The lingering transatlantic jobs crisis
Five years after the global financial crisis, the transatlantic jobs crisis lingers. While the official unemployment rate in the US continues to fall and appears close to dipping below the 7% mark for the first time since November 2008, progress has been unnervingly slow. In Europe the average unemployment rate for all member states remains high and shows little sign of improvement. While the initial shock to employment was a direct result of the crisis, the unusually slow jobs recovery poses serious questions about its lasting impact on long-term economic prospects of transatlantic societies.
In the United States, the overall employment picture is slowly starting to improve. Over the last year, job growth averaged around 200,000 per month. This is enough to gradually drive down the unemployment rate, but not sufficient to speak of a full recovery. Moreover, the top-line unemployment rate only tells half the story. A closer look at the data reveals worrying facets of the American jobs situation. For one, the employment-to-population ratio – a measure of how many working-age Americans are employed, independent of whether or not they are actively seeking work - plummeted as a result of the recession and continues to be stuck at levels last seen in the 1980s. Over the past four years, the ratio has remained virtually unchanged at roughly 58.6%, down from about 63% before the crisis. Increasingly, it seems that many of the jobless may have been driven out of the labor market altogether and have for the time being given up their job search. This can be seen as a first indication that the jobs crisis triggered by the Great Recession could permanently alter the employment structure in the United States, with potentially negative consequences for the broader economy.
Another disquieting feature of the current situation is the high and persistent number of long-term unemployed. Around 4.1 million Americans have been without work for 27 weeks or more, a number representing about 2.6% of the entire US labor force. The figure has dropped by more than 700,000 over the last year, but still makes up more than 37% of the unemployed. This is unprecedented for the United States, where previous recoveries saw the long-term unemployment rate drop much faster. Such a development is troubling on a number of levels.
Persistent long-term unemployment can eventually turn cyclical problems generated by the Great Recession into structural ones, as the skills of the unemployed erode and it becomes increasingly difficult for these workers to re-enter the job market. Initial signs of such a shift can already be found. The non-partisan Congressional Budget Office estimates that the natural unemployment rate of the United States increased from 5% percent before the crisis to 6% percent in 2013. This means that even with an economy running at or near full capacity, unemployment would now be higher than before the crisis. These effects are only expected to diminish gradually over the next ten years.
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Peter Sparding is a Transatlantic Fellow in GMF’s Economic Policy Program in Washington, DC, where he works on issues related to the transatlantic and global economy.