In 2014, 12 per cent — close to one in eight — of US men between the ages of 25 and 54 were neither in work nor looking for it. This was very close to the Italian ratio and far higher than in other members of the group of seven leading high-income countries: in the UK, it was 8 per cent; in Germany and France 7 per cent; and in Japan a mere 4 per cent.
In the same year, the proportion of US prime-age women neither in work nor looking for it was 26 per cent, much the same as in Japan and less only than Italy’s. US labour market performance was strikingly poor for the men and women whose responsibilities should make earning a good income vital. So what is going on? (See charts.)
The debate in the US has focused on the post-crisis decline in participation rates for those over 16. These fell from 65.7 per cent at the start of 2009 to 62.8 per cent in July 2015. According to the Council of Economic Advisers, 1.6 percentage points of this decline was due to ageing and 0.3 percentage points due to (diminishing) cyclical effects. This leaves about a percentage point unexplained. Princeton’s Alan Krueger, former chairman of the council, argues that many of the long-term unemployed have given up looking for work. In this way, prolonged cyclical unemployment causes permanent shrinkage of the labour force.