Near­sighted In­vestors

Europe’s Hid­den Job­less More than 11 mil­lion Euro­peans are with­out jobs and have given up try­ing to find any. It’s worst in Italy, where 4.5 mil­lion have left the work­force. Euro area Italy

Bloomberg Businessweek (North America) - - Global Economics -

come up with his trade­mark to show he be­longs at the top.” As Sun Yin­huan, vice chair­man of the All-china Fed­er­a­tion of In­dus­try and Com­merce, said in a news con­fer­ence in Bei­jing on March 11, “It clearly points the way for the fu­ture di­rec­tion we should take.”

The Four Com­pre­hen­sives take on China’s big­gest eco­nomic and political ques­tions. At the same time, they re­flect ten­sions in the party and so­ci­ety. Achiev­ing mod­er­ate pros­per­ity is a sen­si­ble goal. But in China that means a con­tin­ued fix­a­tion on ex­ces­sively rapid growth, with ever higher debt and zom­bie com­pa­nies the cost. Re­forms, as Xi sees them, mean more sup­port for state-owned com­pa­nies, not less, says Willy Lam, a pro­fes­sor at the Chi­nese Univer­sity of Hong Kong and au­thor of Chi­nese Pol­i­tics in the Era of Xi Jin­ping.

There are le­git­i­mate ef­forts to im­prove the le­gal sys­tem. But with Xi fix­ated on ide­o­log­i­cal con­trol, deep­en­ing the rule of law also means smoth­er­ing dis­sent, says Kristin Shi-kupfer, head of re­search for pol­i­tics, so­ci­ety, and me­dia at the Ber­lin-based Mer­ca­tor In­sti­tute for China Stud­ies. Pro­mot­ing party dis­ci­pline, she says, in­cludes both the crack­down on cor­rup­tion and the si­lenc­ing of mem­bers who think Xi has gone too far in cen­sor­ing op­pos­ing views.

Shortly af­ter tak­ing power in 2012, Xi in­tro­duced the “Chi­nese Dream” of na­tional re­ju­ve­na­tion and a bet­ter life for all. Lately he seems to have fa­vored the Four Com­pre­hen­sives in­stead. An­other slo­gan, “Xi political eco­nom­ics,” is be­ing pro­moted: It’s a grab bag of all of his the­o­ries on the econ­omy and pol­i­tics.

Xi needs to ce­ment his au­thor­ity be­fore next year’s Na­tional Congress of the Com­mu­nist Party of China, a twice-a-decade as­sem­bly where top party mem­bers are re­placed. “Xi’s PR peo­ple are build­ing up his per­son­al­ity cult in prepa­ra­tion for the 19th Party Congress, where pre­sum­ably he will ap­point more of his peo­ple into the cen­tral com­mit­tee and polit­buro,” says Lam. The true mean­ing is that all poli­cies must “re­flect the lead­er­ship of the party and the top po­si­tion of Xi Jin­ping,” he adds. “That is [the slo­gan’s true] mean­ing.” If Xi is suc­cess­ful, the Four Com­pre­hen­sives could be en­shrined in the party con­sti­tu­tion when he most likely steps aside as party leader in 2022. �Dex­ter Roberts

The bot­tom line The Four Com­pre­hen­sives could help the Chi­nese pres­i­dent con­sol­i­date power be­fore the Party Congress.

of slug­gish growth and high un­em­ploy­ment have cre­ated a pool of adults who’ve rarely if ever held jobs or have been out of work so long that their skills aren’t mar­ketable. “Af­ter so many years, I can­not sell my­self in any way,” says Maria Luisa Te­gon, 52, who last worked in 2007 as a com­puter pro­gram­mer spe­cial­iz­ing in an IBM op­er­at­ing sys­tem that later was dis­con­tin­ued. Te­gon, who says she stopped look­ing for work two or three years ago, lives on her hus­band’s in­come and oc­ca­sion­ally works as a ticket seller at a mu­nic­i­pal park­ing lot near her home in Venice. “I def­i­nitely don’t need my IT knowl­edge and ex­pe­ri­ence to do that,” she says.

