In Defense of the Traditional Unemployment Rate

Any time new jobs data comes out, there’s some buzzing about alternative measures of labor market health to the unemployment rate. After all, if people drop out of the labor force because they’re so depressed about the state of things that could drive the unemployment rate down but doesn’t mean the economy’s any better off.

Maybe so.

But this chart comparing the US to German employment:population ratios underscores why I don’t love these alternative measures. Or, rather, I love them for a specific reason. The comparison shows that there is an important enduring structural difference between German and American societies, whereby Germans are less likely to participate in the labor market. This relates, I believe, to German gender norms and the existence of an underlying Christian Democratic social model that’s quite different from American-style liberalism. That’s a whole interesting issue there and it has a lot of social and economic consequences that should be explored and I don’t know that I have a great handle on it.

What’s I do have a great handle on is that by any commonsense metric Germany is at-or-near full employment and America isn’t. Their unemployment rate is low, and unions are agitating for raises. Ours is high and employers are forcing givebacks while wages fall.

Which is just to say that in a comparitive framework, America right now has a pretty poor labor market situation. Better than Spain or Italy or Greece, but worse than Germany or Canada or Australia. But we don’t have a poor employment:population ratio by international standards. It continues to be one of the highest in the worlds, thanks to some deeper aspects of American policy and social structure.