How does the U.S. labor market compare now?

In a new CEPR report, John Schmitt, Hye Jin Rho, and Shawn Fremstad note that while the U.S. unemployment rate had been lower than those of many rich European countries in the 1980s and 1990s, it now has caught up to and surpassed most of them. In March of this year our unemployment rate was tied for fourth-highest among the major OECD nations. This, they say, “has turned the case for the U.S. model almost entirely on its head.” (Floyd Norris in the New York Times and John Quiggin at Crooked Timber have also picked up this story.)

I’m sympathetic to the conclusion, but I’d prefer it to be based on a different measure of labor market performance.

The unemployment rate is calculated as the number of people looking for work but without a job (unemployed) divided by the number of people either employed or unemployed. Its weakness is that it takes no account of people who aren’t seeking work because they doubt they could find a satisfactory job or have given up trying. The U.S. Bureau of Labor Statistics has broader unemployment measures that try to incorporate this, but there aren’t cross-nationally comparable data for those measures.

If our interest is in an economy’s success in creating jobs, a better indicator for cross-country comparison is the employment rate: the share of working-age people (age 15 to 64 is the standard) that are employed. The following chart shows employment rates for the two most recent business-cycle peak years: 2000 and 2007. The U.S. is one of just a few nations in which the employment rate declined during this period, though it’s in the middle of the pack rather than at the bottom.

What’s happened since then? Employment rates aren’t updated as regularly as unemployment rates, so recent trends are more difficult to judge. The data below are the best I can do at the moment. They show percentage change in the number (not share) of people employed from the fourth quarter of 2007 to the fourth quarter of 2008, and for a few countries to the first quarter of 2009. Our economy has lost more jobs — 4.5%, or about 6.5 million jobs — than most others.

The American labor market hasn’t been the worst at creating and maintaining jobs in the 2000s (though bear in mind that we’re talking here solely about the number of jobs, not their quality). Yet as Schmitt, Rho, and Fremstad rightly suggest, things have changed sharply relative to the 1980s and 1990s when our performance was near the top of the comparative heap.

11 thoughts on “How does the U.S. labor market compare now?

  1. The second plot is a little hard to read, I think; instead of a percentage I’d use an index (say, 2007Q4 = 100).

    As it is, a 3% drop followed by a 2% drop would look the same as a 2% drop followed by a 3% drop, even though the cumulative fall would be different. Unless you used the same denominator for both percentages? Using an index would clarify the denominator question, by implying that the same denominator was used for both time periods.

  2. Very intriguing post.

    However, the second plot contains only 19 countries, while the first one contains 20 countries. Why is France missing in the second one? Data availability problem?

    Mitch:I think common denominator is used in the second plot. Both circle and diamond plots are changes from 2007Q4.

  3. Some data from OECD 2007:

    * men aged 25-54

    employment divided by population
    France: 88.3% (hence 11.7% jobless)
    USA: 87.5% (hence 12.5% jobless)

    normalized unemployment rate
    France: 6.3%
    USA: 3.7%

    So with a slightly higher relative working population in this age/sex group France has … a 70% higher unemployment rate than the USA.

    * women aged 25-54

    E/P
    FR 76.1
    USA 72.5

    unemployment
    FR 7.7
    USA 3.8

    So here we have clearly more women working in France (3.6 percentage point) relative to their population but unemployment is 102% higher in France!

    * conclusion

    The bet is about the ability or inability of EU15 gov to manipulate unemployment numbers as USA gov does :).

    Employment/population is an objective measure. Unemployment is an extremely subjective measure and so it’s easy to get very wide discrepancies.

    * question

    Any paper studying this discrepancy in OECD normaized numbers? For male 25-54 there’s no real reason not to work, so what are all those USA men doing?

  4. I obviously agree with your analysis of the wekaness of the “unemployment” definition (see data above).

    However switching to broad employment/population is not exempt from issue (other than quality of jobs):

    Having 100% employment rate for 15 to 24 year old means that …. no one is in school. Is that an economics optimum?

    If no, why agregating 15 to 24 year old employment rate, a category where the optimum employment rate is unlikely to be 100%, together with say 25 to 54 year old where the optimum employment rate is likely to be 100% and then proclaiming the resulting number the highest the better make any sense ?

    My answer is that looking at comparing E/P for work market status you should look at men 25-54 and women 25-54.

  5. I agree with the concersn raised by Laurent Guerby. What is really needed is a measure of “economic activity”, including study and childraising as well as employment. I had a go at this with Australian data a while back, but never got it published.

  6. Laurent:

    In the OECD’s annual publication Education at a Glance there usually is an appendix table titled “Percentage of the youth population in education and not in education.” It has the data you’re looking for.

    In my Jobs with Equality book, I have a figure (10.15) that shows how this breaks down for women age 15-19 and 20-24 in various countries. France is particularly low on the share that are both in school and employed.

  7. Our leaders in Washington must seriously consider new and innovative policies that promote a better, more confident, prosperous, and secure America in the 21st century. One of the things I think we can do to help make that happen is support American businesses and the U.S. Chamber of Commerce (http://bit.ly/oanAT). They’re doing things to reach out and show people that they can get involved, too.

  8. Goodwill programs are wonderful for persons without skills. But unemployment is also occurring among workers with excellent education and skills. For example, women with advanced degrees in science are often excluded from participating in the areas of their education. There needs to be a way that anyone who wants to work can sign up and obtain work, and not just menial, entry level labor.

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