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Can the bewildering employment miracle continue in the West?

If you want To see what a world swimming in jobs is like, visit Japan. At airports, people are employed to straighten out bags after they get stuck on the baggage carousel. Men in uniform with fluorescent batons stand outside construction sites, politely reminding you that walking to the site probably isn’t a good idea. In department stores, well-dressed women help you use the elevators. And in one of Tokyo’s best bars, a team of four took part in preparing your correspondent’s gin martini (from the freezer, of course, poured for free, and very dry).

Now the rest of the rich world is starting to look more Japanese. Since the post-lockdown days in 2021 gross domestic product Growing across 38 countries Organization for Economic Co-operation and Development It has slowed down almost to a standstill, and has been negative in some countries. Business confidence is below its long-term average. However, there are not many signs of weakness in the labor market. Speaking March 2, Federal Reserve Governor Christopher Waller noted that America’s job market has been “very tight.” across the Organization for Economic Co-operation and Development As a whole, the unemployment rate was 4.9% in December, the latest month for which official data is available — the lowest in several decades (see Chart 1). From the third quarter to the fourth quarter of the year, the rich world added about a million jobs, in line with the long-term average. in half Organization for Economic Co-operation and Development Countries, including Canada, France and Germany, have never had a higher proportion of working-age people in jobs.

Unemployment is on the rise in a few countries, including Austria and Israel. Finland is one of the worst performers, with the unemployment rate up by more than a percentage point from its post-lockdown low.. In the face of rising energy prices and declining trade with Russia, gross domestic product It fell by 0.6% in the fourth quarter of 2022. But the “worst” is relative. At 7.2% in December, Finland’s unemployment rate remains well below its long-term average. Meanwhile, most of the places synonymous with very high unemployment in the early 2000s — Greece, Italy and Spain — are doing much better now.

This employment miracle signals a profound change in Western economies. To understand why, go back to Japan. Local employers hate to fire workers, even if they don’t have much to do. In part because more and more people are retiring, companies are struggling 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 hardly rises even in recessions. Over the past 30 years, Japan’s unemployment rate has varied by only 3.5 percentage points, compared to 9.5 percentage points in the average rich country.

The Japanese labor market will have more disadvantages. If workers don’t leave underperforming companies, they can’t join more innovative companies that drive growth. In fact, the data shows that the rich world’s productivity growth is very weak at present. On the other hand, periods of unemployment can take a heavy human toll, especially on young people, who may be paid less for the rest of their working lives. Dario Perkins notes that countries where unemployment is less volatile also tend to have milder recessions. ts Lombard, a financial services company. When the job market hasn’t broken, people can keep spending even as growth slows.

What explains the clear role of employers in Japan? Perhaps, after the troubles of the pandemic, bosses are simply kinder to workers than they used to be. The other, more realistic possibility is that the companies are in a strong financial position. This could allow them to take on lower revenues today without having to cut costs immediately (see Chart 2). Many businesses have received help from governments during covid. In recent years, corporate profits have been high. Businesses across the rich world are still surviving on piles of cash about a third higher than they were before the pandemic.

A more interesting possibility relates to the workforce. By our estimates, the rich world is “missing” 10 million workers, or roughly 1.5% of the total workforce, compared to pre-pandemic trends (see Chart 3). Indeed, the labor force in Britain and Italy shrank. Early retirement and a growing elderly population explain some of this deficit. Covid may have caused people to reassess their priorities, causing them to drop out. Some even speculate that the prolonged coronavirus is forcing people to remain on the economic sidelines. Whatever the explanation, declining participation has wreaked havoc on the companies’ plans. Many fired employees when the pandemic hit, only to struggle to get rehired in 2021. That year, there were job vacancies across the United States. Organization for Economic Co-operation and Development He achieved an all-time high of 30 metres.

Now that another downturn is on the horizon, employers may want to avoid making the same mistake. A recent global report prepared by s&s Global Market Intelligence, a consulting firm, identifies “companies’ reluctance to penalize job cuts due to the massive challenges they have faced in post-pandemic hiring.” Total job losses in America have not yet been as large as they are typical at the start of the year. This is because “companies are reluctant to let go of workers given perceived difficulties in eventual re-hiring,” speculates Daniel Silver of JPMorgan Chase.

Labor market pain may end up being merely delayed rather than avoided. In some past recessions, unemployment started to rise decisively after some time gross domestic product I started to fall. However, the “real time” data gives little indication that unemployment is about to rise. A recent study by ManpowerGroup, a recruitment company, indicates that employers in most countries still have ambitious recruitment plans. In America, a survey by the National Federation of Independent Business, a lobbying group, found that an unusually large share of small businesses plan to create new jobs over the next three months.

In the face of labor markets that are resilient even in the face of higher interest rates, central banks may be tempted to tighten monetary policy faster. Further price increases, or another energy shock, may push some employers over the edge, forcing them to reduce headcount. However, the pressure to retain employees, whatever it may be, can become a structural problem. Over the next decade, the population of the rich world will age rapidly, further dragging the labor supply. Finding good workers is likely to become more difficult. The search for the perfect martini maker will be even more difficult than it is today.


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