An international comparison of unemployment rates
The Great Recession (December 2007—June 2009 in the U.S.) impacted unemployment rates very differently across countries. The graph above shows four different countries with noticeable patterns. In each country, unemployment increased during the course of the recession, with the U.S. recession marked by a gray bar. In the U.S. and Japan, the increase was from a relatively low level (below 5%); in France and Germany, however, the unemployment rate at the start of the recession was higher (above 7.5%).
In the U.S., the unemployment rate more than doubled, while in Japan the increase was relatively moderate. In the aftermath of the recession, both these countries experienced long transitions back to their pre-recession level of unemployment: Japan waited until 2013 and the U.S. until 2015. In France, the unemployment rate behaved very differently: It increased by more than 2 percentage points during the recession, but has not exhibited any sign of convergence back to its pre-recession level since then. In fact, it increased even more in 2012 and 2013. Germany presents yet another pattern: After increasing slightly during the recession, the unemployment rate continued on a downward trend that had started back in 2005. The German unemployment rate has now reached a level that’s well below its pre-recession level and is comparable to that of Japan and the U.S.
How this graph was created: In FRED, search for and select “Harmonized Unemployment Rate: Total: All Persons for United States.” From the “Edit Graph” section, select the “Add Line” tab, add “Harmonized Unemployment Rate: Total: All Persons for Japan.” Repeat for “Harmonized Unemployment Rate: Total: All Persons for France” and “Harmonized Unemployment Rate: Total: All Persons for Germany.”
Suggested by Guillaume Vandenbroucke and Heting Zhu.
Differences in European unemployment rates
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.
Many economists argue that German labor market reforms implemented in the 2000s clearly paid off during the global recession, particularly the combination of less-generous unemployment benefits, wage moderation, and incentives to hoard labor. A long-established work program called Kurzarbeit (literally “short work”) is credited with helping to smooth Germany’s labor market adjustment much better than in previous recessions by allowing firms to reduce employee hours.
The graphs provide some evidence of the effect of this program at the aggregate level. Average annual hours per worker between 2008 and 2009 dropped by 1.87 percent in the United States, but fell more markedly—by 2.74 percent—in Germany. Massive layoffs occurred in the United States, but employment losses were barely noticeable in Germany. In addition, between the recession’s peak and trough, the U.S. employment-to-population ratio decreased by 2.6 percentage points (from 48.4 to 45.8 percent) while it increased by 0.6 percentage points in Germany (from 48.7 to 49.3 percent).
If this labor market feature works well in Germany, could it be adopted in other countries as well? One version of a short-time work program—called work sharing—already exists in the United States, with the goal of limiting job losses during difficult economic times. At the start of this year, twenty-six states and the District of Columbia were able to offer the program (now under the umbrella of the Layoff Prevention Act of 2011), though the levels of implementation vary.
How this graph was created: The graph of unemployment rates is a simple plot of the unemployment rates for the two countries since 2008. The graph of hours worked is plotted using the option “Index (scale value to 100 for the chosen period).” The data samples were shortened to highlight the previous recession cycle.
Suggested by Silvio Contessi and Li Li.
View on FRED, series used in this post: