
rigorous and scientific about their subject.*

Rant follows:

> Forget ideology. Let’s all join hands, admit that labor market regulation is
> a scourge [..]

But let's not forget who the real scourge here are. Wanna-be rulers of the
planet who dress themselves up as economists (though they come in many forms
and degrees) making up just-so stories about why their next excuse to
circumvene (or prevent) standards for upholding apparently not so common
decency or (down to) basic human rights in the work place is justified. Or
"economists", and the politician who lay in bed with them (sorry to those
truly led astray though!), who enable business practices that profit just
their interests. Or those that think it's okay to bleed the planet dry and
destroy our biosphere for a quick buck. The list goes on...

Not saying the author is one of such, but they sure as hell must be out there
(I'm sure their decisions are all nicely dressed in numbers and growing curves
and big words!).

As a particularly egregious example what sufficiently unregulated labor
markets can do, slave labor conditions in low-cost countries are unfortunately
_really_ "efficient", the higher the wealth gap the better. Or even outright
slavery: Esp. uneducated people in poverty have a lot of kids to support
themselves, creating an endless fountain of cheap (unqualified) laborers
(don't let them get too rich or educated though!). Got a prison population
sitting idly? Well, they seem like an easy target to be extorted for
un(der)paid labor.

Obviously there's a need for regulation here. I don't think however the author
would condone any of the above, yet historically and contemporarily there have
been several instances of stuff like this.

Of course there's a lot of nuance involved, modern discussion in developed
countries revolves more about the /amount/ of social safety the state
guarantees to the citizens plus the implementation of which, not about the
/whether/ it should at all. Violations of human safety and dignity at the work
place esp. in developing countries are kept behind a comforting veil of cheap
prices in the rich nations. Luckily things often improve when total wealth in
a country rises, mostly because you need an at least somewhat educated and
satisfied population at some point to keep growing which precludes subjecting
them to the direst of existences. People's desires to not be screwed with too
much play a big role as well (it's not all bad, after all).

Nonetheless social systems are lacking in many countries worldwide in aspects
like education, healthcare, sanitation, housing, public services or (somewhat
tangentially) good ol' infrastructure. "But who will pay for all this fancy
social security?". Well, who has all the money? It's basically the top 1% who
possesses half the net wealth globally, which is a lot even should the number
be off by a fair amount
([https://en.wikipedia.org/wiki/Distribution_of_wealth#Inequal...](https://en.wikipedia.org/wiki/Distribution_of_wealth#Inequality)).
They don't seem to have been paying all that much then it seems.

However, like above, I don't want to make this seem about /whether/ we should
have unequal wealth or not but about /how much/. Instead of trying to minimize
welfare, let's ask the other way round: How much welfare could the economy
sustain (without choking itself off!)? How much economic inequality is
actually sustainable without tearing society apart and making it blow up like
has happened in mankind's history many times?

There's an intricate balance here and many structures and parameters to
tune... At the both extreme ends of wealth distribution lies dystopia and
history has not been nice to countries who have left the safe zone for one
reason or another.

The world is complicated, many economic statements are purely statistical. But
arguing in a world with lots of known unknowns and even unknown unknowns is
complicated. Abductive reasoning, which is what he attempted to do, tries to
find an explanation for an observed phenomen given some background knowledge.
It is an inherently unsafe type of inference in the real world. And in this
instance it's non-rigorously done by a human, meaning it likely suffers from
one of the many kinds of glitch in naive probabilistic/statistical reasoning
(long list at
[https://en.wikipedia.org/wiki/List_of_cognitive_biases](https://en.wikipedia.org/wiki/List_of_cognitive_biases))
our species has. If you add your ability change the world as an agent
yourself, things get even more complicated (self-fulfilling prophecies
anyone?).

Good job on his bet though. Let's make a new bet: We have people "work or
die": I bet unemployment would rapidly approach 0% (dead people can't be
unemployed!). Man I should get into economics with this idea.

An important reason why we can't have nice things to a degree that should be
possible today is ourselves, and to fix the woes of the modern world requires
an extensive look at how we organize our societies and how we cause them to be
or become dysfunctional. Statements like "hurr durr I win 19 bets" in a field
that is riddled with conflicts of interests and that seems just as much to be
about ideology and opinion (how come there exist so many "schools of economy"?
I thought we all observe the same world) as about actual evidence and rigorous
reasoning seem not very impressive.

* see [https://en.wikipedia.org/wiki/Demarcation_problem](https://en.wikipedia.org/wiki/Demarcation_problem)

------
zeroname
_" And psychology aside, remember that the welfare state forces active workers
to support the idle. So when regulation forces wages up, even the lucky
workers who keep their jobs ultimately forfeit much of what they gain."_

Even a doubling in unemployment claims would be drop in the bucket compared to
pension liabilities.

