In his front page New York Times story, Peter Goodman announces that the size of the economic pie of the EU and the Eurozone has finally become larger since the onset of the Eurozone Crisis in 2008 and 2009. Goodman, like Paul Krugman writing a few days later, contextualize Europe’s slow-coming growth by comparing it to the United States. Both writers remark that Europe saw a slightly higher overall growth rate than the United States for the first quarter of this year – something that has not occurred in over a decade.
Despite this recent fortuitous news, both authors stress that European unemployment has only come down three percentage points from its 2013 high of 13 percent. This minor drop is relative to the near halving of the US unemployment rate from its October 2009 high of 10 percent to 5.5 percent in May of 2015. Both authors see this as characteristics of the enormous success and strength of the US economy relative to its counterparts in the Old World. Unfortunately for the readers of the newspaper of record, this front-page story and the remarks of the New York Times’ chief economic columnist are off the mark. These authors have misunderstood the European labor market experience as well as America’s. They seem to miss that the unemployment rates tell us very little in a time when the long-term unemployed and the chronically unemployed move onto disability insurance, early retirement, or outlets that remove them from the unemployment figure.
By looking at the employment-to-population ratio for those of working age (15 to 64 years old), we see a far more meaningful picture and we can tell a more accurate story. The US has seen a dramatic drop in employment, while the Eurozone has seen a lower employment rate independent of the recession. Even before the onset of the Great Recession, Europe’s employment rate was markedly lower than the US’s for two main reason: 1) A smaller share of women are in the workforce in Southern Europe and 2) The fixtures of Eurosclerosis - stricter rules on firing employees have made employers cautious of hiring and high transfer benefits have allowed folks to stay out of the labor market.
Unlike the New York Times’ argument that Europe has seen a secular decline in employment, Europe has primarily seen a shift in the distribution of employment. Looking at the employment rates for Eurozone countries after the introduction of the common currency, one sees employment rising amongst the chief beneficiary of the Euro - Germany - and dramatically falling for the chief victim of the Euro - Greece. From 2002 to 2015 Germany has seen an 8.5 percentage point increase in employment relative to the working age population, while Greece has seen an 8 percentage point decline in employment. This distribution is indicative of the split between Northern and Southern Eurozon countries generally.
In contrast to the New York Times assessment, the US has not fared better than Europe in reducing the lack of employment. While the EU has seen a redistribution of employment, in the United States, employment has seen the most dramatic, secular decline since the Great Depression. Between 2002 and 2015 employment has risen by 2.5 and 1.5 percentage points for the EU and the Eurozone, respectively. While contemporaneously, the US has seen a near 4 percentage point decline in employment.