New Release: U.S. Unemployment Now As High as Europe

From
the early 1990s through the peak of the last business cycle, relatively
low U.S. unemployment rates seemed to make the United States a model
for the rest of the world's economies. The Organization for Economic
Cooperation and Development (OECD), the International Monetary Fund
(IMF), and other international organizations all praised the U.S.
unemployment performance and urged the rest of the world's rich
countries to emulate the "flexibility" of the U.S. model.¹

The case for the superiority of the U.S. model was always exaggerated.²
For one thing, it tended to ignore the relatively lower performance
of the U.S. on broader quality-of-life measures like the Human
Development Index.³
But even when limited to differences in unemployment, the case for
the U.S. model was overstated. From the 1990s on, the United States did
have lower unemployment rates than several large European economies,
such as France, Germany, Italy, and Spain,⁴
but many smaller European economies with large welfare states and high
levels of labor-market regulation regularly did as well or better on
unemployment than the United States. In 2000, for example, at the peak
of the late 1990s economic boom, when the U.S. unemployment rate stood
at 4.0 percent, Austria (3.7 percent), the Netherlands (2.8 percent),
Norway (3.4 percent), and Switzerland (2.6 percent) all had lower
unemployment rates than the United States; and rates in Denmark (4.3
percent) and Ireland (4.2 percent) were not far behind.⁵

The current economic crisis, however, has turned the case for the U.S. model almost entirely on its head. As Figure 1
illustrates, according to the most recent internationally standardized
data from the OECD, the United States is now tied for the fourth
highest unemployment rate among the major OECD countries. In March
2009, the U.S. unemployment rate was 8.5 percent,⁶
only lower than Spain (17.4 percent), Ireland (10.6 percent), and
France (8.8 percent), and level with Portugal. Sixteen other major OECD
economies had a lower unemployment rate, including Denmark (5.7
percent), Germany (7.6 percent), Italy (6.9 percent), the Netherlands
(2.8 percent), and Sweden (8.0 percent).

The United States is also one of the countries where the unemployment
rate has increased most since 2007. Between 2007 and March 2009, the
U.S. unemployment rate rose 3.9 percentage points. Only Spain (up 9.1
percentage points) and Ireland (up 6.0 percentage points) saw bigger
increases over the same period. In France, the increase in the
unemployment rate was only 0.5 percentage points. In four countries,
the most recent unemployment rate is actually lower than it was in
2007: Belgium (down 0.2 percentage points), Germany (down 0.8
percentage points), Greece (down 0.5 percentage points), and the
Netherlands (down 0.4 percentage points).

FIGURE 1
OECD Harmonized Unemployment Rate in 21 Countries

Source: OECD (2009). Data refer to
March 2009, except Norway (February 2009), United Kingdom (January
2009), Italy and Greece (December 2008), and Switzerland and New
Zealand (Fourth Quarter, 2008).

As Figure 2 demonstrates, in March 2009 - for the first time
in the period covered by published data from the European Union's
statistical agency, Eurostat - the unemployment rate in the United
States was equal to the unemployment rate in the first fifteen member
countries of the European Union (EU-15).⁷
The sharp rise in unemployment since December 2007 has driven the
unemployment rate in the United States to a point where it is now
identical to that of Europe. If recent trends continue, the United
States will surpass Europe's unemployment rate as soon as
internationally comparable data for April are available.⁸

FIGURE 2
Unemployment Rate in the United States and EU-15, 1993-2009

Source: Eurostat (2009).

References

Brooks, David. 2005. "Fear and Rejection," New York Times, (June 2).

Bureau of Labor Statistics. 2008. "International Comparisons of Annual
Labor Force Statistics, 10 Countries, 1960-2007," Washington, DC:
Bureau of Labor Statistics.

Eurostat. 2009. "Harmonized unemployment rate by gender," Luxembourg: European Commission. Accessed, May 14, 2009.

Goolsbee, Austan. 2007. "Economic Scene: How the U.S. Has Kept the
Productivity Playing Field Tilted to Its Advantage," New York Times,
(June 21).

Howell, David. 2005. Fighting Unemployment: The Limits of Free Market Orthodoxy, Oxford: Oxford University Press.

International Monetary Fund. 2003. "Unemployment and Labor Market
Rigidities: Europe versus North America," World Economic Outlook (May),
Washington, DC: IMF.

Organization for Economic Cooperation and Development. 1994. OECD Jobs
Study, Evidence and Explanations, Part I: Labor Market Trends and
Underlying Forces of Change, Paris: OECD.

Organization for Economic Cooperation and Development. 2009. "OECD Harmonised Unemployment Rates," (May 11) Paris: OECD.

Schmitt, John and Dean Baker. 2006a. "Missing Inaction: Evidence of Undercounting of Non-Workers in the Current Population Survey," Center for Economic and Policy Research Briefing Paper.

Schmitt, John and Dean Baker. 2006b. "The Impact of Undercounting in the Current Population Survey," Center for Economic and Policy Research Briefing Paper.