Losing Ground to Great Britain

It is hard to admit it, but Great Britain is doing a much better job at creating jobs than the U.S.  That has not always been the case, but it’s been true for the past decade.  What’s even worse is that we are falling further and further behind our British friends.  The United States economy is still the largest in the world, but we are no longer the preeminent job creator in the developed world.  While it is understandable that our job growth is slower than in China and parts of the developing world, there is no reason why employment in the U.S. should be falling relative to employment in Great Britain.

The latest employment figures were just released by the UK’s Office for National Statistics.  About 71.3% of adults age 16 to 64 were employed in Great Britain, in the three-month period from June to August.  That represents a one percentage point increase from the ratio in June to August 2011 (70.3%).  Moreover, this means that the employment to population ratio, the preferred measure of labor force activity by most labor economists, is almost 4 percentage points higher in Great Britain than in the United States for adults age 16-64.

The following chart shows the employment to population ratio for adults in the United States than Great Britain from 1984 to 2011.  The employment rate in the U.S. was higher than in Britain in 17 of 18 years from 1984 to 2001.  In a typical year 1.7% more adults were employed in the U.S. relative to Great Britain.  Since 2001 the Brits have been working more.  For 10 straight years the fraction of adults working in the U.S. has been lower than in Great Britain, and the gap is getting wider.

Changes over the past year have only widened the gap in employment rates between the two countries.  The employment rate increased by a full percentage point in Britain but by only half as much in the U.S.  Both rates are lower than they were prior to the recession but the U.S. employment rate is 4.1 percentage points lower while the British employment rate is only 1.6 percentage points lower than in 2005.  The employment rate of 71.3% in Great Britain and 67.4% in the United States means that 4 percent fewer adults are working in the U.S. than in Great Britain.  This translates into 8 million fewer jobs in the U.S. than if our policies led to employment rates more comparable to the U.K.

Economists and pundits in Great Britain have complained that fiscal austerity has reduced growth in their output and employment.  Whether or not these criticisms are valid, Americans would be happy to have the same record of job creation over the past four years as the British.  The decline in our employment rate in the past four years is troubling.  The employment rates illustrated above exclude individuals age 65 and above, so this is NOT due to the aging of the baby boom.[1]  It should not be too much to expect the employment rate in the U.S. to equal the rate in Britain, and that would mean eight million more jobs.  Eight million more jobs would solve a lot of problems in this country concerning the deficit, poverty and the long-term unemployed.  The government does not create jobs but tax and regulatory policy can get in the way.  Let’s hope that the presidential candidate who wins in November can work with the Congress to reverse the course we are on so that the U.S. can once again reclaim its position as the biggest job creator in the developed world.

[1] If one compares overall employment rates across countries it should be noted that there are actually a higher fraction of adults age 65 and above in Great Britain than in the U.S.

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