e21 Olympics: Employment
Today’s e21 Olympics event, Employment, was a close contest that was difficult to judge. Evaluating a country’s labor market health involves more than simply looking at its unemployment rate. Because a country’s unemployment rate excludes those who have dropped out of the labor force, it does not provide a full picture of the labor market.
The unemployment rate also does not take into account those who would prefer full-time work, but can only get part-time work, nor how long the unemployed have been out of the labor force.
We judge Norway as having the best labor force health of the Organisation for Economic Co-operation and Development nations and we award it a gold medal, its second of the e21 Olympics. Following its gold medal in yesterday’s event, Switzerland receives the silver medal. Iceland broke through with its first medal by winning the bronze. Japan, Austria, Germany, and the Netherlands were all competitive in the event. All these countries have relatively low unemployment, high activity rates, short unemployment duration, and low involuntary part-time rates.
The United States finished in the middle of the pack, performing around the OECD average in harmonized unemployment rate, activity rate, and unemployment duration. The United States did well in involuntary part-time workers, but that was not enough to move the country into medal contention.
For the third quarter of 2013 (the time period used to evaluate data for medals), South Korea had the lowest harmonized unemployment rate, 3.1 percent. However, only two thirds of its adult working-age population is “active” (looking for work or working). This is below the OECD average of 71 percent, and well below Iceland’s rate of 86 percent, an OECD high.
The U.S. activity rate is 73 percent. The U.S. activity rate differs from the labor force participation rate produced monthly by the Bureau of Labor Statistics because of international comparisons, but the two rates are essentially the same.
Even though the U.S. unemployment rate declined from 7.2 percent in October to 6.6 percent in January, much of this decline has come from people dropping out of the labor force, not from robust job growth. The U.S. labor force participation rate is at the same level as 1978. Under the policies enacted in the past few years, the labor force problem is not going away. Thanks to the Affordable Care Act, an additional two and a half million people will leave the labor force or reduce their hours of work due to falling incentives to hold employment, according to the Congressional Budget Office.
The medal winners have all witnessed above average employment growth. This is important because employment growth is a prime measure of a country’s labor market health. Norway’s employment grew 4.4 percent over the last 3 years and Switzerland’s grew 3.5 percent. Both rates are higher than the OECD weighted average growth of 2.6 percent over the same time period. Iceland’s employment increased 1.4 percent in the past year. This increase was more than double the OECD average (.6 percent).
Australia has the shortest average unemployment duration of OECD countries, just over two months. The U.S. average is 9 months, and countries such as Slovakia have an average of over 30 months. The average unemployment duration in Spain is over five years and the country’s unemployment rate is 26.5 percent, second only to Greece’s 27.6 percent. Providing workers with unemployment benefits for extended periods of time is no economic cure-all. Rather, it is a disservice to those workers and other taxpayers.
Another measure of labor force health is the percent of part-time workers who are “involuntary,” namely those who would prefer full-time work, but are unable to get it. Norway leads OECD countries with an involuntary part-time rate of 5.8 percent. This is less than half of the U.S. rate of 11.5 percent, and far better than the OECD average of 17.8 percent.
If President Obama ever decides to stop delaying the Affordable Care Act’s employer mandate, the number of part-time workers in the United States will further increase. Under the law, businesses who do not offer health insurance to full-time employees incur fines. For example, for firms with 99 full-time employees, hiring a 100th worker in 2015 will cost an additional $80,000 in fines.
With changes in technology and slowing global demand, the international employment outlook is soft. Instead of pursuing policies which reduce incentives to work or hire, countries should be doing all they can to reward work and encourage employer hiring.