Friday, May 20, 2011

Haikunomic 07: Salute the Sargent!

A guest haiku by semi-loyal economonomist Kris:

European Unemployment Dilemma?

low unemployment
welfare states and turbulence
high unemployment

This is a tribute to a paper by Lars Ljungqvist and Tom Sargent, The European Unemployment Dilemma. The idea is this: Workers start at low-paying jobs and work their way up within the industry. When an industry collapses, a whole bunch of highly paid veterans must start over in low-paying jobs in a new industry. In Europe, where unemployment benefits are more strongly tied to one's former wages, these veterans have a much weaker incentive to get new jobs. Why get a new, low-paying job when you could sit around collecting a welfare payment that's indexed to your original high wage? This welfare structure is not well-suited to the type of unemployment that occurs when an industry collapses. And so, when industry collapsed everywhere, the unemployment rates in Europe versus the rest of OECD -- originally quite close together -- diverged in a serious way, and stayed there. (See Figure 1 of the paper).
In any case, you didn't need me to say any of that because the haiku already got it across perfectly, right? I must say this is a surprisingly good haiku (for Kris).


  1. That's one of the best econ haikus I've ever read. I'll never forget the European Unemployment Dilemma now.

  2. Dear obviously-Kris,

    As a non-macroeconomist I admit that the only reason I remember anything about the european unemployment dilemma is that we had to explain it to you like 8 times last year. Haiku was a good choice since I don't think you have more than 17 syllables of memory stored up on this subject. Nicely done tho.