Equilibrium unemployment rate: USA, UK, France, Germany, Canada & Australia, 1985-2017

I do admire the way in which the USA has been able to have a steadily falling equilibrium unemployment rate since 1984 through thick and thin. The Great Recession had no impact on the US equilibrium unemployment rate. Not only has the largest member been able to do this, the OECD host country (red squares) has had a pretty steady natural unemployment rate too all things considered.


Source: OECD Economic Outlook June 2016 Data extracted on 01 Jun 2016 12:40 UTC (GMT) from OECD.Stat

More than 15% of unemployed Europeans haven’t had a job for more than four years

Incidence of long-term unemployment in the PIGS since 1983

The boom that preceded the bust in the Greek economy did nothing for the rate of long-term unemployment among Greeks. Long-term unemployment had been pretty stable prior to the economic boom after joining the euro currency union.


Source: OECD StatExtract.

Nothing much happened to long-term unemployment in Italy or Portugal in recent decades. Spanish long-term unemployment fell in line with the economic boom in Spain over the 1980s and 1990s up until the global financial crisis.

% of unemployment lasting longer than 12 months in Scandinavia since 1976

As I recall, most unemployed have been unemployed longer than 12 months in Sweden have to go on a labour market program. When they returned to unemployment after the program, the clock starts again. They are deemed to be freshly unemployed rather than adding to the previous spell with an interlude on a make work program. This makes Swedish long-term unemployment data rather unintelligible.


Source: OECD StatExtract.

Finland was recovering from its worst depression since the 1930s and the early 1990s when its data on long-term unemployment started to be continuous. This makes Finnish unemployment data rather difficult to interpret. Norway’s data for the long-term unemployed goes up and down a bit too much to be trustworthy without a background policy narrative.

% of unemployment that is more than 12 months, USA, UK, Germany and France

As the British labour market and long-term unemployment was starting to get something like that in the USA, the USA started to have unemployment it was more like the European labour markets in terms of the number of long-term unemployed. Nothing much happened in Germany and France.


Source: OECD StatExtract.

Italian unemployment incidence by duration since 1983

Unemployment of more than a year was slowly tapering down in Italy before the global financial crisis, but ever so slowly.


Source: OECD StatExtract.

German unemployment incidence by duration since 1983

German long term unemployment has been pretty stable albeit with an up-and-down after German unification. There is also a fall in long-term unemployment after some labour market reforms around 2005.


Source: OECD StatExtract.

New Zealand unemployment incidence by duration since 1986

There has been bit of a wild ride in long-term unemployment in New Zealand. Long-term unemployment – longer than one year – ranging from just over 8% of unemployment in 1986 to nearly 40% in 1992 then down to 5% in 2008. Clearly the duration of unemployment in New Zealand is highly sensitive to the business cycle unlike the case in the USA or UK.


Source: OECD StatExtract.

This sensitivity of long-term unemployment to the business cycle does not bode well for the hypothesis of hysteresis where human capital depreciates the longer a jobseeker is out of employment. For this hypothesis to hold, there must be some enduring aspect of long-term unemployment rather than just going up and down with the business cycle rather noticeably.

The rival hypothesis to hysteresis is the long-term unemployed tend to be those who have a lot of trouble getting employment, which is why they end up been unemployed for a long time. Again in New Zealand, these less employable jobseekers appear to be able to find jobs quite easily when the labour market is good.

British unemployment incidence by duration since 1983

In contrast to the USA, there is been a long-term decline in long-term unemployment, that is unemployment of more than a year, in the British economy over the 1990s. The situation then stabilised and then increased after the global financial crisis. There is also a rather rapid fall in long-term unemployment in the mid-1980s as the British economy recovered under Thatchernomics


Source: OECD StatExtract.

This time it is different: unemployment incidence by duration, USA, 1968 – 2014

The Great Recession was the first recession in the USA in a good 40 to 50 years where the composition of employment changed by much. Even the big recession at the beginning of the 1980s did not do much to the composition of unemployment by duration in the USA.


Source: OECD StatExtract.

Those unemployed for more than a year moved from barely double digits even in a bad recession prior to 2008 to coming on one-third of all unemployed. Likewise, those unemployed for less than a month halved from 40% to 20%. Something changed in the US labour market with the Great Recession and the long extensions of unemployment insurance from 26 weeks to 52 weeks and then 99 weeks.

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