WACO, Texas – Mexico and Canada (and a lot of other countries) have unemployment rates below that of the United States. Unemployment is high and still rising in much of Europe.
While there are many reasons for differences among nations, using an international yardstick to measure the US work situation provides a helpful perspective on job market performance.
Of course, it’s crucial to get to an apples-to-apples comparison. Fortunately, the Bureau of Labor Statistics (BLS) has developed a method for adjusting unemployment rates in various countries to match up with US standards. (Unfortunately, the current data release will be the last because the program is a casualty of tight budgets, but there is hope that a private-sector firm will pick up the torch.)
Unemployment rates for June 2013 are the latest available. At that time, the US rate stood at a seasonally adjusted level of 7.6 percent (it is now 6.3 percent), down significantly from a year prior (when it was 8.2 percent). Compared to the other highly developed economies the BLS analyzed, we fall near the middle. Japan was the lowest in the group reviewed at 3.4 percent, a fact which somewhat reflects the “family” nature of its labor market. Austria, Germany, Australia, Canada, and the Netherlands were also below the US rate. Several nations were in the eight percent range (Finland, Sweden, and Belgium). However, job market conditions were still weak in Italy (12.2 percent unemployment), Ireland (13.5 percent), Portugal (17.4 percent), and Spain (26.3 percent), reflecting the ongoing difficulties in Europe.
Worse, the situation in many places had not yet begun to turn around. Monthly unemployment rates over a February 2012 to June 2013 timeframe for these developed economies were almost all trending upward or, at best, flat. For the European Union-27 as a group (which are the EU member nations as of January 1, 2007), unemployment in June 2013 was 10.9 percent and rising. By comparison, the U.S. improvement through the period is notable indeed.
Another aspect of understanding how the United States stacks up is wage rates and other aspects of compensation. The BLS tracks hourly compensation costs (including benefits as well as social insurance and labor-related taxes) for 33 countries. In 2012, the U.S. average compensation cost in manufacturing stood at $35.67 per hour. Some 13 other countries came in higher, ranging from Canada at $36.59 up to Norway at $63.36. Mexico was among the lowest for nations tracked at $6.36 per hour. A large component of these costs is benefits (not wages), particularly in areas with high compensation; upwards of 40 percent of total compensation going to social insurance and directly-paid benefits such as leave is not at all uncommon. The BLS estimates hourly compensation costs in China and India separately because they are so difficult to compare due to data gaps and methodological issues. The BLS pegs hourly compensation in China at $1.74 (in 2009), with $1.46 in India (in 2010).
To put these wage differentials in context, it is important to look at relative costs of living. In many countries, costs are substantially lower, and wages can go much farther. For example, a crowd-sourced index of rents places Mexico at less than 13, far below the almost 38 for the United States as a whole (with New York City set to 100). At the same time, wages may not go as far. Groceries in many nations cost much more than here, for example, including Switzerland with an index of almost 148, Norway at 137, the United Kingdom with 97, and Canada at 97 (compared to an overall US index of 84). Also, workers in many areas are seeing far fewer dollars go into their pockets after taxes, and they may not recoup what flows into social insurance programs.
Such international comparisons also reveal cultural differences. In the United States, almost 47 percent of the workforce is comprised of women, while in Mexico (where women are less likely to choose to work) the rate is 38 percent. Here, the labor force participation rate for men is 70 percent, with women somewhat lower at 58 percent. The contrast between the likelihood of men working and women working is far larger in Mexico, with 77 percent labor force participation for men (even higher than in the United States), but only 42 percent for women.
All in all, looking at the U.S. job situation from an international perspective indicates that we’re doing fairly well. Unemployment rates are generally lower and moving in the right direction. While there is certainly still room for improvement across much of the nation, the economy is at least working through some of the workforce slack and the recovery is now in full bloom.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.