U.S. Jobs Report for October Looks Good, But Economic Forces Are Still Aligned to Degrade Employment And Wages

SOURCE ITEMS

Making matters worse, the return on investment in education is falling, because the economy is growing slowly and changing rapidly, making it difficult for some graduates to secure employment that takes advantage of their knowledge and skills. Universities are often slow to adapt their curricula to the economy’s needs, while new technologies and business models are exacerbating the winner-take-all phenomenon.

Mohamed A. El-Erian, America’s Education Bubble, Project Syndicate, November 9 2015.  Accessed November 9, 2015.

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Chart-Imports from Emerging Markets, 2015

9/11/2015-A further sharp downturn in emerging market economies and world trade has weakened global growth to around 2.9% this year – well below the long-run average – and is a source of uncertainty for near-term prospects, says the OECD.

 Emerging market slowdown and drop in trade clouding global outlook, Organization for Economic Cooperation and Development.  Accessed November 9, 2015.

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The demonstration is significant for two reasons. First, the tasks the robot is being asked to perform aren’t rigidly defined. Instead the robot needs to identify and adapt to a complex situation involving several variables. … But that technology migration is underway, and it will change the way products are manufactured and delivered. … On the robotics front, that means we’re going to see more flexible systems that can switch between tasks on the fly.

Greg Nichols, Why a fruit sorting robot will disrupt industrial automation Adaptable, smart, and cheap. Welcome to the future of automation, ZDNet, November 7, 2015. Accessed November 9, 2015.

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Without human advisers — people are the biggest expense at any securities firm — the new ventures can charge annual fees of 0.5 percent of assets under management or less. That undercuts full-service brokers, which typically charge annual fees of at least 1 percent.

Hugh Son, A Money-Managing Robot Is About to Join BofA’s Thundering Herd, Bloomberg Business, November 6, 2015. Accessed November 9, 2015.

COMMENTS

The old economic narrative that each nation has it’s economic destiny in its own hands is dead. The old economic narrative that a rising tide lifts all boats is dead. The old economic narrative that new jobs in new industries are created faster than automation displaces workers in existing industries is also dead. What this means is that the institutional and policy logics of job creation that served Americans and other western peoples well though the middle of the 20th century are dead.

We must replace those outdated logics with new ones that fit the realities of an Inclusive World Economy in which all destinies are tied together and rights to income can no longer be tied almost exclusively to having a wealth producing job.

Supply Chains, Productivity, and Economic Growth: The Global Context for Understanding U.S. Employment Growth

SOURCE ITEMS

Canada’s gross domestic product contracted for a second quarter in the three months through June, a Sept. 1 report will show, according to almost all economists in a Bloomberg survey. The economy probably shrank by 1 percent, even worse than the 0.6 percent first-quarter drop.

“When Canada hurts, U.S. exporters do, too,” Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled “Canada (not China) matters more.”

Jeanna Smialek, Uh-oh, Canada. China Pales as a Risk to U.S. Growth, BloombergBusiness, August 28, 2015. Accessed August 29, 2015.

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Moody’s Investors Service has revised downward its forecast for GDP growth in the G20 economies to 2.8% next year, from 3.1%. Moody’s says that the revision mainly reflects the impact of a more marked slowdown now forecast in China and more prolonged negative effects of low commodity prices on G20 producers than earlier expected.

Moody’s has slightly revised downwards its GDP growth forecast for China in 2016 to 6.3%, from 6.5% previously. Recently published economic indicators show that China’s slowdown in exports and investment has continued into Q3 2015. In addition, signs that employment growth is weakening point to a more marked and broadly-based deceleration in the Chinese economy than previously expected.

Moody’s revises forecast for G20 economies’ growth downwards to 2.8% in 2016, Press Release, Moody’s Investors Service, August 28, 2015. Accessed August 29, 2015.

