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US vs UK labour market

    Last month I wrote for City AM about how Ed Balls was wrong to laud the US recovery when he was launching his so-called “inclusive prosperity” commission. Balls and other have a tendency to set out the US and UK as if we have something close to a natural experiment: the UK tried “austerity”, the US tried “stimulus”, and thus the US economy doing better than the UK = stimulus win. The truth is far more complex, of course. The Federal government undertook a so-called ‘stimulus’, but many states were cutting back significantly. There are other internal factors (US shale gas revolution, for example) and external factors (the Eurozone crisis) that render the natural experiment concept inadequate. The UK front-loaded tax rises, rather than cuts to current expenditure. The US tends to have better supply-side fundamentals, and so bounces back from recessions more strongly.

    But perhaps most importantly, if Mr Balls really thinks that the difference between the two macro policies is what has determined the US’s faster GDP growth, perhaps he’d also like to give Mr Obama credit for the US’s poor labour market performance, shown in the three charts below (put together at the end of July).

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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