Some dis­cour­aged work­ers, like Te­gon, get fi­nan­cial sup­port from fam­ily mem­bers, while oth­ers scrape to­gether a liv­ing from off-the-books jobs. Those so­lu­tions cre­ate other prob­lems, says Giuseppe Ra­gusa, an econ­o­mist at LUISS Guido Carli Univer­sity in Rome. Peo­ple who don’t have le­git­i­mate jobs don’t pay in­come taxes, in­creas­ing the bur­den on their tax­pay­ing coun­try­men. Nor do they pay into pub­lic pen­sion sys­tems, which in Europe are al­ready strug­gling to keep up with a rapidly ag­ing pop­u­la­tion. What’s more, many re­tirees now use their pen­sion in­come “as a stipend for their sons and daugh­ters who don’t work,” Ra­gusa says. Hav­ing two gen­er­a­tions de­pen­dent on pen­sion in­come makes it harder to build political sup­port for badly needed pen­sion re­forms.

Not all Euro­pean


coun­tries are af­flicted equally by the dis­cour­aged-worker syn­drome. In Spain the per­cent­age of peo­ple who quit look­ing for work never ex­ceeded 5.1 per­cent, even in the depths of the Euro­pean debt cri­sis in 2013, when Span­ish un­em­ploy­ment climbed to al­most 27 per­cent. Since then, un­em­ploy­ment has fallen to 20.9 per­cent and the rate of dis­cour­aged work­ers is down to 4.4 per­cent.

A key fac­tor in keep­ing Spain’s dis­cour­aged-worker count low was its un­em­ploy­ment-in­sur­ance sys­tem, says Ste­fano Scar­petta, the di­rec­tor of em­ploy­ment, la­bor, and so­cial affairs at the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment in Paris. Spain of­fers rel­a­tively gen­er­ous un­em­ploy­ment ben­e­fits, cov­er­ing more than 60 per­cent of a worker’s pre­vi­ous in­come for as long as two years—but in ex­change, re­cip­i­ents are re­quired to search ac­tively for work. “One of the things we learned from the cri­sis was, even coun­tries that have gen­er­ous ben­e­fits, if they are closely tied to job-search­ing, coun­selling, and train­ing—th­ese are the coun­tries that per­formed bet­ter,” Scar­petta says.

Italy of­fers some of Europe’s skimp­i­est un­em­ploy­ment cov­er­age, with ben­e­fits last­ing no more than 10 months and more than 40 per­cent of work­ers not cov­ered by un­em­ploy­ment in­sur­ance at all. France has gen­er­ous ben­e­fits but is less strin­gent about re­quir­ing peo­ple to search for work, so re­cip­i­ents tend to stay on the dole longer, Scar­petta says. Dis­cour­aged work­ers in cen­tral and east­ern Europe of­ten started their ca­reers un­der Soviet- era cen­tral plan­ning and can’t find suit­able jobs now.

One of the big­gest wor­ries about dis­cour­aged work­ers is what hap­pens to them in their re­tire­ment years. A re­cent OECD study es­ti­mated that some­one who goes with­out a job for five years is likely to have 10 per­cent lower re­tire­ment in­come than some­one who worked con­tin­u­ously. What about those who spend whole decades on the side­lines? Dis­cour­aged work­ers of­ten rely on “the fam­ily net­work and wealth ac­cu­mu­lated by past gen­er­a­tions,” econ­o­mist Ra­gusa says. “When this wealth is eroded, no one knows who will take care of th­ese peo­ple.”

Elis­a­betta Bom­bacci lost her job as a sales­woman in a Rome dress shop in 2013. Now 52, she lives on her par­ents’ sav­ings and cares for her 90-yearold wid­owed mother. “I dream

Un­em­ploy­ment rate Ra­tio of dis­cour­aged work­ers to la­bor force

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