The U.S. Unemployment Rate: European Levels Without the European Safety Net
Jobs growth is a lagging indicator of economic activity, so the June report confirms that the US economy has been in a deep rut (Marshall Auerback calls it a ‘fully-fledged New York City style pot hole’). Yes, the US economy is growing; but sub-2% really ‘feels’ like stagnation, if not recession for many. As always, Spencer provides a fantastic summary of the employment report here on AB: ‘bad news’, he says.
I call it abysmal, both relative to history and on a cross section. The chart below illustrates the unemployment rates across the G7 spanning 1995 to 2011.
Across the G7 economies, the level of the US unemployment rate is second only to France. This is true on a harmonized basis as well.
The speed at which the US unemployment rate reached European levels was abrupt. Only the UK has seen such a swift deterioration in labor market conditions.
The chart above illustrates the same time series as in the first unemployment chart, but the rates are indexed to 2005 for comparability. France’s high level of unemployment is structural. In contrast, the US level of unemployment is NOT, not even close.
The chart above illustrates the components of the OECD’s indicators of employment protection. Also, see a short note by the Dallas Fed highlighting the differences between the French and US labor markets (and the 1994 OECD jobs study).
The French labor market is quite rigid, which leads to a structurally elevated unemployment rate and expansive unemployment compensation (see this follow up to the OECD 1994 jobs strategy report). The US Labor markets is much more fluid, which is why the unemployment rate has surged relative to comparable economies in Europe (see second chart).
European levels of unemployment without the European safety net.
The chart illustrates the maximum number of months that a worker can claim unemployment insurance for the year 2007. In normal times, French workers can collect benefits for up to 23 months by law, where the US worker collects for just 6 months. The tax and benefit policies data are updated infrequently, and listed on the OECD’s website (excel file link).
Seriously, shouldn’t Congress be focused on the depressed state of the US labor market, rather than a ‘scaled back’ version of deficit cutting? Addressing one will clearly impact the other – it goes both ways. Unfortunately, the government’s pushing in the wrong direction (cutting deficits brings further unemployment rather reducing unemployment drops the deficits).
This post originally appeared at Angry Bear and is reproduced here with permission.
One Response to “The U.S. Unemployment Rate: European Levels Without the European Safety Net”
As the tepid "recovery" fizzles to a stall, the U.S. economy seems to be working reasonably well for about 75 percent of the available workforce. The "other" 25 percent consists of the unemployed, the underemployed, the non-employed (those who have dropped out of the employment market and are no longer counted as unemployed), and the working poor (e.g., the vast underclass of all those people working full-time dead-end very low-paying jobs while trying to support families). For some of us, this 75 percent "success" rate is simply not good enough!
I've written a proposal that describes a mechanism through which we can fund a massive number of new business ventures by tapping the financial power of Wall Street to create jobs on Main Street. This approach ramps up employment quickly and puts money directly into the hands of the people who need it now: the consumers (whose spending represents 70 percent of GDP).
You can read the proposal and its companion piece ("The 75 Percent Solution?") here: http://jpbulko.newsvine.com/
Joseph Patrick Bulko, MBA