Past Event

The United States and Europe: Short-term divergence but shared challenges

Europe and the United States have had divergent experiences since the economic crisis. But they share several challenges in the years ahead: slowing productivity growth, rising inequality, and falling labour force participation. How can those challenges be turned into opportunities?

Date: May 11, 2016, 1:00 pm Topic: Global Economics & Governance

Summary

See below for video and materials.

This event reviewed macroeconomic similarities and differences between the US and the EU during the last two decades. It also compared the challenges that both the US and the EU will be facing in the coming years.

Jason Furman briefly summarized the responses of the US and EU to the economic crises beginning in 2007-2008. He highlighted the rapid policy responses which the US implemented immediately after the onset of the crisis with positive results: a relatively solid recovery and lower unemployment. He noted the difficulties that the Eurozone and EU had in responding to the financial crises due to sovereign debt and higher structural unemployment. He also mentioned difficulties that especially affect the US: lack of capital investment, growing wage inequality, and lower fluidity and dynamism than desirable. Looking forward, he pointed to a few policies that could help solve these problems: Completing TPP and the T-TIP trade deals, reforming the business tax codes, streamlining high-skilled immigration, patent system reform and greater antitrust action to prevent monopolistic behaviour from capturing excessive capital rents.

Natacha Valla pointed to similar challenges from the perspective of the EU.  She addressed the issues of country-to-country heterogeneity, slowdown in productivity growth, lower steady-state GDP growth, low capital-stock investment, a relatively limited and late monetary response to the crisis, and the obstacles remaining for a completed single market and banking union in Europe. She pointed to the many shared challenges and responses while acknowledging the inherent differences in policy response because of the institutional, geographic, political, and economic differences inherent in comparing the US to Europe. She also expressed the critical need for greater investment in Europe in the areas of both infrastructure and R&D.

In the Q&A it was pointed out that the capital share of output has fallen in the US during the last several years, but that compensation given to labour’s share of output has fallen at the same time. Furman answered that this could be for many reasons, but that it may likely be a result of increasing capital rents from large corporations and their intellectual property rights. Other questions involved the role of debt in the US and forecasting interest rates. Private debt in the US has fallen as the amount of credit that banks have extended has fallen and incomes have increased. Public debt has gone up since the crisis as a result of fiscal stimulus programs, but the government deficit has fallen and debt service payments are also relatively low. Interest rates look to be on the rise (even if slowly) after nearly 7 years of zero-percent rates.

Various policy options were mentioned to address inequality and stagnant wages in the US. Furman mentioned the noteworthy flexibility of the US labour market, but also the need to increase labour participation rates by offering better workplace support, maternal/paternal leave policies, etc. He concluded by stressing the need for US and EU institutions to stay vigilant in making these steps and avoid complacency about inequality, slowing productivity, and labour participation.

Event summary by Brian Lewis, Research Intern

VIDEO RECORDING

Event materials

The United States and Europe Short-Run Divergence and Long-Run Challenges | Jason Furman

Natacha Valla – Presentation

Schedule

May 11, 2016

13:00-13:30

Check-in and lunch

13:30-13:50

Presentation

Jason Furman, Chairman of the Council of Economic Advisers, The United States

13:50-14:30

Comments and Audience Q+A

Chair: Guntram B. Wolff, Director

Natacha Valla, Head of Division, European Investment Bank

14:30

End

Speakers

Jason Furman

Chairman of the Council of Economic Advisers, The United States

Natacha Valla

Head of Division, European Investment Bank

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

matilda.sevon@bruegel.org

Read article More on this topic More by this author

Blog Post

Global income inequality is declining – largely thanks to China and India

Income inequality among citizens of 146 continues to fall, though at a somewhat reduced pace, according to the updated Bruegel dataset. Income convergence of China and India accounts for the bulk of the decline in global income inequality from 1988-2015.

By: Zsolt Darvas Topic: Global Economics & Governance Date: April 19, 2018
Read article Download PDF More on this topic

Working Paper

The impact of industrial robots on EU employment and wages: A local labour market approach

In theory, robots can directly displace workers from performing specific tasks (displacement effect). But they can also expand labour demand through the efficiencies they bring to industrial production (productivity effect). This working paper adopts the local labour market equilibrium approach developed by Acemoglu and Restrepo to assess which effects dominate and the impact of robots on wage growth and employment rate in Europe.

By: Francesco Chiacchio, Georgios Petropoulos and David Pichler Topic: Innovation & Competition Policy Date: April 18, 2018
Read about event More on this topic

Past Event

Past Event

Robots and artificial intelligence: The next frontier for employment and EU economic policy

This event will look at the impact of robotics and artificial intelligence on employment, wages and EU economic policy.

