The search for jobs

September 23, 2011

Whether or not the doom-mongers are right that economic growth has stalled, and we are slipping relentlessly down into the New Great Depression, for most of the world’s politicians – and Obama in particular – the nightmares are about jobs.

President Obama acknowledged this formally two weeks ago with his US$450 billion “American Jobs Act”, which aims to cut unemployment to 8% by creating 1.9 million jobs. In Spain, where youngsters calling themselves “los indignados” – the “indignants” – have mounted street protests in face of youth unemployment stretching past 40%, and in the UK, where violence, riots and looting recently shocked the nation, the nightmare is the same. In crisis-striken Greece, where unemployment has passed 20% and must undoubtedly rise as government cuts ever further into spending, riots and street demonstrations have become almost routine. This is not a setting in which politicians get reelected. And if the “Arab Spring” is any guide, it is setting where even well engtrenched governments can be overturned – witness Egypt and Tunisia, and perhaps more to come.

But the jobs crisis is a global one, and a long term one. It takes a different shape in Asia – and the long term trend is quite different from the one we face in the immediate future as the world economy slips back into a recession that started in 2008, and probably still has a decade to run.

For both the US and the nations of Europe the glaring challenge is unemployment. Putting on one side quibbles about how unemployment numbers are calculated around the world, both the US and Europe have almost one in ten out of work. Spain, Ireland, Greece and Portugal face the deepest challenges, with unemployment ranging from 21% down to 12%. The lucky outliers are Germany at 6% and the Netherlands at 4.4%.

People out of work are a problem not just because they become a burden in terms of welfare and unemployment benefits. More important for economies flailing to find some locomotive momentum to lift them away from recession, they have no money to spend, and they don’t pay taxes. With time on their hands, they are a political tinderbox, almost always aggravating internal rich-poor divisions and prejudices. They can also generate ferocious pressures toward protectionism – not good for us in Asia where we have prospered in recent decades of trade and investment liberalization.

But in Asia, the jobs crisis is different. The problem is not one of raw joblessness – unemployment rates range from a high of 4.7% in Japan down to a negligible 2.1% in Singapore, with Hong Kong in the middle at 3.2%. Instead, anxieties are driven by inflation (in particular the price of homes) and widening rich-poor divides. Wang Yang, head of the Chinese Communist Party in Guangdong, expressed this well in a recent media interview: “People don’t fear poverty. What they fear is not having the market conditions for fair competition so that they can achieve prosperity.”

When China’s leaders in the early 1980s set the goal of 8% annual GDP growth, they had no passionate conviction about the virtue of growth. It was simply that good statistical work by the World Bank at the time calculated that if China was to create enough jobs for its fast-growing workforce, then it needed economic growth averaging 8%. Economic growth was just a means – not an end. The goal – and a political imperative to justify the new and more liberal priority after the punishing Cultural Revolution decade – was job creation.

And this imperative remains as urgent today as ever – though the nature of the jobs crisis has morphed. With around 145 million migrant workers (37 million of them in Guangdong), the challenge is to manage the rising resentments of a huge underclass who are “in but not of” the prosperous coastal cities where they work. Without the “hukou” that would give them full residency rights, they are watching locals grow prosperous around them, and the cost of property disappearing into the stratosphere. Cities like Shenzhen and Shanghai have seen the cost of homes jump 50% in just two years.

For Hong Kong’s majority, the jobs crisis also takes a slightly different form. After a “golden decade” up to 1997, the Asian Financial Crisis of 1998 began a blighted decade. Not only did many see their homes crash in value, but many also lost the well-paying jobs that had buoyed them over the past decade, and had to start afresh on lower salaries that even today have on average not reached 1998 levels. The apathy and demoralization at the heart of the “Post-80s Generation” protests have been built on the dashed hopes of improvement that have dogged the past decade. Even as incomes have edged slowly forward, property prices have doubled since 2005.

This jobs crisis is being played out at a global level that few of us notice. The International Labour Organisation (ILO) recently reported that out of the world’s 3.1 billion workforce, over 200 million are unemployed, and almost half are in “vulnerable employment”, in which most jobs are “badly paid, onerous and unsatisfying.” This divides the world’s working population into two broad groups – those with “good jobs” and those with “commoditised jobs”. Once your job is a commoditised job, your future job security is in peril, and the danger of unemployment shoots skyward. Across the rich OECD nations, almost 17 million people are “NEETS” – not in employment, education or training.

Robert Reich, former US Labour Secretary, recently reflected on a similar trend creating a cancer at the heart of Obama’s America. He noted a powerful trend to part time work and outsourcing that “affects the quality of jobs, the security of jobs, how much people are paid, and the benefits they get.” No surprise then that Obama’s main political priority as he moves towards his re-election year is “keep the number of losers as small as possible”. The reality that a hostile Republican-controlled Congress is likely to jettison his Jobs Act must therefore be creating nightmares for his re-election team.

The unhappy irony of this recession-provoked jobs crisis is that it is quite at odds with the long term trend. With most developed countries – and many of Asia’s middle income economies – rapidly “going grey”, the longer-term reality is unlikely to be one of rising unemployment, but instead one of severe skills shortages and a burgeoning aged dependent population. For Obama, and many other leaders being tormented by the “New Great Depression”, that is no doubt tomorrow’s problem.

* The translated Chinese version was published in Ming Pao on September 23, 2011.

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