Economics, U.S. Economy

Makers vs. Takers: Stunning chart shows how U.S. labor market becoming like Europe’s

Economist Antonio Fatas:

Out of the many signs that the US economic recovery is not as strong as previous ones, the variable that possibly best demonstrates the weakness of the recovery is the stagnant employment to population ratio. This ratio summarizes two labor market variables: the unemployment rate and the participation rate. A declining ratio indicates that out of the available population, we are using fewer resources either because workers cannot find jobs (high unemployment rate) or because they are giving up and leaving the labor force (low participation rate). The current level of the employment to population ratio in the US remains at a very low level (by recent historical standards) and has not increased since the recovery started. This behavior is very different from what we have witnessed in previous recoveries. …

Overall, the US-EU comparisons of labor markets reveals that Europe has caught up with the US when it comes to employment rates, something that was not expected in the 90s where the US labor market was seen as an example of a dynamic market and the distance between the two kept growing. For some age groups (between 35-44) not only there is convergence but the EU rates are now clearly above those in the US. However, the US maintains the lead in workers close or “over” retirement age, with a gap that has increased over time.

And it’s not just a cyclical thing. There are certainly long-term demographic trends at play here. You also have the phenomenon of a historically high share of lower-class men not working. I would also say that there is a skills gap where workers don’t have the skills for ever-more sophisticated jobs. And as economic analyst Ed Yardeni noted earlier this week:

The number of people claiming disability has soared. It rose to a record 8.7 million during March, doubling since February 1997. Over this period, their numbers have increased by 4.3 million. This helps to explain some of the drop in the labor force participation rate, which fell from 66.9% to 63.8% over this period.

We want more people working. As the McKinsey Global Institute points out, the U.S. may face a shortfall of almost two million technical and analytical workers and a shortage of several hundred thousand nurses and as many as 100,000 physicians over the next ten years. In aerospace, 60% of the workforce is aged over 45 years old compared with 40% in the overall economy. The United States should remove barriers to older workers staying in the workforce longer, improve incentives to technical and analytical training (for example through innovative funding mechanisms and direct links between jobs and educational institutions), and reduce barriers to the immigration of skilled workers.

One thought on “Makers vs. Takers: Stunning chart shows how U.S. labor market becoming like Europe’s

  1. The United States should …. improve incentives to technical and analytical training….

    This tired tripe has been around since the beginning of time. “OhmyGOD we have to do SOMEthing about getting more people into science, engineering, and technology!”

    Too bad it’s been wrong for just as long, as those of us who work in the technology fields know. If you’ve been listening to corporate CEOs gripe that they can’t find enough engineers, don’t believe it. The problem is that they want so many engineers on the street that they can pay the a little over minimum wage. There won’t be “enough” engineers for them until that happens. And the bureaucrats in the educational system always-always want more money flowing through their pipe lines, whether there’s any market need or not.

    Barring a few flavor-of-the-week specialties that change rapidly over time, engineers and technology people have never exactly had employers knocking their doors down to hire them, even in good times. In recent times, engineers are graduating and not finding jobs… what exactly do you presume you’ll do with all these people, once they’ve been “incentivized” to study technical majors in college?

    ….for example through innovative funding mechanisms and direct links between jobs and educational institutions)….

    This sounds eerily western European. How long before it’s “we have to guarantee jobs for these people”?

    And to think it used to be that liberals and socialists were the ones who wanted to mess with and “plan” the free market. Now the Right is firmly in the same trench.

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