Bad news from the Northern hemisphere
Another really bad employment report from the US Bureau of Labor Statistics. Employment has been essentially static for the last couple of months, and most of the ground gained in 2010 has been lost. Unsurprisingly, public sector job cuts are leading the way downwards, as the stimulus fades into memory and austerity proceeds at the state and local level. In this context, it’s hard to know what outcome of the current negotiations over the debt limit would be worse: unconditional surrender to Republican demands for yet more spending cuts, or a failure to pass any legislation, with consequences that remain unclear.It’s hard to see US unemployment falling substantially any time soon. The decline in the participation rate (it’s fallen by about 3 percentage points of the population, equal to about 5 per cent of the labor force) means that the standard measure seriously understates the severity of the problem. If employment growth were to resume, lots of people would re-enter the labor market, so that unemployment would not decline fast.
Turning to the obligatory comparison with Europe, the US unemployment rate is almost exactly the same as the average for the EU-15, but both these averages conceal a lot of variation. The US has higher average unemployment than the core EU economies (except France, which is slightly higher) but much lower than the peripheral economies dealing with sovereign debt crises. On the other hand, there is plenty of variation within the US, and of a truly perverse kind. Roughly speaking, the further you were, economically, geographically and socially from the scene of the financial crisis, the worse off you are doing now.
The only question now is which set of policymakers is more likely to do something utterly disastrous. The chance of anything genuinely sensible is close to zero.
fn1. Apparently, it’s constitutionally impossible to default on the debt, and practically impossible to stop the computers sending out Social Security checks.
fn2. In this context, it looks as if 2011 will be another year in which I win my bet with Bryan Caplan that the gap between US and EU unemployment rates will be less than the gap implied by higher US rates of incarceration.