Unemployment rates: the difference between the USA and EU

Divergent Unemployment Rates Highlight The Intractable Structural Problems Of The Eurozone.

Both the US and the EU have a sovereign currency. The US is a true union of states, while the EU is a conglomerate of nation states with different languages and cultures.

Ed Dolan has compared the unemployment rates between the USA and the EU.

More than fifty years ago, Robert Mundell, then an economist at the IMF, wrote a classic paper explaining when currency areas can work well and when they cannot. Among other things, he noted that an ideal currency area should have free flows of labor among members, flexible labor markets within each member, and similar exposure of members to economic shocks.

If Mundell's criteria were satisfied, unemployment rates would not vary significantly from one member of a currency union to another. Any economic shock that came along - say, the abrupt collapse of a housing boom - would, by assumption, affect all members similarly. If labor markets were flexible within each member, laid-off construction workers would quickly move to new jobs in other sectors. If that did not happen, then displaced workers would move from high-unemployment regions to those where jobs were more abundant, and unemployment rates would quickly average out.

Unfortunately, as the following chart shows, the Eurozone falls far short of the ideal. Nearly ten years after the onset of the global financial crisis, unemployment rates vary from an admirable 4 percent in Germany to a shockingly high 22.4 percent in Greece. That compares poorly with the United States, where unemployment rates range from 2.7 percent in New Hampshire and South Dakota to 6.8 percent in Alaska. Statistically, the standard deviation of unemployment rates among members of the Eurozone is four times as great as among states of the United States.

It shows that the USA have a working currency union, whereas the EU has not.

Mundell wrote:

It will be recalled that the older economists of the nineteenth century were internationalists and generally favored a world currency. Thus, John Stuart Mill wrote [ 6, p. 176]:

. . . So much of barbarism, however, still remains in the transactions of most civilised nations, that almost all independent countries choose to assert their nationality by having, to their own inconvenience and that of their neighbours, a peculiar currency of their own.

However, that exactly would help countries like Greece, Italy, Spain etc. to get unemployment significantly lower. Great hope is placed in the upcoming French election to dismantle the eurozone. Perhaps the Ita!ians come to their senses and decide to leave the euro.