Jobs and the Job Market

Top 65. Jun 3, 2005 1:24 PM

» Normxxx - What Really Ails Europe

What Really Ails Europe (and America): The Doubling of the Global Workforce

By Richard Freeman, Globalist | Friday, June 03, 2005

Most people still have not come to grips with the most fundamental reality change in the current era of globalization — the fact that the global labor force has virtually doubled in size in the last 15 years. Harvard University's Richard Freeman explores the far-reaching consequences of the addition of countries like China, India and the ex-Soviet Union to the global pool of labor.

The global economic community, and economic policymakers in governments and global institutions alike, has yet to fully understand the most fundamental economic development in this era of globalization — the doubling of the global labor force.

The doubling I am referring to is the increased number of persons in the global economy that results from China, India and the ex-Soviet Union embracing market capitalism.

In 1980, the global workforce consisted of workers in the advanced countries, parts of Africa and most of Latin America. Approximately 960 million persons worked in these economies.

Population growth — largely in poorer countries — increased the number employed in these economies to about 1.46 billion workers by 2000.

New players enter the scene

But in the 1980s and 1990s, workers from China, India and the former Soviet bloc entered the global labor pool. Of course, these workers had existed before then. The difference, though, was that their economies suddenly joined the global system of production and consumption.

In 2000, those countries contributed 1.47 billion workers to the global labor pool — effectively doubling the size of the world's now connected workforce.

Competing globally

These new entrants to the global economy brought little capital with them. Either because they were poor or because the capital they had was of little economic value.

Using figures from the Penn World Tables, I estimate that the entry of China, India and the former Soviet bloc into the global economy cut the global capital/labor ratio by just 55% to 60% what it otherwise would have been.

The capital/labor ratio is a critical determinant of the wages paid to workers and of the rewards to capital. The more capital each worker has, the higher will be their productivity and pay. A decline in the global capital/labor ratio shifts the balance of power in markets toward capital, as more workers compete for working with that capital.

Even considering the high savings rate in the new entrants — the World Bank estimates that China has a savings rate of 40% of GDP — it will take 30 or so years for the world to re-attain the capital/labor ratio among the countries that had previously made up the global economy.

Pressure to compete

Having twice as many workers and nearly the same amount of capital places great pressure on labor markets throughout the world. This pressure will affect workers in the developing countries who had traditionally participated in the global economy, as well as workers in advanced countries.

Countries that had hoped to grow through exports of low-wage goods must look for new sectors in which to advance — if they are to make it in the global economy.

The effect on advanced countries

Mexico, Columbia or South Africa cannot compete with China in manufacturing, as long as Chinese wages are one-quarter or so of theirs — especially since Chinese labor is roughly as productive as theirs.

The ending of the apparel quotas in January 2005 has brought this point home to many countries, which are now rethinking their growth strategy.

But the advent of 1.47 billion new workers also pressures labor in advanced countries. The traditional trade story has been that most workers in advanced countries benefit from trade with developing countries because advanced country workers are skilled, while developing country workers are unskilled.

But this analysis has become increasingly obsolete due to the massive investments that the large populous developing countries are making in human capital. China and India are producing millions of college graduates capable of doing the same work as the college graduates of the United States, Japan or Europe — at much lower pay.

A shifting monopoly

By 2010, China will graduate more PhDs in science and engineering than the United States. The huge number of highly educated workers in India and China threatens to undo the traditional pattern of trade between advanced and less developed countries.

Historically, advanced countries have innovated high-tech products that require high-wage educated workers and extensive R&D, while developing countries specialize in old manufacturing products. The reason for this was that the advanced countries had a near monopoly on scientists and engineers and other highly educated workers.

Job migration

As China, India and other developing countries have increased their number of university graduates, this monopoly on high-tech innovative capacity has diminished. Today, most major multinationals have R&D centers in China or India, so that the locus of technological advance may shift.

Certainly, the rate of technological catch-up will grow, reducing the lead of advanced countries over the lower wage developing countries.

Business experts report that if the work is digital — which covers perhaps 10% of employment in the United States — it can and eventually will be off-shored to low-wage highly educated workers in developing countries.

If and when Russia gets its economic act together, labor market pressures on educated and skilled workers will grow.

Transitioning to global market capitalism

The entry of China, India and the former Soviet bloc to the global capitalist economy is a turning point in economic history. For the first time, the vast majority of humans will operate under market capitalism, with access to the most modern technology.

The workers in these new entrants to the global capitalist system should make great gains, reducing rates of poverty, as indeed has occurred in China and India over the past 10-15 years.

A difficult change

But there will be a long and difficult transition for workers throughout the world to this change — a more formidable transition than that associated with the recovery of Europe and Japan after World War II.

