Economix: On Jobs, the U.S. Is Turning Into Europe

Hide your kids, and hide your wives. Economists’ worse fears have come true: The United States has been slowly turning into Europe.

CATHERINE RAMPELL

Dollars to doughnuts.

One of many reasons blamed for (Western) Europe’s stagnant growth in recent decades has been that so many European adults are not working, and are effectively not employable because they have been out of jobs for so long. The United States, on the other hand, has had a much higher share of its population in gainful employment. In fact, between 1980 and 2000, the percent of adults working was on average about 10 percentage points higher in the United States than in Europe.

But that gap is closing, according to a new paper from the Federal Reserve Bank of New York. A chart is worth a thousand words:

Federal Reserve Bank of New York

The gap had been narrowing even before the Great Recession, largely as a result of social and economic policy changes in Western Europe. For example, the authors note, in the mid-2000s Germany and Italy deregulated markets for temporary hiring, which enabled more people to find jobs. Reductions to Europe’s traditionally generous pensions have also encouraged workers to work later in life.

Meanwhile, in the decade before the financial crisis, employment growth in the United States was relatively weak. In particular, while more women were joining labor markets in Europe — perhaps partly because of policy incentives, and partly because of changing cultural norms — more women were dropping out of the labor market in the United States. Here are the employment-to-population ratios for women that resulted:

Federal Reserve Bank of New York Source: Organization for Economic Cooperation and Development. Note: Europe is defined as the 15 countries in the European Union before the 2004 expansion into Eastern Europe.

The trends were slightly different for male workers. In both the United States and Europe, the share of men working generally dropped over the last decade. But the decline was bigger in the United States.

Finally, the recession nearly closed the gap between employment-rates in Europe in the United States.

But while an extraordinarily generous safety net may have held back growth in Europe in the decades before the recession, the authors suggest that it paradoxically helped protect Europe from the huge job losses that the United States experienced during the Great Recession. They write:

The employment rate fell by only 1 percentage point in Europe, despite an output decline of almost 4 percent. In contrast, output decreased less dramatically in the United States (by 2.5 percent), but the country lost many more jobs — the employment rate declined 4.0 percentage points. This difference is likely due in part to European restrictions on firing workers and programs that encourage work sharing, most notably in Germany (see, for example, a recent analysis by the Federal Reserve Bank of Cleveland).

It’s not clear whether the gap between employment-population ratios in the United States and Europe will continue to shrink. Certainly it does not help that the United States has been accumulating a huge underclass of long-term unemployed workers. As we’ve noted before, the longer people are out of work, the harder it is to find them a new job.

Which is exactly the experience Europe had seen, and that the United States hadn’t learned from, in decades past.

Article source: http://feeds.nytimes.com/click.phdo?i=9e13200ba2b76afa2dc2124971bd057b