The US Labor Market Doesn’t Work
Despite the moderate improvements in unemployment lately, we are still nowhere near where we should be especially when considering where we came from. According to the Organization for Economic Co-operation and Development (OECD), in 2000, the US had an unemployment rate that was the lowest in the G7 group of nations. Just roughly a decade ago, jobs were easy to find and most Americans were confident in their abilities to find employment. Further, our participation rate was the highest of the rich G7 countries and 74 percent of our citizens aged 15-64 year-olds had employment the highest by a mile compared to other countries.
Skip to present day and US unemployment has gone from lowest in the G7 to third highest as workers have become discouraged. Further, the labor participation rate has declined by a full 7 percentage point while the other five G7 countries participation rates have actually risen. The Financial Times continues, “back in 2000, the US could boast that just 6 per cent of its unemployed workers had been out of a job for 12 months or more. But by 2011, that share had jumped to 31 per cent. Why has the US lost its advantage? The answer is bigger than the financial crisis. The US employment rate began falling before then, sliding from 74 per cent in 2000 to 72 per cent in 2006; besides, the UK experienced a similar financial bust without an equivalent employment setback. Rather, the truth is that US labor market arrangements, which worked brilliantly for a generation, are no longer adequate.
The US labor market formula has traditionally consisted of a stick and a carrot. Americans were barred from receiving unemployment insurance for more than 26 weeks, which pushed them to accept jobs even if they involved moving home or taking a pay cut. Meanwhile the government dangled a juicy negative income tax in front of low-income workers, boosting pay for those who re-entered the work force…”
Source - Financial Times