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Why the “Bernie Bill” Will Not Increase Unemployment

Let’s get the facts straight about the Democrats’ reconciliation package and the effects of European-style social welfare.

Liz Lynch/Getty Images

A growing worry as Congress takes up the reconciliation bill is that expanding the welfare state as the Democrats hope to do will drag American civilization down to the level of Western Europe, mimicking its blight of lower poverty, cleaner cities, better public transportation, more plentiful art museums, higher math literacy, more widespread multilingualism, older cathedrals, smarter politicians, better food, and more nude beaches.

OK, that’s not what people are fretting about. The worry, which is limited largely to conservatives, is that expanding the welfare state in the United States will create European-style socialism that will push unemployment sky-high. There are two answers to this. First: Stop worrying. It won’t create European-style socialism. Second: Even if it did, unemployment wouldn’t go up. That’s because the European model does not, in fact, boost unemployment. Please stop thinking that it does.

“If Biden gets the $1 trillion infrastructure proposal and the $3.5 trillion [reconciliation] package,” Pat Buchanan wrote last month, it “would constitute the greatest leap forward toward socialism of any American president.” The reconciliation bill, said Senate Republican Leader Mitch McConnell, is a “reckless taxing-and-spending spree that was authored by our self-described socialist colleague, Chairman Sanders.” (McConnell’s “Chairman Sanders” crack refers to Sanders being chairman of the Senate Budget Committee.)

“To critics,” explained Jonathan Weisman in the lead story of Tuesday’s New York Times, “the legislation represents a fundamental upending of American-style governance and a shift toward social democracy. With it, they worry, would come European-style endemic unemployment and depressed economic dynamism.”

But “European-style endemic unemployment” does not exist. Let’s look at the most recent annual statistics. In the U.S., unemployment averaged 8.1 percent in 2020. In the European Union, unemployment averaged 7 percent. Among individual EU nations, unemployment averaged 3.8 percent in Germany, 4.4 percent in Norway, 4.8 percent in Switzerland, 5.4 percent in Austria, 5.5 percent in Iceland, 5.6 percent in Belgium, 5.7 percent in Ireland, 6.9 percent in Portugal, and 7.8 percent in Finland. Even France, which does have a pretty serious problem with chronic unemployment, averaged, at 7.8 percent, lower unemployment in 2020 than the U.S.

Otto von Bismarck invented “state socialism” (Staatssozialismus) as a German alternative to radicalism in 1881. Over the next century, the welfare state spread across Western Europe with no discernible impact on employment. Through the 1960s and 1970s, unemployment was consistently lower in Western Europe than it was in the U.S.

Nevertheless, we live with the canard that higher unemployment is the price of European-style socialism (better described as capitalism with more social welfare than Americans will, at the moment, tolerate). That’s because unemployment was indeed higher in Western Europe during the 1980s and 1990s than it was here in America. Nobody really knows why; one theory is that U.S. workplaces computerized faster than their European counterparts.

“U.S. economists wanted to blame [it] on their stronger labor market protections and more generous welfare state,” explains Dean Baker, a senior economist at the Center for Economic and Policy Research. But that conclusion didn’t stand up to scrutiny. “The countries with the highest unemployment rates,” Baker explained to me in an email, were Spain, Italy, and Greece, and these places “did not have especially strong welfare states.” Meanwhile, “countries like the Netherlands and the Nordic states, with very generous welfare states, had relatively low unemployment rates.” The employment gap between Western Europe and the U.S. pretty much vanished by 2005. After the global financial crisis of 2007–8, unemployment in Western Europe was generally lower than in America. Yet the myth of Eurosocialist unemployment persisted.

One obvious fallacy when people generalize about the European model is that there isn’t one model, but several. Harry Holzer, an economist at Georgetown, says unemployment levels have a lot to do with how a particular government targets its aid. The Scandinavian countries, he says, put their money into policies that support employment: childcare, paid leave, wage subsidies. The result is high labor participation. France and Italy target employment less, Holzer says, and restrict the circumstances under which a worker can be dismissed. That makes management more reluctant to hire, often resulting in elevated unemployment.

Baker disputes that “protective labor market” policies have any consistent impact on unemployment. But even granting that they do, the reconciliation bill is focused almost entirely on boosting employment. (The main exception is the child tax credit, which extends financial support to nonworking families—and there, any impact on employment is still likely to be minimal.) The budget bill would subsidize childcare for low- and moderate-income families, make community college free for two years, finance paid medical and parental leave, and increase job training. It would create a Civilian Climate Corps modeled on the New Deal–era Civilian Conservation Corps to employ young people to address the causes and effects of climate change.

“The vast majority of the dollars are … subsidizing or supporting employment,” Holzer told me. The reconciliation bill “moves us closer to the Scandinavians,” he said. That sounds like Mitch McConnell’s worst nightmare. But Holzer doesn’t mean employment will go down. He means it will go up.