Tuesday, March 16, 2010

It Was Unacceptable in the 80's...

...and it also is now. The U.S. unemployment rate that is. The graph below shows that the current unemployment rate in the U.S. (9.7%) has not yet reached the same level that it was at in the U.S. recession of the early 1980's. Of course, one should be careful with language: the U.S. unemployment rate may not return to the same level as the early 1980's. Indeed, the graph indicates that a corner may have been turned; and there was good news last week about a decline in U.S. jobless claims. However, caution is still required; U.S. Treasury Secretary Timothy Geithner today warned jobless Americans that they face a torrid year ahead, predicting continued high unemployment levels despite advances 'sometime this spring'.

Note: The graph below is taken from the visualisation service provided by the St. Louis Federal Reserve Economic Database (FRED®): a database of 20,478 U.S. economic time series. With FRED® one can download data in Microsoft Excel and text formats; and view charts of data series.


What about the unemployment situation in Europe? The graph below (generated using Google Public Data) shows seasonally adjusted unemployment rates for a random selection of countries in Europe. The unemployment rate represents unemployed persons as a percentage of the labour force. The labour force is the total number of people employed and unemployed. More details about calculation are available here from Eurostat.



We can see that the European Union unemployment rate (9.5%) is very similar to that of the United States. The Spanish unemployment rate (18.8%) is roughly six times as large as the Norwegian unemployment rate (3.2%). Denmark, which was in a very similar employment scenario to Norway at the start of 2006, has fared worse during the recession: it now has an unemployment rate of 7.3%. How did Norway avoid the labour market deterioration that happened in Denmark? Also, the drop in the Polish unemployment rate (from 20.3% in 2002) is quite startling; even now, the Polish unemployment rate is only 8.9%.

Ireland, with an unemployment rate of 13.4%, is faring almost 4 percentage points (in some cases much more) worse than Portugal, France, Greece, Germany, Finland, Poland, Italy, Bulgaria, the Czech Republic, the United Kingdom, Denmark and Romania (some countries not shown on the graph for illustraive parsimony). Why is the unemployment rate in Ireland worse than in all of the European countries mentioned above?

Obviously, one is now wondering: I thought the unemployment rate in Ireland is 12.4%? As indicated by the latest monthly figure from the Live Register (which we know is not intended to measure unemployment). It seems that Eurostat are taking a measure of labour market distress for each country: a measure that I blogged about before: here. I noted that by taking account of individuals (in the QNHS - the official measure of unemployment) who are 'part-time under-employed', we get an overall measure of labour market distress. I will be investigating the Eurostat calculations further; but prima facie, it seems that they are calculating a measure of labour market distress. It is also possible to account for individuals who are 'marginally attached to the labour force', which raises the rate of labour market distress further.

3 comments:

Martin Ryan said...

The main question I have is as follows:

Why is Ireland, with an unemployment rate of 13.4% (Eurostat measure), faring almost 4 percentage points (in some cases much more) worse than Portugal, France, Greece, Germany, Finland, Poland, Italy, Bulgaria, the Czech Republic, the United Kingdom, Denmark and Romania. Why is the unemployment rate in Ireland so bad, in comparison?

Have we relied more on the construction sector compared to the countries mentioned above?

Has our Government's fiscal policy been more pro-cyclical compared to the countries mentioned above?

In relation to the latter, some commentators mention that our National Debt was substantially reduced over the last decade.

Was there too much debt-service (at the expense of anti-cyclical fiscal policy i.e. a "rainy day" fund) or are we now reaping the benefits of a lower National Debt when we issue Govt. bonds to nervous debt markets?

Kevin Denny said...

I would have thought that the collapse of construction was a big part of it. Its the obvious difference between us & "them". The pro-cyclicality doesn't help though.

Martin Ryan said...

There was also, of course, a lot of activity in property-related services aligned to the reliance on the construction sector. This will obviously not return to the same extent. Furthermore, Ronan Lyons has a thought-provoking post that challenges the future of 'investing in home-purchase'.

http://bit.ly/bvKwrN

Quote:

"How many people would be happier to pay €1,700 a month to live in a five-bedroom detached house in Blackrock, instead of €7,000 for the same privilege, and squirrel away the €5,000 savings a month – €60,000 over one year – into a fully diversified savings and investment portfolio?"