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International production fragmentation, in which manufacturing or services activities done at home are combined with those performed abroad, has now taken centre stage. This represents a major point of departure from the so-called “Fordist” production system – exemplified by the American automobile industry – where all economic activity was organised within a single firm located on one site or in close proximity (Feenstra 1998).

Increasingly, firms across advanced and developing countries add value along these global supply chains by completing a specific task associated with the production of a finished product and then exporting it. This may be an important part or component required in the production of a good. It may even be a service that is a vital intermediate input in further production.

Albert Park, Gaurav Nayyar and Patrick Low, Supply Chain Perspectives and Issues: A Literature Review, Part I, World Trade Organization, 2013. Accessed August 29, 2015.

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I prefer to date the slowdown in productivity growth from the end of 2010 because productivity growth (in the nonfarm business sector) averaged a bountiful 2.6% per annum from mid-1995 through the end of 2010, but only a paltry 0.4% since. Other scholars prefer earlier break points. For example, productivity growth averaged 2.9% from mid-1995 through the end of 2005, but only 1.3% since.

Either way, the drop is large, and the scary thing is that we don’t understand why.

Alan S. Blinder, The Mystery of Declining Productivity Growth, The Wall Street Journal, May 14, 2015. Accessed August 29, 2015.

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In advanced economies, where plenty of sectors have both the money and the will to invest in automation, growth in productivity (measured by value added per employee or hours worked) has been low for at least 15 years. And, in the years since the 2008 global financial crisis, these countries’ overall economic growth has been meager, too – just 4% or less on average.

Hence the question on the minds of politicians and economists alike: Is the productivity slowdown a permanent condition and constraint on growth, or is it a transitional phenomenon?

Michael Spence, Automation, Productivity, and Growth, Project Syndicate, August 26, 2015. Accessed August 29, 2015.

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This paper offers an integrated analysis of outsourcing, offshoring, and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply-chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms.

From the Abstract, Mark Casson & Nigel Wadeson, The Economic Theory of International Supply Chains: A Systems View, International Journal of the Economics of Business, Volume 20, Issue 2, 2013. Accessed August 27, 2015.

COMMENTS

Most economists explain a slowdown in a nation’s economic growth in terms of stagnant productivity growth. Yet it is seriously questionable whether such a thing as the productivity of a nation is a meaningful statistic at this late date in the development of the world economy.

Global supply chains now distribute production processes across multiple nations. Even the local bakery is, even if unwittingly, often part of supply chains that transcends national borders. The development of the global supply chain system has reached such a level of maturity that some researchers argue that the supply chain, not the individual firm, is the key competitive unit in the world economy.

The implications for measuring productivity seem obvious. If the competitive unit is a supply chain, then it is the productivity of a supply chain as a whole that is relevant to economic growth. If supply chains cross national boundaries, then measuring the productivity of only the part that is within a national boundary will obscure the positive or negative impact on total supply chain productivity of the “foreign” firms in the supply chain. The competitive position of the supply chain will not be correctly understood.

In the aggregate, measuring the productivity of a nation’s firms rather than the productivity of the supply chains in which the nation’s firms operate will lead economists and policy makers to misunderstand their nation’s prospects for economic growth. That, in turn, will lead to misguided expectations about employment and wage growth.

STEM Education Falls Short: The Problem is Too Few Jobs, Not Too Little Education

SOURCE ITEMS

According to new statistics from the 2012 American Community Survey, engineering and computer, math and statistics majors had the largest share of graduates going into a STEM field with about half employed in a STEM occupation. Science majors had fewer of their graduates employed in STEM. About 26 percent of physical science majors; 15 percent of biological, environmental and agricultural sciences majors; 10 percent of psychology majors; and 7 percent of social science majors were employed in STEM.

 Census Bureau Reports Majority of STEM College Graduates Do Not Work in STEM Occupations, U.S. Census Bureau, July 2014.

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Since cohort-wage profiles display a similar pattern, these findings appear to fit with a strong increase in demand for cognitive tasks in the 1990s followed by a decline in the 2000s.

