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Monday, September 08, 2003

The Weak US Labour Market and Services

Reasonable piece in the NYT about the latest US employment news. Interesting to note that the principal culprit is imagined to be job-loss to China. I would say that the big news here is the services job loss - 67,000. This work is clearly not moving to China, India forms a big part of the picture (although it is important to remember there are many other available services outsourcing candidates), but this doesn't connect with another of the 'flavour of the month' arguments, that the Chinese yuan is too weak. The Indian rupee is floating and has been rising slowly recently (from 49 to 45 to the US dollar), all of which tends to suggest that those of us who are arguing that with such large wage differentials small currency adjustments won't be any big deal, and in China's case may only serve to make internal deflationary tendencies worse, are doing so with justification. The services news is much more preoccupying for the US outlook, since the manufacturing jobs are inevitably vulnerable, the recent decline in manufacturing being only the latest chapter in a long run process. But services, this is different. One way or another, even the US has to pay it's way in the world. This means the US has to find new activities that can justify the enormous per-capita income differential she enjoys. Short of that we could be confronted with another example of the old adage: 'what goes up must come down'. Incidentally, it will be interesting to see what is said about transparency in government procurement in Cancun in the light of some recent and highly publicised services outsourcing restrictions inside the US govt sector. One more time: isn't sauce for the goose also sauce for the gander?

What surprises many economists is that the job-shedding has continued despite what they describe as an extraordinary level of economic stimulus. Low interest rates, tax cuts and rebates, a rise in military spending, mortgage refinancings, growing corporate profits, even a long-awaited improvement in business spending on new equipment and software have all contributed to the rise in the economic growth rate. But jobs are disappearing, and employers continue to resist adding hours for their existing workers. Economists warn that without payroll expansion and rising income from wages, sustaining the economic growth will be difficult once the stimulus weakens. "If we go into next year without job growth, then the consumer's willingness to keep spending comes into question, and recovery is in danger of unwinding," said James W. Paulsen, chief investment strategist for Wells Capital Management. Seeking an explanation for the job drought, some economists call attention to the shifting of production overseas, particularly to China, and to the American economy's rapid gains in productivity. The productivity gains allow companies to maintain the same level of production with fewer workers.

The Labor Department's Bureau of Labor Statistics determines the unemployment rate through a monthly survey of 60,000 households. If respondents say they were unemployed in the week before the survey, they are asked if they are actively looking for work. Only those actively searching for a job are counted as unemployed. Those who say they would like a job but are too discouraged by the difficulties of finding one to search actively are no longer counted as either employed or unemployed. The number of discouraged workers rose by 33,000 last month, subtracting them from the jobless rolls. The count of discouraged workers has more than doubled in the last three years, to 503,000 in August from 203,000 in August 2000. In addition, the number of workers in the survey who described themselves as self-employed grew by 233,000 last month — evidence to some economists that many had lost jobs and were masking their unemployment. "Whenever you see a spike in self-employment in this kind of economy, you know that is involuntary entrepreneurship," said Jared Bernstein, a senior labor economist at the Economic Policy Institute.

The principal employment number comes from a separate survey, covering 160,000 businesses and government agencies and 400,000 work sites. From that survey, the bureau determines the actual number of jobs. Though the biggest loss in August was 44,000 jobs in manufacturing, employment also shrank in computer design and information technology and in government employment. The government job losses were mostly at the state and local level, reflecting widespread cutbacks to balance budgets. The average hourly wage of production workers, about 80 percent of the 129.8 million people employed in August, rose 2 cents in August, to $15.45. In the last 12 months, this wage has risen 2.9 percent, keeping workers ahead of inflation.
Source: New York Times

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