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Tuesday, September 02, 2003

Jobs and the US 'Recovery'

Brad has a piece about initial unemployment claims in the US. According to Brad 357,000 seems to be " the weekly initial unemployment insurance claims number below which the unemployment rate is falling rather than rising", at least during the late 90's. So the magical 400,000 loses some of its magic. But maybe this also qualifies the expression 'jobless recovery' a little. The US may well be creating jobs almost as fast as it is destroying them, however it is the demographic factor (growing potential labour force) which means it is not creating enough jobs.

This technical distinction may also be important in another context: the China and India outsourcing debate. Playing fast and loose with language some are suggesting that US jobs are being lost to China. This is not, strictly speaking, true. New jobs are being created in China which might have been created in the US. As Brad suggests the solution to this is not protectionism and slower growth all round, but the strengthening of new, job creating, activities in the US.

On the political side, does anybody really want Indians and Chinese in 50 years' time - the 3bn educated citizens of what will then be industrialised economies and proud countries - to remember that western Europe and North America took whatever steps they could to slow Indian and Chinese economic growth in the first half of the 21st century?

The internet, the submarine fibre-optic cable and the communications satellite are cast in the role played last time by the iron-hulled, ocean-going steamship. Now it is not just atoms but bits that are traded across oceans in rapidly increasing volumes. Customer support, medical analysis, technical work, computer programming, form-filling and claims-processing - all these jobs can now move around the globe in the same way that farming and factory jobs could a century ago.

This global reallocation of jobs promises to be a powerful source of world economic growth over the next two generations. But, as happened a century ago, those workers who face new competition from people a hemisphere away are not happy about it. Large-scale international trade has hit the service sector and, as a result, foreign competition is no longer merely a phenomenon that affects blue-collar workers and gives white-collar workers the opportunity to buy manufactured goods more cheaply. The political system is beginning to respond: New York City no longer dares to digitise tickets and send them to Ghana for processing; New Jersey politicians want public sector contracts limited to US-based processing centres and in return the government of India wants to add a provision securing market access for service sector professionals to the Doha round of world trade talks.

The current wave of concern about service-sector outsourcing is overblown. It is more a reaction to macroeconomic distress than to a shift in the world distribution of employment; if the post-industrial core were closer to full employment, few would care. There are still seven US jobs in software and systems design for every four such jobs that existed when Netscape launched its initial public offering in 1995.

Trade, after all, does not destroy jobs but shifts them elsewhere. If central banks succeed in keeping the advanced post-industrial economies near full employment, for every job that moves out to an Indian call centre another job moves in. If Indians spend the harder currencies they earn on developed countries' exports, it will be a job making machine tools or new kinds of hybrid seeds, or managing the construction of an Indian factory. If Indians use the harder currencies they earn to invest in the developed world, it will be a job in construction. There are more and bigger winners from the demand created by a job's shift to an Indian call centre than there are losers.

However, much as I agree with Brad in principle here, he does fudge things a little. Eddie put his finger on the problem yesterday with the distinction between the short and long term. In the long run - ceteris paribus - everyone can be much better off from the rise of India and China (of course, other things will not be equal, since there will be less of us working - proportionately - and we will be older, but we can hardly blame this on China and India). However, in the short run it is an empirical question whether moving a job to an Indian call centre will create more and bigger winners in the US. Brad is right that in the long run we will all be better off - at least in economic welfare terms (however, if what matters most to us is being better off than others, then we may not feel so well off). There is some analogy here with attitudes to the internet. Maybe short term Bertelsmann can survive and lose less money by staying off-line, but in the long run........The question is essentially one of 'adjustment costs', both cultural and financial. Coming from the UK I can assure you that the rise of the US as the number one global economy didn't always make things easy. The UK had its 'adjustment problems' as will the US. As with the 'free movement of capital' in the context of less developed countries, there is a danger of seeing things in black and white terms. Many problems have an empirical component and need nuancing (not all protectionism, in every case, is bad, nor, as Eddie has also pointed out, is it clear that protectionism causes deflation: inflation and stagnation may be the more likely outcome). Brad, as ever, places his faith in the central bankers to use monetary policy to maintain our economies 'near full employment': I wish I had his faith in their power.

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