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Ian Brinkley
Economic Advisor
Ian Brinkley

A tale of two anglo-saxon economies

Authors: Ian Brinkley Ian Brinkley

12 July 2010

Once described as two countries divided by a common language, the US and the UK are typically seen as exemplars of ‘hire and fire’ labour market flexibility in contrast to the ‘sclerotic’ over-regulated labour markets of the rest of Europe.

How far does the recession challenge this conventional and simplistic view? US employment has fallen by far more, proportionately, than in the UK over the recession. Yet the UK suffered a bigger drop in GDP. So why are US employers apparently following the hire and fire model to the letter while UK employers seem much more reluctant to make redundancies?

We don’t really know and there is a sense of bewilderment about why labour markets are not behaving in the way they should have done. The closest European equivalent to the US in terms of job loss is Spain, at the opposite end of the regulatory spectrum.

In contrast, Germany has sailed through the recession with barely a job lost despite its reputation as a sluggish overregulated economy with an outdated collective bargaining system. France has also escaped large scale job loss – in part it appears because of the strength of its public sector, previously decried as a major structural problem.

This diversity of response is all the more surprising because the recession was global, it had a common cause and it struck more or less at the same time. National institutional differences and national policy responses still look pretty important even in an age of globalisation. But beneath the diversity, there are structural similarities – some reflecting the common shift towards a knowledge-based economy.

In both economies the recession has hit the less educated worst. Between June 2008 and June 2010 the number of Americans in work with high school education or less went down by 2.8 million. The number in work with at least a college level education went up by 1.5 million. These figures understate the divide because they exclude the under-25 age group where the ill-educated are disproportionately represented.

Like the UK and like all previous downturns, this has been a bad recession for young people in America. Employment for under-25s in the US fell by 12% compared with a decline of 3% for those over 25.

In both economies the public sector and public spending has supported employment. Over this period, the number of US employees in the private sector (excluding agriculture) went down by just over 6% while the number of employees in non-private employment went up by 9%.

Some of these changes are temporary. Jobs for the better-educated young, for men, and for full time workers come back in recoveries. In contrast, jobs for the less well-educated, manual workers and the less skilled are more often lost for good. Whatever the differences in labour market performance, this is a shared structural problem on both sides of the Atlantic.

 Ian Brinkley's monthly comment on the latest ONS Labour Market Stat will be published on Wednesday 14 July 2010.

Chart: US labour market change



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