Unemployment Rates, an International Apples to Apples Comparison

by Mike Kimel

Unemployment Rates, an International Apples to Apples Comparison

Cross posted at the the Presimetrics blog.

One of the things we all know about America is that labor laws are more flexible here than in other developed countries, so we have lower unemployment rates than in other countries with relatively more rigid labor laws. Its one of those facts we are told over and over again, like cutting taxes spurs economic growth or that the folks benefiting the most from our largess in Iraq and Afghanistan, not to say an assortment of tin pot dictators throughout Central Asia, are pro-democracy and pro-America.

A lesser known fact is that unemployment rates are computed differently from country to country. (So is GDP, but that’s a topic for another post.) The Bureau of Labor Statistics, the folks who compute the unemployment rates here in the land of the (relatively) free market went through the effort of adjusting the unemployment rates of the US and nine other countries (Canada, Australia, Japan, France, Germany, Italy, Netherlands, Sweden, and the UK) between to allow for an apples to apples comparison. I think the most interesting data – the comparison of overall unemployment rates from 1970 to 2009 – is in table 1-2, which I’ve imported into Excel and graphed below.

Figure 1.

The chart is a bit busy, but hopefully you could tell what’s going on if you look closely. And what I see is this…

For most of the sample, one or two countries produced, hands down, the best outcomes in the sample. For the entire sample, Japan is always one of those countries, but the other front-runner changes mid-sample. Sweden (yes, “socialist” Sweden) was the other in the period from 1970 to 1990, and the Netherlands (yes, “socialist” Holland) becomes the usual leader of the pack starting in the late 90s. Japan, of course, like Sweden and the Netherlands, is not exactly well-known for its flexible labor laws.

I don’t know enough to say what happened in Holland and/or Sweden but I have a hard time concluding that in their respective heydays they were a libertarian paradise.

As to the US… frankly, it did pretty lousy relative to the others from 1970 to about 1982, whereupon it began improving, eventually getting the point of contending for the top spot in the peloton. The US had a brief shining moment in the Sun – producing the second or third best performance from 1993 to 2000… but its been downhill from there. Put another way… things started going downhill, relatively, for US unemployment when the country began benefiting (ahem) from the most free market administration in the sample.

What I don’t see in the graph is any sign that the US approach to the labor markets can be described as the best, or even in the top three or four in this sample, assuming the goal is to keep unemployment down.