CLAIM: “Our unemployment rate is more than twice as high as South Korea’s, two-and-a-half times the United Kingdom’s, more than three times Japan’s. Donald Trump says we’re leading the world — well, we are the only major industrial economy to have its unemployment rate tripled,” former President Bill Clinton said in a video broadcast Tuesday night during the Democrat’s virtual national convention.
The U.S. unemployment rate did jump higher than that of our European and Asian allies. But that is because the U.S. has favored a more flexible and generally more effective economic policy response than Europe, South Korea has an export-focused economy, and Japan’s shrinking population and societal conventions all but prohibit layoffs.
It is highly misleading to claim the higher U.S. unemployment rate is a reflection of an alleged failure by Trump administration policies or to imply that this is evidence the U.S. economy is weaker than the U.K.’s, Japan’s, or South Korea’s.
The U.K., like many other European nations, has relied on a job protection scheme that has kept workers formally attached to their jobs even though many are not actually working or businesses cannot afford to keep them on.
The U.S., for its part, engaged in a massive fiscal expansion that has swiftly ended the economic contraction caused by the coronavirus. That included allowing workers to be laid off but paying most of those workers more in unemployment benefits than they earned on the job. That has limited the damage to the U.S. economy, kept household consumer spending afloat, and allowed many Americans who lost their jobs to keep paying their bills.
The eurozone’s gross domestic product plunged 40.3 percent on an annual basis, far exceeding the 32.9 percent contraction in the U.S. economy over the same period, according to data released last month. Japan is deeply mired in a recession, with its economy shrinking for three consecutive quarters, most recently by 27.8 percent. Smaller South Korea has done better but largely because the structure of its economy means it is much less dependent on the spending of its own consumers and therefore less vulnerable to social distancing drags.
In other words, the difference in unemployment is not descriptive of the effectiveness of the economic policies of the different nations.
Here’s how the Wall Street Journal’s Greg Ip explained the difference between the U.S. and Europe:
But in managing the economic fallout, the U.S. is the exemplar. Its economy probably shrank 10% in the first half of the year, according to J.P. Morgan, about half as much as Spain, Italy and France and less even than Germany, which has been relatively unscathed by the virus.
Less stringent and shorter lockdowns and less dependence on tourism and trade explain some of this outperformance, but policy actions are also key. Congress and the Trump administration have passed spending and tax measures exceeding 12% of gross domestic product, among the highest of advanced countries, according to the International Monetary Fund.
Here’s the New York Times on why layoffs were so low in Japan:
In Japan, though, the number has barely budged. The unemployment rate has ticked up just two-tenths of a percentage point since February, to 2.6 percent. Wages and working hours have also remained relatively stable.
That does not mean Japan’s economy — the world’s third largest after the United States and China — has been unscathed. Output shrank by 2.2 percent in the first three months of the year, pushing the country into recession. And data from April suggests that the picture is growing only bleaker.
But a constellation of social, demographic and epidemiological factors in Japan has meant that the economic slowdown has not produced mass layoffs.
Breitbart News explained why layoffs and overall economic impact have been so low in South Korea:
The other flaw with comparing the South Korean economy to the U.S. is that the economies are fundamentally different. The South Korean economy is obviously much smaller and, more importantly, it is heavily focused on exports, with between 40 percent and 50 percent of its GDP arising from exports. This means that its economy is much less dependent on internal consumer demand than the U.S., where exports account for just over 12 percent of GDP. As a result, South Korea’s employment and broader economy will suffer less from a dive in domestic consumer spending, all other things being equal.
In short, a shutdown of personal consumption spending in South Korea is going to throw a much smaller slice of workers out of their jobs than a shutdown in the U.S. because a much smaller percentage of Koreans work in businesses dependent on that spending.
To really see if South Korea’s coronavirus policies had a positive economic effect, we need to narrow the focus to consumer spending. Private consumption spending in South Korea fell 6.2 percent. The U.S. reported a 7.2 percent decline but again that is on an annualized basis. If we annualize the South Korean figure, personal consumption spending fell at a jaw-dropping 22.6 percent rate.
In short, blaming higher unemployment on the Trump administration is highly misleading.