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Economy in Brief

EMU Unemployment Ticks Higher; The Virus and Very Different National Impacts on Unemployment
by Robert Brusca  July 2, 2020

Unemployment rates rose broadly in May. The EMU unemployment rate ticked higher to 7.4% in May from 7.3% in April. Since 1991, the EMU rate of unemployment rates among the lower 6% of all rates of unemployment for the region. The unemployment ranking is extremely low in the EMU relative to history for Belgium (3.2%), France (6.7%), Germany and Finland (12.2%, each), Portugal (14.0%), the Netherlands (14.2%), and Italy (16.9%). Luxembourg and Austria have unemployment rates that are still very high relative to their respective histories. Spain and Ireland have unemployment rates below their historic medians but not as low as for many other fellow EMU members.

In the EMU, unemployment rates are higher over three months in Luxembourg, Austria, Spain, Ireland, the Netherlands, France, Germany, Belgium, and Finland. That is in nine of the 11 oldest EMU members with up-to-date readings recorded in the table. Eight show net unemployment increases over six months. Seven show net increases over 12 months.

Only Italy and Portugal of this group show consistent unemployment rate declines over 12 months, six months and three months. On lagging data, Greece shows the pattern of ongoing declines.

Japan's experience is more in line with that of Europe with small increases in the unemployment rate over 12 months, six months and three months and with a 0.3 percentage point uptick in the rate for May. Japan holds its trend of low unemployment rates.

On this comparison, the U.S. is the outlier. Where Japan and Europe have taken the economic shock without much impact on the labor market, the U.S. labor market is knocked for a tizzy by the virus. All of these countries have government programs to try and assist workers who lose jobs because of the virus. But importantly, firms in these nations have a different relationship to their workforce than in America. The U.S. has rolled out massive support programs for firms using a U.S. Treasury Federal Reserve alliance to deliver lending where the Fed could not act on its own and adding income support through fiscal policy. U.S. worker faces more unemployment than workers in Europe, but they also have a large number of potential support numbers.

Still, Europe and the U.S. are showing their very different approaches to the labor market. The table shows the sharp differences in the run up in the unemployment rate. The chart, however, shows that the U.S. approach had been delivering a far superior (much lower) unemployment rates through March. But when the virus struck hard in April, the U.S. rate soared, rising above the rate in Europe. Prior to April of this year, the U.S. rate had not been above the rate in the EMU since December 2009. At that time, there was a string of eight months in which the U.S. rate was above the EMU rate, but the U.S. rate never exceeded the EMU rate by as much as 0.5 percentage points at that time. This dislocation is much larger.

In April, the U.S. rate jumped by 10.3 percentage points while in Europe the EMU rate rose by 0.2 percentage points. In May, the EMU rate is up by 0.1 percentage points and the U.S. rate is lower by 1.4 percentage points. The U.S. labor market is ‘in worse shape' but is already on the mend while Europe is experiencing increasing pain. European data for June are not yet available, but the U.S. unemployment rate has fallen again in June logging a drop of 2.2 percentage points.

There are very different labor market philosophies in train in Europe vs. the U.S. We see them at work in the chart and table and we can see the results over time as well as in a business cycle. Right now some of the U.S. labor force probably wishes it were in the European system but over the previous 10 years U.S. workers will have been thankful to have been in the labor market in the U.S. that consistently outperformed the results in Europe.

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