Europe's sobering warning on jobs

WE CAN learn from Europe about job creation, but many Americans may reject the underlying lesson. It is: If you price labour too high - pay workers more than they produce - businesses will slow or stop hiring. They won't sponsor their own bankruptcy.

Everyone knows that Europe's economy is in the doldrums. Growth in the eurozone (the 19 countries using the euro) is weak; in the second quarter, gross domestic product (GDP) advanced a modest 0.3 per cent compared with the previous quarter. Eurozone unemployment is 11.1 per cent, barely down from the peak of about 12 per cent. This contrasts with the United States, where the jobless rate has dropped from 10 per cent in October 2009 to 5.3 per cent now.

The standard explanation for the lacklustre performance is "too much austerity". Demand is held back by misguided efforts to curb budget deficits through spending cuts and tax increases. No doubt this plays a role. Joblessness varies. In Germany, July unemployment was 4.7 per cent; in France and Italy, it was 10.2 per cent and 12.7 per cent, respectively.