US job losses not that surprising
8 September 2003
Despite the economic recovery, jobs continued to be lost in the US in August, much to the disappointment of many American economists, many of whom had expected payrolls to rise. Apparently, many economists still do not understand the way the global economy has evolved.
On 5 September, the US Bureau of Labor Statistics reported a 93,000 decline in non-farm employment in August, the seventh consecutive month of declines. The jobless rate fell from 6.2 percent in July to 6.1 percent, mainly due to discouraged workers dropping out of the labour force.
Bloomberg News reported that the figures were "a big disappointment" for FTN Financial chief economist Chris Low. "You've got enough momentum in the economy to add jobs but not enough confidence among businesses to hire."
"These numbers are disappointing, extremely weak," Kathleen Stephansen, director of global economics at Credit Suisse First Boston, said of the jobs data. "It's saying that essentially the labour market continues to lag sorely behind the other numbers. The missing link in this recovery/expansion remains the labour market."
"Everything that was expected to happen didn't happen, and everything that was not supposed to happen happened," said Joe Carson, director of global economic research at Alliance Capital Management, according to Caroline Baum in her Bloomberg column on 5 September. Baum thinks that the weak employment figures "suggests a blowout for corporate profits". Quoting Carson, she wrote that third quarter corporate profits could hit 8.8 percent of GDP, the high end of the historical range.
However, Baum also quoted Jim Glassman, senior U.S. economist at J.P. Morgan Chase: "Once profits are normalized, all of the increased productivity won't flow to business." In other words, labour will eventually get its share of the economic recovery.
That eventuality is nowhere near certain, in my opinion. What Baum and the economists who were surprised by the poor jobs figures don't seem to realise is that many of these jobs have gone overseas, where labour costs are much lower than in the US. And especially in places like India and China, they are likely to remain substantially lower for a long time to come. A stronger global economy tends to increase the number of jobs in emerging Asia, not necessarily in the US.
Not that all American economist are oblivious to this fact. In Morgan Stanley's Global Economic Forum on 2 September, chief US economist Richard Berner wrote: "Outsourcing abroad represents a second longer-term barrier to US job growth. Obviously, losing jobs to cheaper overseas locations is an old challenge, but the stakes seem different than in 1992 when Ross Perot and Al Gore debated NAFTA's impact. Then, the issue was manufacturing job loss. Today, many fear a 'sucking sound' of high-paying white-collar jobs in occupations such as software engineer, medical technician, lawyer — perhaps even portfolio manager or U.S. economist — to India and other locales. That may seem a little far-fetched, but already, Indian employment in IT-enabled services (ITES) outsourcing (of which about 40% is in call centers) jumped by 54,000 to 160,000 in the year ended in March. My colleague and Morgan Stanley Indian Economist Chetan Ahya believes that by March 2004, India will host 60–70,000 more jobs in ITES. Small wonder: According to the Indian ITES companies' association, the cost of an Indian ITES employee is just 15% of a U.S.-based employee."
And in Merrill Lynch's Global Research Highlights published on 5 September, chief global investment strategist David Bowers wrote: "Clearly, Asian savings have extended the U.S. credit cycle, which, in turn, has financed America's demand for Asian exports. The catch is that, ultimately, that situation may create more jobs in Asia than in America."
Richer Asian countries are much more acutely aware of the threat posed by the emerging Asian economies. Japan, for one, has been frantically trying to keep the yen down to stay competitive with the Chinese renminbi. And over the past few weeks, Singapore has introduced several measures, including a cut in its pension fund employer contribution rate, to try to reduce the cost of doing business in the country. Many have termed Singapore's actions as a wake-up call to Singaporeans that the good times may be over (see earlier article). It is probably about time that those Americans still slumbering wake up as well.
That may include Baum, who appears a bit too sanguine on the prospects for American workers. Reflecting her confidence, she concluded her article on 5 September with: "Labor's time is coming."
Perhaps labour's time has already come: Asia's labour.
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