Unemployment in the Great Recession: A Comparison of Germany, Canada and the United States*

This paper looks at the surprisingly different labor market performance of the United States, Canada, Germany, and several other OECD countries during and after the Great Recession of 2008-09. The unemployment rate followed a very different path in these countries. It barely increased in Germany, increased and remained at relatively high levels in the United States, and increased moderately in Canada. More recent data also shows that, unlike Germany and Canada, the U.S. unemployment rate remains largely above its pre-recession level. We find two main explanations for these differences. First, we show that the large employment swings in the construction sector linked to the boom and bust in U.S. housing markets is an important factor behind the different labor market performance of the three countries. Second, we find that cross-country differences are consistent with a conventional Okun relationship linking GDP growth to employment performance. Relative to pre-recession trends, there has been a much larger drop in GDP in the United States than Germany between 2008 and 2012, which helps account for a large fraction of the difference in employment performance between the two countries