Global Employment Update: Rebalancing Will Redistribute Unemployment

The global labour market has been one of the biggest casualties of the financial crisis, with heavily indebted developed economies struggling to chip away at high unemployment. Although economic recovery is underway in the US, UK and soon the eurozone, growth is not sufficiently strong to generate enough employment to drag down perniciously high joblessness. Moreover, in some cases such as the UK where there are net employment gains, concomitant growth in the labour force from natural population change and migration has made it further difficult to bring down unemployment. Even in the US, which is the furthest along the road to recovery among the major deficit states, the labour market has been left ravaged by the financial crisis.

The chart above shows the most recent data that we have for total employment in the largest developed states. Although unemployment has increased sharply in the eurozone over the last few years, the total stock of employment has fared somewhat better. Indeed, since the beginning of 2008, total employment has fallen by 3% while the stock of unemployed has increased by 67%. This is likely the result of unemployment disproportionately affecting younger workers that were just joining the labour force. Meanwhile, tough labour laws make it difficult to fire existing employees in many eurozone member states, further putting the burden of unemployment on younger workers. In the US, where the labour market is far more flexible, total employment has been severely hit by the recession, but has been in recovery since early 2010 and is close to returning to 2007 levels.

Labour force participation rates tell a similar story. Across much of Europe, participation rates have been reasonably flat during the post-crisis period, with a significant rise in Germany being the most obvious outlier. Meanwhile, the participant rate in the US fell sharply after the financial crisis, although this is part of a longer running trend which has been in place since 2001. The most recent data published by the OECD, which provides quarterly data and forecasts for the remainder of 2013, suggest that the participation rate is recovering. However, the latest data from the Bureau of Labour Statistics show a continued decline to 63.4% in July from 66.2% at the beginning of 2008.

Still In Recovery Mode
Global - Employment Index, January 2007=100

The global labour market has been one of the biggest casualties of the financial crisis, with heavily indebted developed economies struggling to chip away at high unemployment. Although economic recovery is underway in the US, UK and soon the eurozone, growth is not sufficiently strong to generate enough employment to drag down perniciously high joblessness. Moreover, in some cases such as the UK where there are net employment gains, concomitant growth in the labour force from natural population change and migration has made it further difficult to bring down unemployment. Even in the US, which is the furthest along the road to recovery among the major deficit states, the labour market has been left ravaged by the financial crisis.

Still In Recovery Mode
Global - Employment Index, January 2007=100

The chart above shows the most recent data that we have for total employment in the largest developed states. Although unemployment has increased sharply in the eurozone over the last few years, the total stock of employment has fared somewhat better. Indeed, since the beginning of 2008, total employment has fallen by 3% while the stock of unemployed has increased by 67%. This is likely the result of unemployment disproportionately affecting younger workers that were just joining the labour force. Meanwhile, tough labour laws make it difficult to fire existing employees in many eurozone member states, further putting the burden of unemployment on younger workers. In the US, where the labour market is far more flexible, total employment has been severely hit by the recession, but has been in recovery since early 2010 and is close to returning to 2007 levels.

US Participation Rates Take A Hit
Global - Labour Participation Rates, %

Labour force participation rates tell a similar story. Across much of Europe, participation rates have been reasonably flat during the post-crisis period, with a significant rise in Germany being the most obvious outlier. Meanwhile, the participant rate in the US fell sharply after the financial crisis, although this is part of a longer running trend which has been in place since 2001. The most recent data published by the OECD, which provides quarterly data and forecasts for the remainder of 2013, suggest that the participation rate is recovering. However, the latest data from the Bureau of Labour Statistics show a continued decline to 63.4% in July from 66.2% at the beginning of 2008.

Struggling To Create Enough Jobs
Global - Aggregate Employment, mns

To get a sense of the global labour market picture, we have aggregated employment data for the 50 largest economies, excluding India where reliable statistics are unavailable. As the chart above shows, total employment has been broadly trending higher since 2009 and is likely to expand further through to the end of 2013. However, it is apparent that the trajectory has flattened somewhat, which is concerning given the continued expansion in the global workforce. With some of the biggest emerging markets such as China, India and Brazil experiencing a slowdown in economic growth, it could become increasingly difficult generate enough jobs (particularly in India) to soak up young workers.

Moreover, the distribution of global unemployment is likely to change. As a result of the natural rebalancing in trade dynamics, which is currently underway, unemployment will gradually fall in deficit economies and rise in surplus states (see our online service, October 2012, "Global Rebalancing: A Conflict-Ridden Path"). Importing foreign demand allows surplus economies to pin down unemployment, while in deficit economies where local production is substituted for foreign goods, unemployment is higher. As such, the reversal in this dynamic should mean a redistribution of global unemployment over time, even if it does not show up right away.

Unemployment Slow To Adjust
Global - Unemployment (Current, High, Low; 2007-2013)

Our final chart shows the current level of unemployment among the largest economies relative to the high and low readings posted since 2007. In the surplus economies such as China and Germany, unemployment is currently at the lower end of the 2007-2013 since domestic production has been bolstered by importing foreign demand. Conversely, among the main deficit states in Europe, as well as Brazil and Turkey, unemployment is at the top end of the range. Unemployment is likely to come down fastest in the US and UK, and at a much slower pace in the eurozone. With many emerging markets, particularly those that have long relied on export-led growth, now under pressure from deteriorating market sentiment, there are growing risks of surging unemployment should growth momentum continue to falter.

Read the full article

This article is tagged to:
Sector: Country Risk
Geography: Global
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.