 Paul Beaudry, David A. Green, and Benjamin M. Sand. The Declining Fortunes of the Young since 2000, American Economic Review, 2014

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Chart-Labor Force Participation Rate Trend

The labor force is anticipated to grow by 8.5 million, an annual growth rate of 0.5 percent, over the 2012–2022 period. The growth in the labor force during 2012–2022 is projected to be smaller than in the previous 10-year period, 2002–2012, when the labor force grew by 10.1 million, a 0.7-percent annual growth rate.

 Labor force projections to 2022: the labor force participation rate continues to fall, Monthly Labor Review, December 2013.

 COMMENTS

We now live in a world economy in which economic processes and trends are global. Global economic growth is constrained and will continue to be into the foreseeable future. As a consequence, current patterns of investment, domestic and global, will not generate a sufficient number of jobs to produce anything near global full employment at living wages.

Economic activity in the U.S. does not constitute a separate economy, so U.S. economy policies cannot produce full employment and high wages in the U.S. while the rest of the world is stuck with high rates of unemployment and low wages.   Investment follows profits.  Profits are maximized by producing in low income places in the world economy and selling in high income places.  Unfettered transnational flows of capital and commodities combined with preventing low-skill working people from easily crossing national boundaries in search of work gives the world’s investors the legal framework with which to manage the world’s labor supply to their advantage.

A Gathering Consensus About the Limits to National Economic Policy?

SOURCE ITEMS

Despite the subsequent decision of the Group of 20 in 2009 on the need for rules to supervise what is now a globally integrated financial system, world leaders have spent the last five years in retreat, resorting to unilateral actions that have made a mockery of global coordination. Already, we have forgotten the basic lesson of the crash: Global problems need global solutions. And because we failed to learn from the last crisis, the world’s bankers are carrying us toward the next one.

Gordon Brown, Stumbling Toward the Next Crash, New York Times, Published: December 18, 2013.  (Gordon Brown, a Labour member of the British Parliament, is a former chancellor of the Exchequer and prime minister.)

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Nothing endangers globalization more than the yawning governance gap – the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital, and many services – that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability, and crisis is the result.

Dani Rodrik, National Governments, Global Citizens, Project Syndicate, March 12, 2013.  (Dani Rodrik is Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey.)

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Around the world, policies, technologies, and extended learning processes have combined to erode barriers to economic interaction among countries. Pick any indicator: trade relative to global GDP, capital flows relative to the global capital stock, and so forth – all are rising.

But economic policies are set at the national level, and, with a few notable exceptions like trade negotiations and the tracking of terrorist funding and money laundering, policymakers set goals with a view to benefiting the domestic economy. And these policies (or policy shifts) are increasingly affecting other economies and the global system, giving rise to what might be called “policy externalities” – that is, consequences that extend outside policymakers’ target environment.

Michael Spence, The Blurry Frontiers of Economic Policy, Project Syndicate, September 19, 2013.  (Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, and Academic Board Chairman of the Fung Global Institute in Hong Kong.)

COMMENTS

In certain quarters of American society, one can find rejoicing over the condition of the U.S. economy.  Just today, the Federal Reserve began its long anticipated tapering of its bond buying program for stimulating the U.S. economy, citing enough economic progress to do so.

Given the quotes above, one has to wonder, however, whether a small change in Fed policy in the U.S. will have much effect one way or the other.   The bond buying program is only one in a global sea of public policy mechanisms that affect the U.S. economy.  And some of those other policy mechanisms are being manipulated by actors in the world economy that are quite powerful – the EU, China, the BRICS nations.

It must also be pointed out that the effects of the Fed’s decisions are not contained by U.S. political borders.  Those consequences are spread across the world economy through the global financial system, and some or many nations will be harmed by those effects.  Actions bring reactions and we do not know whether those reactions will conspire with Fed policy to improve employment and incomes in the U.S. or conspire against Fed policy to further damage employment and income growth in the U.S.

See my Blog Posts under Global Economic Governance for more sources and comments.