By what measure? A comparison of French and US labor market performance with new indicators of employment adequacy

Abstract

Comparisons of national labor market performance have conventionally relied on standard unemployment and employment rates (UR and ER) and these two ‘quantity‐of‐employment’ indicators have framed policy debates on the merits of reforms that would move European labor markets closer to the ‘American Model.’ This paper compares French and US performance using a variety of alternative indicators, including new measures that account for job quality. While the UR was much higher for France between 1984 and 2007, it was lower than the US rate before 1984 and the rates have since converged. It is also significant but not well‐known that both prime‐age ERs and youth unemployment‐to‐population rates have been quite similar in recent decades. We calculate two new summary indicators from each country’s main household survey for 1993–2005 designed to account for the adequacy of pay and hours of work as well as the number of unemployed and employed (the underemployed share of the labor force and the adequately employed share of the working age population). France shows superior performance on both, especially for less‐educated workers, and the French advantage has grown substantially since the late 1990s.

Keywords:

• Unemployment incidence
• wage level and structure
• methodology for organizing macroeconomic data

JEL Classifications:

• J64
• J31
• C82

Acknowledgements

We thank SCEPA for supporting this project and John Schmitt and Paul Swaim for help with the data. We are also grateful for valuable comments from Andrea Bassanini, Eve Caroli, Karnit Flug, Teresa Ghilarducci, Will Milberg, Daphne Nicolitsas, Heloise Petit, John Schmitt and an anonymous reviewer.

Notes

1. The unemployment rate is also used as an indicator of labor market efficiency (the effective use of available labor resources) and overall economic performance (capacity utilization).

2. For perspectives on the literature on institutions and the cross‐country pattern of unemployment, see Howell (2005a); Blanchard (2006); and Howell et al. (2007).

3. OECD harmonized rates, downloaded from: http://stats.oecd.org/index.aspx?queryid=251

4. Over the last several decades, the definitions of these categories across countries have converged. Because of differences across countries in the treatment of ‘availability’ for work, what qualifies as ‘active search,’ and how various groups in the population are treated (students, unpaid family members, members of the armed forces, and so on), a great deal of effort has been devoted to standardizing (or ‘harmonizing’) the unemployment rate, principally by the BLS, the OECD, the ILO and Eurostat (see Sorrentino 2000, appendix).

5. Jones and Riddell (1999) argue that this tripartite categorization is inadequate, because of the ‘heterogeneity of the nonemployed … any attempt to dichotomize the nonemployed into “unemployment” and “out‐of‐the‐labor force” is unlikely to full capture the complexity of labor force activity.’

6. UR=U/LF, where LF=U+E, U is the number of unemployed, and E is the number of employed workers.

7. For reasons of space and manageability, we limit our attention to youth (16–24) and prime age (25–54) workers. Differences in norms regarding the desirability of work at ages over 59 complicates comparisons of the performance of the labor market per se regarding older workers (the French legal retirement age for most workers is 60).

8. Enrollment and employment statistics are from the OECD’s Education at a Glance (2007b, Table C4.2a).

9. Calculated by the authors from the relevant series published in the Statistical Appendix of the Employment Outlook (OECD 2007a).

10. Marginally attached workers are ‘all persons who want and are available for a job and have recently searched for work’ (Bregger and Haugen 1995, 24). Discouraged workers are the marginally attached who give a job‐related reason for not looking for work.

11. Even if the definition is the same, who will be tabulated as ‘discouraged’ will reflect the kind of safety net that is available.

12. We exclude the self‐employed (see Section 5.1).

13. The US wage is pre‐tax while the French wage is after‐tax. Ideally, the wage measures would be identical, but this was not possible. At the same time, it is not clear what single wage measure (post‐tax, post‐transfer or pre‐tax, pre‐transfer) would be the most appropriate, given that the benefits received by French workers and their families from their taxes (health, education, retirement, unemployment benefits) tend to be provided, if at all, by employers in the US and it is widely accepted that these are paid for by workers via lower wages. In any case, our objective is not to compare absolute living standards but to measure the share of jobs that pay a wage that is viewed within each country as socially acceptable. We assume that the use of these alternative wage measures does not have major effects for the relative standing of those in the bottom half of the wage distribution.

14. The self‐employed shares of total employment for France and the US and their trends over time are broadly similar. For France, the self‐employed share fell steadily from 12.8% in 1990 to 8.9% in 2006 (INSEE). For the US, this rate fell from 8.5% in 1990 to 7.5% in 2003 (Hipple 2004, Table 1).

15. This table is available from the authors.