On Jobs, U.S. Ranks Worse Than Similar Nations The U.S. unemployment rate surged far higher and has remained higher than in other major industrial countries. It's now at 9.6 percent. The big shift came when American companies cut workers more aggressively than foreign firms in the face of the financial crisis.
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On Jobs, U.S. Ranks Worse Than Similar Nations

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

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

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This is WEEKEND EDITION from NPR News. I'm Scott Simon.

U.S. unemployment remains at historically high levels. We got another reminder of that yesterday when the government reported that the unemployment rate had risen another tenth of a percent, to 9.6. There were some glimmers of hope in that report though. NPR's economic correspondent, John Ydstie, joins us.

John, thanks very much for being with us.


SIMON: So there is a scintilla of a silver lining in this?

YDSTIE:�Well, yes. Private businesses added 67,000 jobs, a weak performance, but more than were expected. The problem is, you really need to add more than twice that many new jobs each month to start bringing down the unemployment rate, so it's likely to remain very high for a very long time.�

SIMON:�You've been looking at how the U.S. unemployment situation compares with that of other big industrial countries.�

YDSTIE: I have, and it's been very interesting. What I found is very surprising.�The great American jobs machine used to be the envy of the world -not so much anymore.�Andrew Sum, an economics professor at Northeastern University in Boston, told me there's been a big reversal.

Professor ANDREW SUM (Northeastern University): 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.

YDSTIE: Only the Netherlands was lower.�But that's all changed, says Sum.

Prof. SUM: We went from second lowest to highest in the world. We're above Japan, the U.K., even Italy - oh my god, we're above.

YDSTIE: We were also above France until recently, but its employment now matches the U.S.

The big shift came when U.S. companies dumped 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, says Sum, and it has remained higher.�

Prof. SUM: The German unemployment rate pretty much held constant.�In Japan, it went up a little bit, you know, less than a half a percentage point. While in the United States, you know, we went almost six points before we peaked.

YDSTIE: Among American companies, Alcoa, the giant aluminum maker, was one of the biggest job cutters. It shed about a third of its workforce: 30,000 employees got pink slips.�Alcoa spokesman Kevin Lowery says the motivation was survival.

Mr. KEVIN LOWERY (Spokesman, Alcoa): Well, the first step was to battle through the downturn. It was very, very dire times.�And it wasn't that long ago.

YDSTIE: 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�firms in other countries experienced the same credit crisis and even greater declines in economic output than in the U.S.

Mr. GARY BURTLESS (Economist, Brookings Institution): But the employers did not reduce their payrolls nearly as fast or nearly as deeply as employers did in the United States.

YDSTIE: Some governments encouraged firms to cut back hours of work 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 points out there were also fewer layoffs in the United Kingdom and Australia.

Mr. ADAM POSEN (Economist): Both of which are more flexible kinds of economies and tend to have less of the labor regulations than a France or Germany does; even they had much lower rises in unemployment.

YDSTIE: Posen is currently a member of the interest rate-setting board for the Bank of England. He says he wasn't surprised U.S. firms cut jobs so aggressively.

Mr. POSEN: 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. It was always going to be the case. It's easier for companies to just shed labor in the U.S. And it's not just a legal matter, it's an attitude.

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

Mr. LOWERY: 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.

YDSTIE: Also, from the business point of view, aggressively cutting workers has allowed U.S. firms, including Alcoa, to return very quickly to profitability. But Adam Posen says whether this strategy is a winner in the long term is questionable.

Mr. POSEN: Leaving aside the issue of whether it's even fair that all those people who get let go have to bear the burden disproportionately on them, rather than having it spread out somewhat more over the society - anyway, leave that aside - 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.

SIMON: That's Adam Posen of the Bank of England speaking with NPR's John Ydstie, who's here in our studios.

John, Adam Posen says that this aggressive firing may actually be counterproductive. Can we see evidence of that?

YDSTIE: Yes, we can. While there is evidence that firms get quick profits right after they make job cuts, they often don't perform very well in later years after the economy has recovered, because they have fewer skilled and experienced workers.�

On the other hand, Europe had years of unemployment problems because it was too difficult�to lay off workers there.�And there is a widely held view that if it's easier to fire workers, then companies are more likely to hire rapidly when times are better. Americans can only hope that will happen soon.�So far in this recovery�employers have favored buying new machines instead of hiring new workers to boost production.��

SIMON: NPR's John Ydstie. Thanks so much.�

YDSTIE: You're welcome, Scott.

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