The lingering transatlantic jobs crisis

Five years after the global financial crisis, the transatlantic jobs crisis lingers. While the official unemployment rate in the US continues to fall and appears close to dipping below the 7% mark for the first time since November 2008, progress has been unnervingly slow. In Europe the average unemployment rate for all member states remains high and shows little sign of improvement. While the initial shock to employment was a direct result of the crisis, the unusually slow jobs recovery poses serious questions about its lasting impact on long-term economic prospects of transatlantic societies.

In the United States, the overall employment picture is slowly starting to improve. Over the last year, job growth averaged around 200,000 per month. This is enough to gradually drive down the unemployment rate, but not sufficient to speak of a full recovery. Moreover, the top-line unemployment rate only tells half the story. A closer look at the data reveals worrying facets of the American jobs situation. For one, the employment-to-population ratio – a measure of how many working-age Americans are employed, independent of whether or not they are actively seeking work – plummeted as a result of the recession and continues to be stuck at levels last seen in the 1980s. Over the past four years, the ratio has remained virtually unchanged at roughly 58.6%, down from about 63% before the crisis. Increasingly, it seems that many of the jobless may have been driven out of the labor market altogether and have for the time being given up their job search. This can be seen as a first indication that the jobs crisis triggered by the Great Recession could permanently alter the employment structure in the United States, with potentially negative consequences for the broader economy.

Another disquieting feature of the current situation is the high and persistent number of long-term unemployed. Around 4.1 million Americans have been without work for 27 weeks or more, a number representing about 2.6% of the entire US labor force. The figure has dropped by more than 700,000 over the last year, but still makes up more than 37% of the unemployed. This is unprecedented for the United States, where previous recoveries saw the long-term unemployment rate drop much faster. Such a development is troubling on a number of levels.

Persistent long-term unemployment can eventually turn cyclical problems generated by the Great Recession into structural ones, as the skills of the unemployed erode and it becomes increasingly difficult for these workers to re-enter the job market. Initial signs of such a shift can already be found. The non-partisan Congressional Budget Office estimates that the natural unemployment rate of the United States increased from 5% percent before the crisis to 6% percent in 2013. This means that even with an economy running at or near full capacity, unemployment would now be higher than before the crisis. These effects are only expected to diminish gradually over the next ten years.  

Long-term unemployment also has significantly negative effects beyond the economic impact. A recent report by the US Center for Disease Control and Prevention (CDC) described the strong link between unemployment and poor physical and mental health. Analyzing the unemployment situation in the United States between 2006 and 2010, the report found that jobless persons tend to have higher annual illness rates, lack health insurance and access to healthcare, and even have an increased risk for death.

In Europe the employment picture also remains mired by the grim economic situation in many parts of the continent. The uneven distribution of unemployment rates across European countries and the particularly difficult situation of young people are special causes for concern.

While Germany and Austria continue to report exceptionally low unemployment figures at around 5%, crisis countries like Spain and Greece are still showing numbers north of 26%. Over the long-term such divergences could lead to further problems, if not economically then politically, for the threat they pose to the overall social fabric of the European Union. Additionally, the dire situation of the younger generation in the peripheral countries could lead to disillusion not only with national governments, but with the European project as a whole.

In fact, although youth unemployment always tends to be above the overall average unemployment rate, some European countries are experiencing especially dramatic high levels. Before the crisis, youth unemployment in the European Union was roughly twice the number of the overall jobless rates. Today, although unemployment has risen as well, the number of young people who are out of a job is 2.6 times the total rate, according to numbers from the European Commission.

A vast array of research shows that long periods of high youth unemployment have severe consequences both for national economies and for the individual. By one estimate, the overall economic loss from unemployed youth in Europe reached $153 billion in 2011 alone. On the individual level, long lasting “scarring effects”, such as an increased risk of recurring unemployment, diminished long-time earning prospects, and negative health impacts, are well documented. These individual effects will further decrease the economic potential and budgetary outlook of national economies long into the future.

Societies often measure the immediate price tag to the crisis in the cost to taxpayers of bailouts and stimulus programs. But persistent long-term and youth unemployment numbers reflect the true and enduring impact of the financial and economic crisis on the United States and Europe. Some policy measures, like the work share program employed in Germany during the crisis, have proven successful at mitigating immediate shocks of an economic downturn. However, such systems need to be in place before a crisis hits in order to be effective. For the time being it seems that, absent a rapid (and unforeseen) increase in growth numbers, the transatlantic jobs crisis is here to stay.

The views expressed here are the author’s alone.