Monday, July 25, 2011

Jobs Woes Make U.S. Labor Market Look More European

 
 

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via Real Time Economics by Michael S. Derby on 7/25/11

The financial crisis has helped to wash away a defining difference between U.S. and European labor markets, economists at the Federal Reserve Bank of New York said Monday.

In a posting on the bank's website, the analysts note that over the last decade, the percentage of workers relative to overall population has moved closely together in the two economic blocs, largely because of lost ground in America. The convergence has several drivers.

"The narrowing employment gap is due to three factors: declining U.S. employment rates across almost all age-gender groups; more women working in Europe, particularly prime-age and older workers; and rising employment for older European men," wrote Christian Grisse, Thomas Klitgaard and Aysegul Sahin, for the New York Fed's Liberty Street Economics blog.

The researchers observed that a decade ago, the labor participation gap was 10.5%, with the U.S. putting the greater share of its population to work. This disparity was largely attributed to American firms' greater ease in hiring and firing staffers. Meanwhile, the argument has gone that Europe's more generous social safety net and labor protection laws have made it easier not to work, and complicated firms ability to hire in the face of always uncertain business conditions.

As of 2009, the researchers said the gap between labor participation rates in the U.S. and Europe has moved to a relatively modest 1.7%. The difference had already fallen to just under 5% on the eve of the financial crisis.

The New York Fed report arrives at a time when U.S. labor conditions remain under considerable pressure. Even with a recovering economy, the nation seems unable to add jobs in a significant fashion, and while it's off its peak, the unemployment rate stood at 9.2% last month. In years past that sort of unemployment level was not unfamiliar in Europe even during times of economic health, and it is shocking to most observers to see it now in the U.S. economy. What's more, most forecasters agree it will be a long time before U.S. unemployment falls back toward its historical norm, so the difficulty of finding jobs may keep the labor participation rate depressed as well.

Relatively speaking, European labor markets lost less ground during the financial crisis. The report says some of that success comes from European attempts to make their labor markets more flexible.

The economists see some ground for U.S. labor participation rates to rise above Europe's again, but they reckon what was seen in the past is unlikely to be repeated.

"The increase in Europe's employment rate, particularly for women and older workers, represents a steady change over the past decade as the rate neared the U.S. rate," the economists wrote, adding, "the influence of this development on the narrowing of the employment gap is unlikely to be substantially reversed."


 
 

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