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Productivity & Unemployment
Posted By Barry Ritholtz On August 11, 2003 @ 11:26 am In Finance,Politics | Comments Disabled
After this week’s Fed non-event, comes a busy, back end loaded week of economic releases. Most important to our economic thesis will be Thursday’s Jobless Claims. This will be the first release (since June) not marred by July’s seasonally aberrational data. As such, we may finally learn something about whether going forward, the economy is actually creating jobs or not. This will be crucial in determining if the economic recovery is sustainable or not.
As we first discussed back in June (“New Productivity Paradox ”), productivity growth has a dark side, namely a tamping effect on job creation. The math is simple: If productivity increases at ~2.5%/yr, and the labor pool grows at 1.3%/yr, GDP must grow at 3.8% to merely not lose jobs. Worse, employment is being pressured by several other secular factors, which show no sign of abatement:
Globalization: continues to send jobs overseas to the lowest cost producer. In the manufacturing sector, that means China ; In the IT space, this rapidly growing trend favors India . We expect white collar outsourcing  to continue to be an enormous source of cost savings (law, accounting, fin analyst, call centers, as well as IT) for many companies over the next decade, if not longer.
Post-Bubble, Excess Capacity: exists, after huge amounts of capital were invested across many sectors. Information technology and telecom were the two biggest gainers. The repercussions? Without a significant spike up in end user demand, growth in the IT space is capped. Based upon the prior historical bubbles the size we witnessed in the late 90s, it will likely take many years to work off this excess.
Manufacturing to Service Economy: Further pressuring jobs is the continued transition away from manufacturing, and towards a service economy. This secular trend  has been in place for a long time, and shows no signs of abating.
The idea of the New Productivity Paradox has finally started to gain traction amongst traditional economists . Articles on the subject have appeared in a variety of media . An un-addressed concern is the potential stratification of economic classes here, as more and more well paying middle class jobs depart abroad. These losses are occurring in non-manufacturing industries. This bears further observation.
Whether the government could – or even should – fashion a response to this continual pressure will be an ongoing debate heading into the presidential elections. This is an issue which may (surprisingly) determine who wins in 2004.
Productivity and Employment related links
Men at Overwork  MSNBC
The New Global Job Shift  BusinessWeek
Overproductive and underemployed  The Economist
Productivity Advances Diminish Demand for Labor  RealMoney.com
Take This Jobless Recovery and Shove It  Alternet.org
Service advantage of Indian IT offshore model  Economic Times of India
Reuters to shift core unit to India  BBC
Job Market Remains Outlier in Improving Economy  Bloomberg
Job drought threatens economy  CNN Money
The Recovery Is Here, but the Jobs Aren’t  TheStreet.com
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2003/08/productivity-unemployment/
URLs in this post:
 New Productivity Paradox: http://bigpicture.typepad.com/comments/2003/07/new_productivit.html
 jobs overseas : http://www.businessweek.com/magazine/content/03_05/b3818001.htm
 China: http://www.bcg.com/publications/files/Aim_High_Act_Fast_OfA_Mar03.pdf
 India: http://economictimes.indiatimes.com/cms.dll/html/uncomp/articleshow?msid=122963
 white collar outsourcing: http://www.msnbc.com/news/946725.asp
 secular trend: http://www.ritholtz.com/blog http://www.businessweek.com/magazine/content/03_05/b3818001.htm
 economists: http://www.economist.com/agenda/PrinterFriendly.cfm?Story_ID=1985889
 Articles : http://money.cnn.com/2003/08/01/news/economy/economy/index.htm
 subject : http://www.thestreet.com/p/markets/aarontaskfree/10105580.html
 variety : http://www.thestreet.com/p/rmoney/jimgriffinrm/10107189.html
 media: http://quote.bloomberg.com/apps/news?pid=10000039&sid=aWhfIviFfGyU&refer=columnist_baum
 Take This Jobless Recovery and Shove It: http://www.alternet.org/story.html?StoryID=16572
 Reuters to shift core unit to India: http://news.bbc.co.uk/2/hi/business/3124569.stm
 Job Market Remains Outlier in Improving Economy: http://quote.bloomberg.com/apps/news?pid=10000039&sid=aWhfIviFfGyU&refer=columnist_baum#
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