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Can the West’s Surprising Employment Miracle Continue?

BusinessEconomyCan the West's Surprising Employment Miracle Continue?
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If you want To see what a world swimming in jobs looks like, go here Japan, At airports, people are assigned to straighten suitcases after they fall on the luggage carousels. Men in uniforms with fluorescent batons stand outside construction sites, politely reminding you that walking the site is probably not a good idea. Smartly dressed ladies help you use the lift in department stores. And at one of Tokyo’s best bars, a team of four was involved in preparing your correspondent’s gin martini (from the freezer, of course, free-poured, and very dry).

now the rest prosperous world Looks more Japanese. Since the post-lockdown days of 2021 Gross Domestic Product development in 38 countries of oecd has slowed almost to a standstill, and is negative in some countries. Business confidence is below its long-term average. Yet it shows no signs of weakness labour market, Speaking on March 2, Federal Reserve Governor Christopher Waller observed that the US labor market was “extremely tight”. across the oecd Overall the unemployment rate was 4.9% in December, the latest month for which official figures are available – the lowest in several decades (see Chart 1). From the third to fourth quarter of the year, the rich world added nearly 1 million jobs, in line with the long-run average. in half oecd In countries including Canada, France and Germany, the share of working-age people in jobs has never been higher.

Unemployment is rising in some countries, including Austria and Israel. One of the worst performers is Finland, where the unemployment rate rose more than one percentage point from its post-lockdown low, Given rising energy prices and declining trade with Russia, Gross Domestic Product A decline of 0.6% in the fourth quarter of 2022. But “worst” is relative. At 7.2% in December, Finland’s unemployment rate is still well below its long-term average. Meanwhile, most of the places synonymous with skyrocketing unemployment in the early 2010s – Greece, Italy, Spain – are now doing much better.

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This employment miracle signals a profound change in Western economies. To understand why, return to Japan. Local employers don’t like to fire employees, even if they have little to do. In part because more and more people are retiring, companies struggle to find new employees, so they are reluctant to let people go unless they have no other choice. The result is an unemployment rate that barely rises even in a recession. Japan’s unemployment rate over the past 30 years has varied by only 3.5 percentage points compared to 9.5 percentage points for the average wealthy country.

There will be more Japanese labor market disadvantages. If workers do not leave poorly performing firms, they may not join the more innovative firms that drive growth. Indeed, the data show that rich-world productivity growth is exceptionally weak at present. On the other hand, periods of unemployment can impose a dire human toll, particularly on youth, who may earn low wages for the rest of their working lives. Countries where unemployment is less volatile also tend to be recessionary, says Dario Perkins Tea Lombard, a financial-services firm. When the labor market doesn’t crack, people can continue to spend even when growth slows.

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What does the apparent Japanese turn of the employers tell? Perhaps, after the hardships of the pandemic, the bosses are more kind to the workers than before. Another, more realistic possibility is that the companies are in strong financial condition. This may allow them to cope with lower revenues today without immediately reducing costs (see Chart 2). During Kovid many firms got help from the governments. And corporate profits have been high in recent years. Wealthy businesses around the world are still sitting on piles of cash nearly a third more than before the pandemic.

A more intriguing prospect concerns the labor force. By our estimates, the rich world is “missing” 10 million workers, or about 1.5% of the total workforce, relative to pre-pandemic trends (see Chart 3). The workforce has actually shrunk in Britain and Italy. Early retirement and a rapidly growing elderly population explain some of the deficit. Covid may have prompted people to re-evaluate their priorities, leaving them out of sorts. Some even speculate that the prolonged Covid is forcing people to stay on the sidelines financially. Whatever the explanation, the declining participation has played havoc with the plans of the companies. Many employees were laid off when the pandemic hit, but they have struggled to be re-hired in 2021. oecd Hit an all-time high of 30 metres.

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Now that another recession is looming, employers will want to avoid making the same mistake. a recent global report of SAndP Global Market Intelligence, a consultancy, identifies “a reluctance among companies to approve job cuts, as they face enormous challenges in re-hiring after the pandemic”. Gross job losses in the US so far have not been as large as is typical for the start of the year. Daniel Silver of JPMorgan Chase, a bank, speculates that this is because “firms are reluctant to let workers go because of perceived difficulties in eventual redeployment.”

Labor-market pain can only be delayed rather than avoided. In the last few recessions, unemployment began to rise decisively only after some time. Gross Domestic Product Started falling Yet “real-time” data gives little indication that unemployment is about to rise. A recent survey by staffing firm, ManpowerGroup, shows that employers in most countries still have ambitious recruitment plans. A survey by the National Federation of Independent Business, a lobby group in the US, found that an unusually large proportion of small firms plan to create new jobs in the next three months.

Even in the face of rising interest rates and resilient labor markets, central banks may be tempted to tighten monetary policy still faster. A further increase in rates, or another energy shock, could push some employers over the edge, forcing them to reduce headcount. Yet the pressure to retain employees, whatever it may be, may turn out to be a structural issue. The population of the rich world will age rapidly over the next decade, further reducing the labor supply. Difficulty in finding good employees is likely. The search for the perfect martini maker would be even trickier than it is today.

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