From 2007 to 2017 the fraction of Americans employed fell by 2.9 percentage points (Bureau of Labor Statistics n.d.). As we discussed in a blog post co-authored with Harris Eppsteiner (Eppsteiner et al. 2018), the ageing population has been driving the decline in the US employment-population ratio, or employment rate. (The employment-population ratio, or the employment rate, is the fraction of the overall population working, and as such it reflects a combination of the labour force participation rate and the unemployment rate.)
In contrast, employment rates actually rose in 13 of 29 advanced economies from 2007 to 2017, even though they also faced a similar headwind of an ageing population. Moreover, after adjusting for changes in the age-sex structure within each country, employment rates rose in 21 of 29 advanced economies during this period.1
The biggest difference between employment rates in the US and other advanced economies has been changes in female employment rates, which, adjusting for changing age structures, were stable in the US but increasing elsewhere. This factor is responsible for 77% of the ageing-adjusted difference in employment performance between the US and other advanced economies over this period. The second largest source of difference is converging employment rates for older workers (defined as 55 and older), as other countries increased their employment rates towards the US level. This factor is responsible for 52% of the difference with other advanced economies. (These two explanations overlap because both include women age 55 and older.) Employment for prime-age men and younger workers fell almost everywhere but at similar rates in the US and other advanced economies.
These comparisons can help us better understand the major differences in the employment experiences of the US and other advanced economies in the wake of the global financial crisis – especially focusing on the role of divergent structural policies in divergent employment rate experiences.
The dataset we produced to generate these results, based on International Labor Organization (ILO) data with some standardizations discussed in the appendix, is available here.
US employment rates have generally fallen short of other countries
Employment performance in advanced economies has differed from the onset of the global financial crisis in 2007 to 2017, ranging from a 4.9 percentage point increase in the employment rate in Germany to a 7.6 percentage point decline in the employment rate in Greece (Figure 1). Of the countries with larger declines than the US (2.9 percentage points), many, like Greece, Portugal, and Spain, had much more severe recessions and slower recoveries.
Figure 1 Change in employment-population ratio, 2007-17
Population ageing has been a headwind for employment rates throughout the advanced economies. At older ages, employment rates fall dramatically. An increase in the share of the population in older age groups will, all else equal, lower the overall employment rate. We can estimate the aging effect in a country by analysing what would have happened to employment had employment rates been fixed within age-sex groups, but the relative sizes of those groups changed to reflect the actual demographics in that country from 2007 to 2017. (We call these changes “ageing”, although it factors in changes by both sex and age.)
This exercise shows that, on average, ageing subtracted 2.3 percentage points from employment rates across the advanced economies, ranging from a 4.0 percentage point drag in the Netherlands to a 0.3 percentage point increase in Latvia and Estonia. Ageing played a somewhat larger than average role in the US (–2.5 percentage points) and a smaller than average role in the euro area (–1.9 percentage points).
Adjusted for ageing, employment rates rose in 21 of 29 advanced economies from 2007 to 2017, with an overall gain of 1.4 percentage points for advanced economies as a whole, similar to the 1.2 percentage point gain for the euro area (Figure 2). The ageing -adjusted employment rate in the US fell by 0.4 percentage point from 2007 to 2017 (note, as discussed in our previous blog, it rose slightly from 2007Q4 to 2018Q1). The remainder of this blog post analyses the sources of these differences in ageing-adjusted employment rates.
Figure 2 Change in ageing-adjusted employment-population ratio, 2007-17
The biggest difference between the US and other countries is the employment experience of women
In 2007 employment rates for women were generally higher in the US than in other advanced economies. Over the next decade this trend reversed, as employment rates increased in other countries while staying flat in the US (after adjusting for aging within countries), as shown in Figure 3 (note different age structures between countries affect some of the cross-country comparisons). Some evidence indicates that policies like flexible workplaces, paid leave, and childcare subsidies in other advanced economies explain about one-third of this difference (Blau and Kahn 2013).
Figure 3 Female ageing-adjusted employment-population ratio, 2007 and 2017
Overall, adjusted for ageing, women had almost zero net impact on employment rates in the US, but they raised employment rates by 2.0 percentage points in other advanced economies, 1.6 percentage points in the euro area, and 3.3 percentage points in Japan (Figure 4).
Figure 4 Contribution of women to change in overall ageing-adjusted employment-population ratio, 2007-17
International convergence towards higher US employment rates for older workers
The shift of economies towards higher fractions of the population in older age groups was a drag on employment rates almost everywhere. But increasing employment rates within older age groups pushed in the other direction.
In 2007 the employment rate for workers age 55 and older in the US was well above that of almost all other advanced economies. The employment rate for these workers rose in the US from 2007 to 2017, largely due to increased education (Maestas and Zissimopoulos 2010), contributing to the reduced physical demand of jobs, the increased number of women in the workforce, and the fact that men married to working women are likely to retire later (Schirle 2008). The employment rate for older workers rose even more sharply in other countries as the same factors operating in the US coincided with pension reforms (Coile et al. 2018), which increased incentives to work longer in many countries. This led to an overall convergence towards US employment rates for older workers, although most other countries still lagged the United States by the end of the period (Figure 5).
Figure 5 Age 55 and older ageing-adjusted employment-population ratio, 2007 and 2017
Overall, adjusted for ageing, increased employment rates for workers 55 and older added 1.7 percentage points to the overall employment rate in advanced economies and even more in the euro area (+2.4 percentage point). In contrast, older workers added only 0.7 percentage point to the overall employment rate in the US (Figure 6).
Figure 6 Contribution of age 55 and older to change in overall ageing-adjusted employment-population ratio, 2007-17
Similar performance for prime-age men from 2007 to 2017
While employment rates have generally been rising for women and older workers, they have been falling for prime-age men, defined as those between 25 to 54 years old (Figure 7). In 2017, the US prime-age male employment rate, at 85%, lagged behind other advanced economies on average (87%) and substantially below both the UK (90 percent) and Japan (93%) but above the euro area, which has been dragged down by sharp declines in Greece, Spain, and Italy in the aftermath of the global financial crisis. On an aging-adjusted basis, the employment rate for prime-age men in the US fell over the last decade but by a similar magnitude as the deterioration in other advanced economies as a whole.
Figure 7 Prime-age male ageing-adjusted employment-population ratio, 2007 and 2017