In advanced countries, real wages and/or employment are likely to grow more slowly than in years past. In developing countries that have traditionally been part of the global economy, manufacturing jobs are at risk.

They are likely to see a shift in labor to the informal sector with rising poverty, as indeed has occurred in many countries. China and India themselves are likely to face problems. Inequality in China and the former Soviet bloc has risen at rates unprecedented in economic history. Inequality has historically been high in India.

Large numbers of rural workers in China and India could lose from globalization, creating dangers of social unrest, particularly in non-democratic China.

Responsibility of policymakers

What does all this mean for economic policymakers and officials like Paul Wolfowitz at the World Bank and his counterparts at the International Monetary Fund?

So far, the World Bank and the IMF have tended to blame economic problems on insufficient labor flexibility, or fiscally irresponsible governments with excessive expenditures on social safety nets, as well as on government interventions in markets.

The role of the IMF and World Bank

The IMF, in particular, has sought to protect capital, particularly foreign capital, as its actions in Argentina make clear. But with a doubled workforce, capital should be quite capable of taking care of itself.

Instead of seeking to protect capital, the World Bank and the IMF need to help countries develop policies to minimize the costs of adjustment to workers during what is likely to be a long transition.

The global community needs to make sure that the gains of globalization are spread widely, to avoid backlashes and instability. And the world needs to increase savings as rapidly as possible to build up the global capital stock.

For its part, the United States has to shift from being the world's greatest debtor to becoming a giant creditor to the global economy.

A new consensus

In short, the world needs to abandon the Washington Consensus model of globalization that was designed, not all that successfully, for an utterly different global economy.

The world needs a new model of globalization and new policies that put upfront the well-being of workers around the world. They will be on the short end of the stick for a long time to come.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 66. Jun 3, 2005 3:03 PM

» arommel88 - Re: What Really Ails Europe

In response to What Really Ails Europe posted by Normxxx:

I think Eastern Europe is gving Western Europe the double wammy. We all know about basic manufacturing and it is hitting all the G8 countries. However Eastern Europe is a good half way house for companies operating in Western Europe to cut labor costs. Last Christmas I spent some time with my wife's friend who lives in Luxemburg. Her husband is quite well heeled and seems to have a stake in several businesses. He did not care for India much because it is so far and hard to keep track of. He did like Slovania , for example, because he could quickly fly there and be back in the evening. If you look at the Western European ability to move labor and capital it is far worse than the US let alone Eastern Europe. Along with that very interesting insider information it is very easy to see why the European Union is in turmoil alla France and the Dutch. The Eastern European countries joining the Union are bringing down the barriers and I do not think everybody likes it.

-- posted by arommel88

Top 67. Jun 3, 2005 5:27 PM

» Normxxx - Re: Re: What Really Ails Europe

In response to Re: What Really Ails Europe posted by arommel88:

If I recall correctly, eight of the ten European countries that ratified the constitution did so by legislative action-- not by popular referendum!

I do not think a United States of Europe is a very popular concept anywhere in Europe except among the beaurocratic classes. And you're right; labor in Europe is not very mobile.

-- posted by Normxxx

Top 68. Jun 8, 2005 12:43 PM

» Normxxx - WEAKENING ECONOMY?

JOBS REPORT HINTS AT WEAKENING ECONOMY

By JOHN CRUDELE, NYPost | 8 June 2005

The Labor Department padded its May employment figures with an extraordinary 207,000 positions that probably don't exist — and it still could get only very modest job growth for the month.

The only conclusion can be that the real economy — outside the government's guesstimate for virtual companies it hopes and prays are being created — is beginning to sour.

The worst part of this game is that Washington is making dangerous assumptions that disguise from policy makers — not to mention you and me — what is really going on with the economy. Other economic statistics, as well as corporate anecdotes, are already pointing to a slowdown.

The Federal Reserve, for one, will soon be making decisions about future interest rate increases based on faulty information.

The total May growth of just 78,000 jobs means that the true number of positions available probably shrunk by about 129,000, thanks in large part to layoffs, mergers and weakening business conditions.

An actual number is impossible to come by because the extra 207,000 jobs added for the birth of new companies are before some adjustments. But those adjustments probably only change the calculation by a few thousand jobs.

As I've been saying, this calculation for the birth and death of companies — wholly speculative on the part of the Labor Department — has been driving the overall labor numbers up and down for more than a year.

Even if you accept the practice of guessing at these new company jobs, there is still a big question as to whether the government is adding too many, considering that business conditions today are easily worse than they were in 2004.

And all of the guesstimates for this year have topped 2004 levels.

The government started 2005 by deducting 280,000 jobs from the January count for companies it believed — but also couldn't prove — had suddenly ceased operation.

