US workers are falling behind the rest of the world. Here's why

The U.S. labor market is hot. Unemployment is at 3.8 percent, a level it’s hit only once since the 1960s, and many industries report deep labor shortages. Old theories of what’s wrong with the labor market — such as a lack of people with necessary skills — are dying fast. Earnings are beginning to pick up, and the Federal Reserve envisions a steady regimen of rate hikes.

So why does a large subset of workers continue to feel left behind? We can find some clues in a new 296-page report from the Organization for Economic Cooperation and Development (OECD), a club of advanced and advancing nations that has long been a top source for international economic data and research. Most of the figures are from 2016 or before, but they reflect underlying features of the economies analyzed that continue today.

In particular, the report shows the United States’s unemployed and at-risk workers are getting very little support from the government, and their employed peers are set back by a particularly weak collective-bargaining system.

Those factors have contributed to the United States having a higher level of income inequality and a larger share of low-income residents than almost any other advanced nation. Only Spain and Greece, whose economies have been ravaged by the euro-zone crisis, have more households earning less than half the nation’s median income — an indicator that unusually large numbers of people either are poor or close to being poor.

Joblessness may be low in the United States and employers may be hungry for new hires, but it’s also strikingly easy to lose a job here. An average of 1 in 5 employees lose or leave their jobs each year, and 23.3 percent of workers ages 15 to 64 had been in their job for a year or less in 2016 — higher than all but a handful of countries in the study.

If people are moving to better jobs, labor-market churn can be a healthy sign. But decade-old OECD research found that an unusually large amount of job turnover in the United States is due to firing and layoffs, and Labor Department figures show the rate of layoffs and firings hasn’t changed significantly since the research was conducted.

The United States and Mexico are the only countries in the entire study that don't require any advance notice for individual firings. The U.S. ranks at the bottom for employee protection even when mass layoffs are taken into consideration as well, despite the 1988 Worker Adjustment and Retraining Notification (WARN) Act's requirement that employers give notice 60 days before major plant closings or layoffs.

And when you lose your job in the United States, it’s harder to find another. Fewer than half of displaced workers find a job within a year, the researchers found — that puts the United States near the bottom of the five countries for which the researchers provided recent data. Japan’s rate was similar to the U.S., but Finland, Australia and Denmark were well ahead. Furthermore, the report’s authors find that “two in three families with a displaced worker fall into poverty for some time.”

Even when Americans do find another job, their earnings don’t recover. After four years, displaced workers are still about 6 percent behind their peers in terms of annual earnings. In countries such as Finland and Denmark, workers more or less recover completely over that time period.

These gaps at the lower end of the labor market can be traced back to weak government programs and hamstrung union bargaining, the report says. The United States spends less of its economic wealth on active efforts to help people who either don’t have a job or who are at risk of becoming unemployed than almost any other country in the study.

The unemployed, in particular, receive relatively little assistance. U.S. unemployment benefits provide less support in the first year of unemployment than those in any other country in the study, and the maximum length of benefits in a typical U.S. state, 26 weeks, is shorter than in all but a handful of countries. In some states, the maximum benefit length is less than half of that.

Only 12 percent of U.S. workers were covered by collective bargaining in 2016 — among all the nations the OECD tracks, only Turkey, Lithuania and South Korea have been lower at any point this millennium. And, based on an OECD review of almost four decades of data, countries that have decentralized collective-bargaining systems, like the United States, tend to have slower job growth and, in most cases, higher unemployment than other advanced nations.

These collective bargaining and government support systems might have something to do with another report finding as well: Workers’ share of national income dropped about eight percentage points between 1995 and 2013, faster than anywhere but Poland and South Korea over that time.