Speakers: Pat Bajari, Julia Bock-Schappelwein, Anna Byhovskaya, Paola Maniga, Mario Mariniello, Clara Neppel, Loukas Stemitsiotis, Georgios Petropoulos and Barry O’Sullivan Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 18, 2018
Read article More on this topic

Blog Post

The European Globalisation Adjustment Fund: Time for a reset

It is only in the last decade that the EU has had an active policy to reintegrate workers who lost their jobs as a result of globalisation, through the European Globalisation Adjustment Fund (EGF). In this blog, the authors assess the performance of the Fund and make three recommendations to improve its effectiveness. To be more successful, the Fund should improve its monitoring and widen the scope of its usage.

By: Grégory Claeys and André Sapir Topic: European Macroeconomics & Governance Date: April 11, 2018
Read article More on this topic

Blog Post

Do wide-reaching reform programmes foster growth?

With growth gathering momentum in the eurozone, some have claimed this is the proof that structural reforms implemented during the crisis are working, re-opening the long-standing debate on the extent to which reforms contribute to fostering long-term growth. This column employs a novel empirical approach – a modified version of the Synthetic Control Method – to estimate the impact of large reform waves implemented in the past 40 years worldwide.

By: Alessio Terzi and Pasquale Marco Marrazzo Topic: European Macroeconomics & Governance Date: March 28, 2018
Read article More on this topic

External Publication

Europe in a new world order

The EU is a relatively open economy and has benefited from the multilateral system. We argue that the EU should defend its strategic interests. The Singapore ruling has offered a useful clarification on trade policy. Addressing internal imbalances would also increase external credibility. Finally, strengthening Europe's social model would provide a counter-model to protectionist temptations.

By: Maria Demertzis, Guntram B. Wolff and André Sapir Topic: European Macroeconomics & Governance Date: March 26, 2018
Read article More on this topic More by this author

Opinion

Greece must capitalise on its growth momentum

Better-than-expected growth performance reflects the underlying positive changes in the Greek economy – but net investment is in fact negative, while Greece has various institutional weaknesses. Further improvements must be made regarding Greece’s attractiveness to foreign direct investment. A new (at least precautionary) financial assistance programme would improve trust in continued reforms and also address eventual public debt financing difficulties.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 26, 2018
Read article Download PDF More on this topic

Policy Contribution

The European Globalisation Adjustment Fund: Easing the pain from trade?

With the European Globalisation Adjustment Fund (EGF), the EU now has an instrument to help workers negatively affected by trade find new jobs. However, only a small proportion of EU workers affected by globalisation receive EGF financing. How to improve the EGF? Revising the eligibility criteria to qualify for EGF assistance, enlarging the scope of the programme beyond globalisation and collecting more and better data to enable a proper evaluation of the programme.

By: Grégory Claeys and André Sapir Topic: European Macroeconomics & Governance Date: March 22, 2018
Read about event More on this topic

Past Event

Past Event

Bank assets and business models: addressing complexity

At this event, we discussed the lack of transparency and problems in valuing correctly significant parts bank assets in the euro area based on an extensive study by the Bank of Italy.

Speakers: Simon Ainsworth, Paolo Angelini, Josina Kamerling, Martin Merlin, Alexander Lehmann and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 21, 2018
Read article More on this topic More by this author

External Publication

Why is it so hard to reach the EU’s poverty target?

Why is it so hard to reach the Europe 2020 ‘poverty’ target? What does the poverty indicator actually measure? Why was the Lisbon strategy goal of tackling poverty a failure? Zsolt Darvas analyse the data to show how the Europe 2020 strategy’s poverty indicator essentially measures income inequality, not poverty.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 12, 2018
Read article More on this topic More by this author

Blog Post

Are we steel friends?

The U.S. administration is considering to impose tariffs on steel (25%) and aluminium (10%), based on a national security argument. We review economists’ views about this major shift in U.S.’ trade policy.

By: Silvia Merler Topic: Global Economics & Governance Date: March 12, 2018
Read article More by this author

Podcast

Podcast

A conversation about U.S. steel and aluminium tariffs

In this podcast our senior fellow, André Sapir discusses with Uri Dadush, non-resident scholar here at Bruegel about President Trump's announcement to apply a 25% tariff on all steel and a 10% tariff on all aluminium imports into the United States.

By: The Sound of Economics Topic: Global Economics & Governance Date: March 9, 2018
Load more posts