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Beyond BLS

Beyond BLS briefly summarizes articles, reports, working papers, and other works published outside BLS on broad topics of interest to MLR readers.

May 2022

Comparing the euro area and U.S. labor market recoveries during COVID-19

Summary written by: Demetrio Scopelliti

In “How Have the Euro Area and U.S. Labor Market Recoveries Differed?” author Thomas Klitgaard (Liberty Street Economics, Federal Reserve Bank of New York, March 2022) evaluates labor markets for both the euro area and the United States during the initial phase of the pandemic and discusses how job retention strategies in the euro area during that period likely contributed to greater job stability relative to the United States.

In comparing labor market conditions during the initial phase of the pandemic, Klitgaard indicates that the U.S. unemployment rate rose from 3.5 percent in February 2020 to 14.7 percent in April 2020, while the unemployment rate for the euro area remained near 7.5 percent through May 2020 and rose to 8.6 percent in August 2020. He also cites differences in employment, as U.S. jobs decreased 12 percent from the fourth quarter of 2019 to the second quarter of 2020, while euro area employment decreased 3 percent over the same period. The author argues that relative to the United States, the euro area unemployment rates and job levels were more stable because of the implementation of job retention strategies that encouraged employers to retain staff. These strategies included governments subsidizing wages and employees accepting a cut in compensation and work hours. While hours worked in the United States dropped 13 percent from the fourth quarter of 2019 to the second quarter of 2020, hours worked in the euro area dropped by 17 percent. By the third quarter of 2020, hours worked in the euro area were only 5 percent lower than they had been when the pandemic started.

Although unemployment rates for both regions are near prepandemic levels 2 years following the onset of the pandemic, Klitgaard asserts that U.S. employment is down by three million from the fourth quarter of 2019 to the fourth quarter of 2021, compared with an increase of 600,000 for the euro area over that same period. He attributes the U.S. decrease to three industries: accommodation and food services; local government; and nursing/elderly care facilities. Although the euro area also experienced substantial job losses in accommodation and food services, the author indicates that these losses were more modest than those in the United States. In contrast to the United States, where government jobs (federal, state, and local) decreased by 600,000, public-sector jobs in the euro area (including public administration, education, and social work) increased by 1.3 million.

The author acknowledges that it is difficult to assess whether the shortfall in U.S. employment relative to prepandemic levels is due to decreased demand for labor or a decrease in labor force participation. Citing a lower number of job openings in state and local government relative to accommodation and food services, Klitgaard suggests that reduced demand for labor would explain the shortfall in government jobs while the shortfall in employment in accommodation and food services is due to the reluctance of workers to take on or resume employment in that industry.