Today we will conclude our data deep dive into the European economy. As a reminder, here’s the highlight reel of what we’ve covered over the last 2 days.
- Educational attainment is dramatically different across the Eurozone, enough to make economic harmonization very difficult indeed. In particular, Spain and Italy have populations where more than a third of citizens have only an elementary/low secondary education.
- Europe spends considerably less on R&D than either the US or emerging Asian economies. The EU/US comparison: 1.94% vs. 2.74% of GDP.
If it looks like we are negative on European economies for the long run, we are, but today’s data point is a bit more upbeat. It relates to Labor Force Participation (LFP), or the number of working age citizens whom are either working or looking for a job. This is an important topic in the US, where LFP has been in secular decline since 2000 (67% then, 63% now according to monthly BLS Jobs Report data).
Here’s the European data on LFP from the OECD for 2017, along with comparable numbers for the US and other economies:
- United Kingdom: 78.5%
- Germany: 78.2%
- Spain: 75.1%
- US (using OECD, not BLS data): 73.3%
- All OECD countries: 72.1%
- France: 71.8%
- Italy: 65.4%
There is even good news about those two laggards – France and Italy. Trends in LFP are on the increase in both countries over the last decades. In France, LFP has risen from 68.0% to the current 71.8% since 2000. In Italy, the comps are 60.3% in 2000 to 65.4% now.
Moreover, both countries have room for further improvement. The number of people in the labor force (both employed and not) versus the total population stands at 58% in Italy and 65% in France. That same ratio in Germany is 75% and 73% in the US.
There are two conclusions we can pull from this data:
#1) Don’t believe that the decline in US labor force participation over the last 2 decades is all about demographics – that’s the common explanation for this phenomenon. Western Europe, with similarly aging populations to the US, is seeing steady increases. Virtually all commentary we read on the US LFP rate omits this point. Some recent analysis points to the opioid epidemic as one potential explanation, which makes sense in the context of a US/EU comparison of the numbers.
#2) Increasing participation rates puts some useful context around the current high unemployment rates in France (9.2%), Italy (11.2%) and Spain (15.9%). Those readings are a function of stagnant economies AND rising participation rates, since a rising trend here increases the denominator used to calculate the jobless rate. You hear a lot about the first (and the ECB’s low rate policy to address them), but the second is also part of the story. And, we think, a more optimistic piece. Europeans aren’t checking out of the labor market the way Americans are. They want to work, but need better economic growth to find a job.