The previous recession was a worldwide phenomenon. It originated with a financial crisis in the United States that resonated in other countries, in particular Europe. The graph above shows the unemployment rate for the U.S. and a few European countries. It is taken from the OECD’s Main Economic Indicators, which goes through the trouble of trying to harmonize the definitions across countries, thus making them comparable. What is striking is how varied the experience has been. The gray area represents the period of the U.S. recession. It is remarkable that Germany’s unemployment rate actually was going down through much of this period. In contrast, unemployment shot up in Spain and, to a lesser degree, in Italy. And the U.K., arguably with the strongest financial ties to the U.S., experienced a relatively minor increase in unemployment. How can such varied experiences be explained? For one, the financial crisis was not the only economic event happening across those countries. Second, the labor market institutions and traditions differ a lot as well. Spain in particular is a poster child of rigid labor laws, and Germany was still in the transitional phase of labor market reforms.
How this graph was created: Search for “harmonized unemployment rate total,” then use the tags in the side bar to limit choices to frequency “monthly” and “seasonally adjusted.” Check the countries you want to display and click on “Add to Graph.” Finally, let the sample period start in 2002.
Suggested by Christian Zimmermann.