Unfortunately, there is still no evidence that a surge of growth in the U.S. economy is creating jobs. Even the U.S. economy’s surprisingly strong third-quarter showing last week does not change the fact that many of the factors creating the jobless recovery in the United States are still in place. The dot-com boom led companies to hire floods of people and invest in all kinds of digital technology that they still have not begun to fully use. As markets have crept upward, businesses have tapped into these earlier investments to be productive without having to add employees. Equipment is still being used at three quarters of capacity, well below the average 84 percent, and quarterly productivity numbers are still rising. But the most powerful forces behind the U.S. jobless recovery are global phenomena that will likely hamper the rest of the developed world’s fight against unemployment when their economies eventually return to health. China is becoming a factory to the world, allow-ing American, European and Japanese firms to farm out production at much lower costs. And the Internet now makes it possible to outsource even high-tech services to such low-wage countries as India and the Philippines. The result of this global labor arbitrage, argues Stephen Roach, chief economist with Morgan Stanley, is “the distinct possibility that jobless recoveries may remain the norm in high-cost developed economies for some time to come.”
Not that the news for the American work force–and, by extension, for the world’s–is all gloom and doom. Corporate profits are clearly on the rise, and IT spending is expected to jump next year. The Chicago outplacement firm Challenger, Gray & Christmas, which tracks layoff announcements, says monthly averages have fallen from 130,000 to 70,000 in the past five months. Nevertheless, there are no sure bets when it comes to employment numbers. Layoff announcements usually surge in the final quarter, and Challenger expects that the recent round of multibillion-dollar mergers just announced will squeeze out thousands more workers just as the holiday retail season begins. “It’s not time to start dancing in the streets,” says Rick Cobb, executive vice president at Challenger. “It’s going to be a slog.”
And before long, Europe and Asia will feel the same global pressures. While Morgan Stanley chief European economist Eric Chaney expects unemployment to initially slide from 8.8 percent to about 5 percent over the next few years, “outsourcing will cap employment growth in the medium to long term,” he predicts. TPI, a major consulting firm that tracks outsourcing deals, has found that new large offshore contracts have grown by 83 percent so far this year, a faster rate than in the United States. Germans are increasingly turning to Eastern Europe. French companies are setting up call centers in cheaper Francophone countries like Morocco. In Japan, there are hints that the long recession is about to bottom out, but companies will be more focused on rebuilding their own profits than in bulking up payrolls, says Kathy Matsui, a managing director for Goldman Sachs. With the exception of the auto and consumer-electronics industries, businesses are woefully behind in taking advantage of low-cost labor in their own backyards. “The trend is clear for the G7” countries, she says. “Japan will be doing more outsourcing.”
For European workers, the good news is that the export of jobs to less expensive labor markets won’t happen right away. But that’s because of the bad news: for there to be a jobless recovery, there would have to be a recovery. Although business confidence in Germany is rising, and planned reforms are expected to make the economy more flexible, for now it remains in its third year of stagnation. Countries differ, of course. The labor market is tight in Britain, which skipped the recession. Italy, thanks to the deregulation of consumer finance that has sparked a housing boom, has been creating jobs, too. But overall the eurozone will grow by less than 2 percent next year. When Europe does gain steam, especially France and Germany, hiring will take off, since there is no productivity cushion for companies to lean on. The trend rate of productivity growth, an average over five years, is still just over 1 percent, compared with about 2.5 percent in the United States. In other words, companies, so the thinking goes, would need to hire workers in order to boost growth. “It’s rather old-fashioned: no productivity miracle, no jobless recovery,” says Thomas Mayer, chief European economist for Deutsche Bank.
When it comes to the global job crunch, demographics may intervene where economics do not. That’s because when the baby boomers retire, the current jobless-recovery debate could look shortsighted. U.S. baby boomers added 27 million people to the pool of native-born workers between the ages of 25 and 54 in the past two decades, but 20 years from now the total number will remain flat. The job pool in Europe and Japan will begin to shrink even sooner. Because new technology will lead to a surge in demand for educated workers once again, the smart companies should be hiring and training the best young people now, says Harvard labor economist David Ellwood. “In 10 years it will be too late to get ready,” he warns. If enough companies take his advice, those payroll numbers may finally tell a happy story.
