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Headline economic numbers suggest the United States is recovering from the Great Recession noticeably faster than the euro zone. But adjust for demographic changes, and that's a misleading conclusion: In reality, working-age people on both sides of the Atlantic are stuck with euro-style sluggishness.
Some of those headline figures do look compelling at first sight. In 2012, GDP in the United States was 3.3 per cent higher than in 2007, the previous peak year. That may be an unimpressive recovery in comparison to previous recessions, but it looks far stronger than the euro zone record. There, GDP was 1.3 per cent lower in 2012 than five years earlier.
Things look much the same in the job market. The euro zone unemployment rate has increased fairly steadily from the hardly comfortable pre-crisis low of 7.3 per cent to 12 per cent – a painful rise of 4.7 percentage points. The initial increase in the U.S. rate was more dramatic, from 4.4 per cent to 10 per cent, but the jobless rate has been falling since late 2009. The current 7.6 per cent level is still 3.2 percentage points above the pre-crisis trough, but unlike in Europe the low point was very low indeed.
These aggregate numbers, though, do not take demographic shifts into account. The working-age populations in both the United States and the euro zone are still increasing, but the gain is much faster on the western side of the Atlantic. The U.S. work force has expanded by 3.3 per cent since 2007, compared to a measly 0.8 per cent in the euro zone. When it comes to young people, Europe is actually shrinking. The region was home to 2.1 per cent fewer people aged between 20 and 24 in 2012 than in 2007. By contrast, this age group is increasing nicely in the United States, up 7.2 per cent over five years.
Measures of success need to take differences in the population mix into account. GDP per person is a better indicator than crude GDP, but it is still skewed by the inclusion of retired people, a fast-growing population group in all rich countries. On the other hand, GDP per employed person is too narrow, since one goal of economic policy is to increase the number of people actually working for pay.
GDP divided by the number of working-age people, call it adult GDP or AGDP, is a reasonable compromise. Using this measure, the United States still beats the euro zone, but the gap is much narrower. The American AGDP was 0.4 per cent lower in 2012 than 2008, while the decline in the euro zone's AGDP over the same period was 2.1 per cent. This adjustment narrows the crude transatlantic gap in GDP recovery since the pre-crisis peak to 1.7 percentage points, and shows the United States still below its previous peak.
Now consider unemployment rates. These used to be a good indicator of labour market success, but reported rates are distorted by the large number of people who could take a paid job if one were available, but who declare that they are not currently in the work force. In measuring labour market recovery, it is better to look at jobs lost and gained.
Start with the euro zone. If the same 64 per cent of the working age population were employed now as at the 2008 peak, the total number of workers would have increased by 1.2 million to 146 million. Instead of rising, though, the employment count has declined by 3.1 million. The missing 4.3 million jobs amounts to 2.9 per cent of the potential total work force.
In the United States, more rapid growth in the working age population than in Europe should have led to more new jobs: 4.4 million more now than in 2008 if the employed portion of the group remained constant. Instead, there are three million fewer employed people. In other words, there are 7.4 million missing U.S. jobs, or 5.2 per cent of the total of 142 million would-be workers.
By this yardstick, the labour market recovery has been substantially weaker in the United States than in the euro zone. The Americans need to create more jobs to keep up with demographic forces, and they have fallen farther behind the goal.
Neither AGDP nor the missing jobs can be the last word in statistical analysis. A more nuanced comparison might, for instance, take into account the difference in the number of new households. The same quantity of GDP goes further in the euro zone, where fewer families require less investment in roads, houses and the like, than in the United States, which has to build more infrastructure for its additional young families.
That said, a look at the U.S. and European economies from the vantage point of working-age adults suggests they aren't experiencing the divergence visible in the two regions' big-picture economic performance. The headlines, it turns out, have more to do with demographics than policy successes or failures. Neither Washington nor the euro zone has any magic formula for improving the lot of working people.