Unemployment is a problem in most developed economies. Any politician, central banker or professional economist in the United States or Europe will admit that the published rates are unacceptably high, that too many people have left the paid labour force and that young people starting out have a particularly bad deal.
Americans often say their problem was caused by the 2008 financial crisis. That isn’t exactly wrong. After the failure of Lehman Brothers, many indicators of labour market depression – for example, the proportion of unemployed people who have been unemployed for more than six months – jumped to the highest levels on record (generally since 1948). Most of these indicators have improved, but remain uncomfortably high.
However, I think that the recession only uncovered longstanding structural weaknesses, and the problems I have in mind are not exclusively American. They just showed up in European statistics much earlier. Unemployment rates there have been persistently high, especially among the young, for decades. And the recorded unemployment numbers are flattered everywhere by the expansion of what might be called the non-labour force: those classified as suffering from incapacity, involuntary students and healthy retirees.
The problems all start with what I call labour market asymmetry: in advanced economies it is much easier to destroy jobs than to create them. On one side, hiring people is expensive and risky, thanks to generous wages, high taxes and the high cost of firing established employees. On the other side, additional employment often isn’t needed to increase production and consumption, thanks to the ever more efficient use of increasingly productive technologies.
In short, modern economies are always under job-destroying pressure. Of course, some forces work against what John Maynard Keynes called technological unemployment. Jobs are added by the spread of new products and by the increased production of existing goods and services. The trend to spend less time on the job – a trend which has stalled in the last few decades – spreads the available labour over more workers.