On Jobs, U.S. Ranks Worse Than Similar Nations

U.S. unemployment remains at historically high levels. There was another reminder of that on Friday when the government reported the unemployment rate had risen another tenth of a percentage point to 9.6 percent.

There were some glimmers of hope in that report — namely that private businesses added 67,000 jobs. But it's still a weak performance: The U.S. needs more than twice that many new jobs each month to start bringing down the unemployment rate. As a result, it's likely to remain very high for a long time.

The great American "jobs machine" used to be the envy of the world. But when one compares the U.S. unemployment situation with that of other big industrial countries, it's apparent that's not really the case anymore.

A Distressing Picture: Unemployment In The U.S. Compared With Other Countries

The unemployment rate increased more dramatically in the U.S. than in other countries with major economies over the past decade.

Graph: Unemployment in the U.S. vs. France, Great Britain, Germany and Japan, 2000-June 2010.

Notes

The 2000-2009 numbers reflect annual data. The numbers for 2010 are the latest monthly numbers available for each country.

Andrew Sum, an economist and the director of the Center for Labor Market Studies at Northeastern University, says there's been a big reversal.

"If you go back to 2000, when you ranked our unemployment rate against all these countries, we had the second-lowest unemployment rate in the world," Sum says.

Only the Netherlands was lower.

"We went from second-lowest to highest in the world," Sum says. "We're above Japan, the U.K., even Italy."

Until recently, the United States was also above France. But France's unemployment now matches the U.S. rate.

U.S. Companies Dumped Workers Fast

The big shift came when U.S. companies cut workers much more aggressively than foreign firms in the face of the financial crisis. The U.S. unemployment rate surged far higher than in other major industrial countries, and it has remained higher, Sum says.

"The German unemployment rate pretty much held constant," he says. "In Japan, it went up a little bit — you know, less than a half a percentage point. While in the United States, we went almost 6 points before we peaked."

Among American companies, Alcoa, the giant aluminum maker, was one of the biggest job cutters. It shed about a third of its core workforce — 30,000 employees got pink slips.

Alcoa spokesman Kevin Lowery says the motivation was survival. "The first step was to battle through the downturn," Lowery says. "It was very, very dire times. And it wasn't that long ago."

Gary Burtless, an economist at the Brookings Institution, thinks sheer survival is one explanation for why U.S. firms cut workers more aggressively than companies in other countries.

But Burtless is skeptical, because those foreign firms experienced the same credit crisis and even greater declines in economic output than in the U.S. "But the employers did not reduce their payrolls nearly as fast or nearly as deeply as employers did in the United States," Burtless says.

Cutting Back Hours

Some governments encouraged firms to cut back work hours instead of laying people off. Germany, for example, even offered government subsidies to entice that behavior. Government regulations in countries like France and Germany also may have made it harder to lay off workers.

But economist Adam Posen, a member of the interest-rate-setting board for the Bank of England, points out there were also fewer layoffs in the U.K. and Australia.

"Both of which are more flexible kinds of economies and tend to have less of the labor regulations than a France or a Germany does," Posen says. "Even they had much lower rises in unemployment."

Posen says he wasn't surprised U.S. firms cut jobs so aggressively.

"It was always going to be the case in the U.S., because we have what you can call either flexible or heartless — depending on your point of view — labor markets," Posen says. "It was always going to be ... easier for companies to just shed labor in the U.S. And it's not just a legal matter — it's an attitude."

Alcoa's Lowery takes issue with that view, despite his company's huge job cuts.

"The way we look at it is we have about 60,000 employees left — some of the things that we were doing were to actually preserve the jobs of those 60,000 employees, and so that we had a business that would be sustainable moving forward," Lowery says.

Weighing Aggressive Job Cuts

Also, aggressively cutting workers, which is one of a company's largest expenses, has allowed U.S. firms, including Alcoa, to return very quickly to profitability.

But it's questionable whether this strategy is a winner in the long term, Posen says. "It's not clear that running an economy where your response to everything is to shed your labor — meaning fire people rather than invest in them and carry them through and keep your core people — is a good idea."

In fact, there's evidence that while firms get quick profits shortly after big job cuts, they often don't perform very well in later years after the economy has recovered.

Burtless of the Brookings Institution cautions that it's also important for Americans to consider that Europe's high unemployment in the past was partly due to rules making it hard for firms to shed workers.

"If employers are reasonably confident that they can quickly dismiss workers when times are bad, it may make them more willing to take on workers when they're confident demand for their product is going to be strong," he said.

Americans can only hope that will happen soon. So far, employers have favored buying new machines, instead of hiring new workers, to boost production.

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