Growing similarity between U.S and European labor markets
Western Europe’s stagnant growth in recent decades has often been attributable to the many adults who are not working, and are effectively unemployable because they have been out of work so long. Historically, the United States has had a much higher percentage of its population in gainful employment.
Between 1980 and 2000, the percent of working adults in the U.S. was 10 percentage points higher than in Europe; but that gap is closing, according to “The Vanishing U.S-E.U. Employment Gap,” a new paper recently published by the Federal Reserve of New York.
The paper cites several reasons for the growing employment parity between the United States and Europe.
In the middle of the last decade, both Germany and Italy deregulated their employment markets to accommodate temporary hiring, enabling more of their citizens to find employment. Pension reductions in Europe also motivated more people to work beyond middle age.
Other contributing factors to this trend include:
- Employment growth in the U.S. before the financial crises of 2008 was relatively weak
- During the past decade, more women were joining labor markets in Europe while more women in the U.S. were dropping out of the labor market
- Men dropped out of the workforce in both the U.S. and Europe, but at a faster rate in the U.S.
“The employment rate fell by only 1 percentage point in Europe (during the recession), despite an output decline of almost 4%. In contrast, output decreased less dramatically in the United States (by 2.5 %), but the country lost many more jobs—the employment rate declined 4.0 percentage points,” according to the report. “This difference is likely due in part to European restrictions on firing workers and programs that encourage work sharing, most notably in Germany.”
From 2000 to 2009, employment rates for European prime-age workers remained relatively stable, while the U.S. saw a declining employment rate for prime-age workers.
It is unclear whether the employment-population ratio gap in the U.S. and Europe will continue to narrow, the report said.
On jobs, the U.S. is turning into Europe (http://economix.blogs.nytimes.com/2011/07/25/on-jobs-the-u-s-is-turning-into-europe/?smid=tw-nytimesbusiness&seid=auto). New York Times, July 25, 2011
The vanishing U.S-E.U. employment gap (http://libertystreeteconomics.newyorkfed.org/2011/07/the-vanishing-us-eu-employment-gap.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+LibertyStreetEconomics+(Liberty+Street+Economics)). Liberty Street Economics, July 25, 2011