But then it added 100,000 questionable jobs to the February total, tacked on another 179,000 in March and 257,000 in April before picking up the extra 207,000 May jobs.

That adds up to a net gain of 463,000 jobs for the year so far — out of the total 870,000 new position officially reported.

These mystery jobs are calculated by the Bureau of Labor Statistics in something called the Current Employment Statistics Net Birth/Death Model.

Here's how they do it. In May the government assumed that enough new companies were begun in the leisure and hospitality industry to have added 75,000 jobs. That's on top of any seasonal hiring by leisure companies that were already in business before the month.

Experts had been predicting job growth of 180,000 in May. Because of the Birth/Death plug factor I thought the figure would be even stronger.

The fact that it wasn't bodes badly for the whole economy and throws interest rates expectations for a loop.

Right before the job number came out Richard Fisher, new head of the Dallas Federal Reserve, hinted that the Fed might soon be finished increasing rates.

While it's unlikely someone of Fisher's low seniority would be tipping off the Fed's thinking, his comments might be prescient.

Alan Greenspan will have to decide late this month whether to raise interest rates for the ninth time in a year. The last eight hikes have been a total failure — the rates at which people borrow money have actually dropped even as the Fed has been encouraging them to rise.

The Fed is now boxed in and when the slowdown in the economy becomes more obvious Greenspan will only be able to cut the irrelevant fed funds rate. He won't be able to stimulate borrowers, who have had ample opportunity to borrow money if they desired to.

No matter what the Fed decides, this much is clear: It and us deserve to know what is really going on in the labor market.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 69. Jun 8, 2005 1:30 PM

» Kirk - Re: WEAKENING ECONOMY?

In response to WEAKENING ECONOMY? posted by Normxxx:

What needs to happen is for US based companies to find something to invest in that they can sell to the Chinese and OPEC besides advanced technology (AMAT and LRCX capital equipment or weapons of war). Intel is doing a good job with microprocessors. I thought it would be software in the form of movies and DVDs but that is too easily copied it seems.

I've heard a smattering of interesting reports from India. They pretty much say India is running out of IIT graduates who will work at night and sleep during the daytime to get abused over the telephone for not being American citizens. The cheap, well educated labor willing to work for peanuts is a finite supply, especially when the half life of a call center rep is measured in days not months. The model might continue to work well for IT jobs....

-- posted by Kirk

Top 70. Jun 8, 2005 3:21 PM

» Jas_Jain - Job Prospects For America's Youth Are Worst Since 1947

This was reported on a L.A. news radio (very credible) during its business hour report.

Depression is coming and no amount of denial will forestall it. Be ready now or be sorry later.

Jas

-- posted by Jas_Jain

Top 71. Jun 8, 2005 3:54 PM

» Bill_Duffy - Re: Job Prospects For America's Youth Are Worst Since 1947

.
Seems the most opportunity is in healthcare. All 3 of my kids are going into that sector. Just look at the Sunday paper. Lots of jobs there. Most cannot be outsourced to India.

Not one of my son's friends are going into engineering.

-- posted by Bill_Duffy

Top 72. Jun 8, 2005 6:04 PM

» Jas_Jain - Re: Re: Job Prospects For America's Youth Are Worst Since 1947

In response to Re: Job Prospects For America's Youth Are Worst Since 1947 posted by Bill_Duffy:

--

Bill: "Seems the most opportunity is in healthcare. All 3 of my kids are going into that sector. Just look at the Sunday paper. Lots of jobs there. Most cannot be outsourced to India. Not one of my son's friends are going into engineering."

Yes, Bill, another good area going forward in the US would be private security when the proverbial sh*t hits the fan. With few very wealthy and the middle-class fully decimated the conditions would be more like Central America. American E-Con will make Argentina’s of the past 5 years look good. America’s blind faithful think that it can’t happen here. Well, they wouldn’t have to wait too much longer.

Bush, Greenspan & Co. wouldn't allow it to happen? LOL!

Jas

-- posted by Jas_Jain

Top 73. Jun 17, 2005 6:00 PM

» Normxxx - Brunswick closing last plant

Brunswick closing Muskegon plant; 115 to lose jobs

June 17, 2005 - 8:57AM

LAKE FOREST, Ill. (AP) - Brunswick Corporation says it will stop manufacturing bowling balls in the U.S. and move production to Mexico.

The Illinois-based company says the move will result in 115 layoffs at its plant in Muskegon, Michigan.

Brunswick says it can't be competitive in the global marketplace despite numerous cost-cutting efforts at the Muskegon plant. The company said U.S.-based production will be phased out over the next 12 to 24 months as it shifts the work to a plant under construction in Reynosa, Mexico.

The business' 275 sales and support jobs will remain in Michigan. Brunswick has manufactured bowling balls in Muskegon for decades.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx