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Can the West’s inexplicable employment miracle continue?

Tono see what A world swimming at work looks like, visit Japan. At airports, workers will organize suitcases after they fall onto conveyor belts. Men with fluorescent batons stand near construction sites, reminding you to stay off the site. In department stores, well-dressed ladies will help you take the elevator. At one of the best bars in Tokyo, a team of four prepares your reporter with a gin martini (from the fridge, free pour, and very dry, of course).

Now, other rich countries are starting to look more like the Japanese.Since the exciting post-lockdown days of 2021 gross domestic product Growth in 38 countries around the world OECD Has slowed to almost a standstill, negatively in some countries. Business confidence is below its long-term average. However, there are not many signs of weakness in the labor market. On March 7, Federal Reserve Chairman Jerome Powell observed that in the United States, “despite slower growth, the labor market remains very tight.”across OECD Overall, the unemployment rate was 4.9% in December, the lowest level in decades. The developed world added about 1 million jobs from the third to the fourth quarter of this year, in line with the long-term average.in half OECD In countries including Canada, France and Germany, the proportion of the working-age population has never been higher.

Unemployment is rising in several countries, including Austria and Israel.One of the worst performers was Finland, where unemployment rose by a full percentage point from post-lockdown lows. Facing soaring energy prices and dwindling trade with Russia, the country’s gross domestic product A 0.6% decline in the fourth quarter of 2022. But “worst” is relative. Finland’s unemployment rate was 7.1% in January, still well below its long-term average. Meanwhile, most places where unemployment was high in the early 2010s — Greece, Italy, Spain — are doing much better now.

This employment miracle hints at changes in Western economies. To see why, go back to Japan. Local employers don’t like to fire workers, even if they have nothing to do. That’s partly because more people are retiring, companies are struggling with new hires, and are reluctant to let employees go unless they have no choice. The result is that unemployment has barely risen, even during the recession. Over the past 30 years, Japan’s unemployment rate has varied by just 3.5 percentage points, compared with the rich-country average of 9.5 percentage points.

A more Japanese labor market would have downsides. If employees don’t leave underperforming companies, they can’t join innovative companies that drive growth. In fact, the data suggest that productivity growth in developed countries is currently unusually weak. Yet periods of unemployment can take a horrific human toll.Countries with less volatile unemployment rates also tend to have milder recessions, Dario Perkins noted TS Lombard, a financial services company. When the labor market doesn’t break down, people can keep spending even as growth slows.

What explains the Japanese turn of employers? Perhaps, after the epidemic, bosses are more friendly to employees. Another, more realistic possibility is that the company is in good financial shape. This may allow them to afford lower revenues without having to cut costs. Many people have received government help during the COVID-19 pandemic. In recent years, corporate profits have been huge. Companies in rich countries still hold about a third more cash reserves than they did before the pandemic.

A more intriguing possibility has to do with labor. Relative to pre-pandemic trends, the rich world is “missing” 10 million workers, or about 1.5% of the workforce, by our estimates. In Britain and Italy, the workforce has actually shrunk. Early retirement and an aging population explain part of the deficit. Covid may prompt people to reassess their priorities, prompting them to withdraw. Some even think that the prolonged COVID-19 pandemic is forcing people to stay on the sidelines. Whatever the explanation, the decline in engagement wreaked havoc on the program. Many companies laid off workers when the pandemic hit, only to find it difficult to rehire them in 2021.Job openings for that year OECD A record high of 30m.

Employers may now want to avoid making the same mistake.a recent report Second&p Consulting firm Global Market Intelligence noted that “companies are reluctant to approve layoffs due to the enormous challenges they face in rehiring post-pandemic”. So far, total U.S. jobless claims are below normal levels at the start of the year. JPMorgan’s Daniel Silver speculates that this is due to “companies’ reluctance to lay off workers given the difficulty of eventual rehiring.”

The pain in the labor market may ultimately just be postponed.In some past recessions, the unemployment rate only started to rise significantly after a while gross domestic product begin descending. But the “real-time” data showed little sign of an imminent surge in unemployment. Employers in most countries still have ambitious hiring plans, according to a recent survey by human resources firm ManpowerGroup. In the US, the National Federation of Independent Business, a lobby group, found an unusually high number of small firms planning to create new jobs over the next three months.

Even with rising interest rates, the central bank may be inclined to tighten monetary policy more quickly in the face of labor market resilience. A further increase in interest rates, or another energy shock, could push employers over the edge, forcing them to lay off workers. However, pressure to retain staff could become a structural problem. Over the next decade, the rich world’s population will age rapidly, further dragging down labor supply. Good workers may become harder to find. Next time it might just be three people making a martini for your reporter.

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