• By
  • Ben Leubsdorf

The U.S. labor market looks like it’s recovering faster than its European counterpart, but maybe not as much as it appears, according to a new analysis from the Federal Reserve Bank of New York.

Unemployment in both the euro area and the U.S. peaked around 10% in 2010. Since then, the rate has risen to 12% in Europe but fallen to 6.7% in the U.S., wrote researchers Thomas Klitgaard and Richard Peck on the New York Fed’s Liberty Street Economics blog Wednesday. By that measure, the U.S. looks like it’s doing much better.

But the broader employment-to-population ratio—the share of the working-age, civilian non-institutional population that is employed– showed little change in the U.S. and some decline in Europe over that same period. “This measure of the labor markets does not exhibit any of the gains suggested by the U.S. unemployment rate, with employment only growing in line with the population,” wrote Mr. Klitgaard and Mr. Peck.

The big difference? Labor force participation.

The unemployment rate measures the number of people without jobs as a share of the labor force. But a person has to be actively searching for a job to be counted as unemployed. People who have stopped looking aren’t considered unemployed or part of the labor force, even if they would like a job. As jobless people leave the labor force for whatever reason(such as retirement, going back to school, going on disability or caring for family), fewer people are counted as unemployed.

People have been leaving the workforce in the U.S., but in Europe, the participation rate hasn’t changed much. The rate for European women is actually up about 2%, largely because women over the age of 45 joined the workforce.

“The drop in labor force participation in the United States has accentuated the fall in the U.S. unemployment rate and widened the gap between the unemployment rates of the two economies,” Mr. Klitgaard and Mr. Peck wrote. “If the euro area had seen a drop in the labor force participation rate proportional to the decline experienced by the United States, its unemployment rate would be about 9.5 percent, below where it was at the beginning of the sovereign debt crisis.”



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