US jobless rate soars. Is it the new France?
For the past 20 years or so, no matter how badly the economy slumped, Americans could always console themselves: "At least, we're not France."
Now, in terms of joblessness, the US is France.
And with Thursday's release of US unemployment figures, the odds are rising that it's going to be worse off than France.
Mon Dieu! The mighty unfettered Yankee jobs machine outdone by those central-planning, inflexible dirigistes? Say it ain't so, Jacques!
Or at least tell us what we need to learn.
Parity in April
First the numbers. In April, US and French unemployment reached parity: 8.9 percent. On Thursday, the US Labor Department reported that contained some good news but also showed that the US rate jumped to 9.4 percent in May. The comparable French number won't be out for another few weeks.
What that means is that the central assumption about unemployment that has reigned for the past two decades on both sides of the Atlantic is now being called into question, says John Schmitt, senior economist at the Center for Economic and Policy Research in Washington, D.C., in a telephone interview. "This isn't supposed to be happening, according to the standard view."
Since the mid-1980s, the US has had lower unemployment than France – and, with a few exceptions, western Europe as a whole. The theory was that US labor markets are more flexible and thus can adjust to shocks better than Europe's highly unionized system where it's harder to fire people and unemployment benefits are more generous.
This time, however, that flexibility isn't working – or at least not working well enough to keep the unemployment rate from hitting its highest level in 26 years. So is America's vaunted labor flexibility not the key to low unemployment that we thought it was?
Sea change or a lag?
To be fair, it's too early to judge long-term US and European labor performance. It's only one month's data point. There may be a lag effect at work, since the recession seems to be easing on this side of the Atlantic while it appears to be picking up speed on the Continent.
But consider this: For all of the 1960s and much of the '70s, Europe had less unemployment than the US (even after accounting for the differences before the methods of unemployment reporting were harmonized), says Mr. Schmitt. (See his recent paper here.) And today, Europe itself is highly diverse with low jobless-benefits Spain struggling with 18.1 percent unemployment while highly unionized, generous-benefits Denmark sits at 5.5.
So if it's not flexibility, why has America's unemployment picture been so much better than Europe's for the past 20-plus years?
There are many potential answers. Schmitt points to Europe's macroeconomic policies that have left interest rates too high and provided too little stimulus when times got tough.
This time, again, Americans have proven far more bold (or reckless) than the Europeans in cutting rates and busting government budgets to get the economy moving. The next several months will tell whether that experiment has worked – and if we have something to learn from the Europeans or if, indeed, they still have something to learn from us.
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