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Employment

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One of the key factors in any country’s economic welfare is the number of workers who are employed. Despite the fact that in most cases people concentrate on the unemployment rate. That’s fine. There is nothing to be gained by quibbling.

So I will look at the situations from both sides.

Unemployment: in the US the unemployment rate is calculated today at something like 4.7%. Different pollsters use different criteria to come to their results, but this seems to be reasonable figure. Now, economists seem to agree that in the US 3.5% unemployment represents essentially “full employment.” Again, arguments might be made on the other side, but for the sake of argument let’s accept this standard.

What is interesting is that in Japan the unemployment rate is calculated at something like 3.5%. And “full employment” is deemed to be 2.5%.

Does that not strike the reader as odd?

Well, let’s examine the situation a little closer. It gets even more strange.

In the US, the opinion has been voiced that industry needs better educated workers who are trained for high tech jobs. And the US educational system fails to deliver those workers.

Sorry, that’s nonsense. It is hard to defend the US educational system from any number of standpoints, but when “full employment” is close to being reached, acceptability of worker education and training is not the problem.

But from management perspective, worker pay is. When demand for employees exceeds supply, the laws of economics come into play: pay for workers rise. Which cuts into corporation profits, i.e., “executive compensation.” From the corporate perspective, that is the problem.

And there is no easy solution.

But before getting to that, let’s look at the situation in Japan.

Five years ago I mentioned here that in Japan, for every 101 available jobs there were only 100 workers available to fill them. Three years ago, I updated that to inform readers that for 110 available jobs in Japan there were only 100 workers to take the positions. Then, last year, things got crazy: for 140 available jobs in Japan there were only 100 workers to take the jobs.

Please forgive me if I repeat that last phrase: “workers to take the jobs.”

The point is that Japan is starved for workers. There are plenty of jobs to go around, but they cannot be filled.

So what does Japan do? It opens factories in Third World countries like Vietnam to meet the demand. The same as First World countries like the US does. Ideologically driven critics might complain of “jobs sent abroad,” but the Japanese do exactly the same thing as American corporations. There is no other way to stay in business.

This is due to the maturing of the First World economies and they must find a way to meet the challenge. But it is not as difficult as the rhetoric that is bandied about might lead observers to expect.

The big problem is actually this: maturing economies invariably are accompanied by burgeoning bureaucracies to service them. But these bureaucracies are inherently inefficient. Not only that, but they create all sorts of subsidiary services that expand and are perpetuated. This causes there to be an incentive for government employment of more and more workers. And those workers rarely do their jobs productively, at least in the classical economic sense.

In the 1950s, the American work force was very productive. This led to a steady rise in the standard of living across the country. Of course, it helped that the rest of the world was profoundly unproductive. The Second World War left practically all of the world that was not in a primitive state of development devastated. Consequently, the United States found itself in a perfect position to supply those countries with goods and services.

The same thing in Asia. Japan had been practically leveled by American bombs during the war. China was in chaos. The same thing in Korea, Southeast Asia and the Indian subcontinent. That vast region required rebuilding, and the US was quick to provide for those markets where it could.

Is there any wonder why the productivity of the American worker rose steadily into the 1970s?

Then productivity stalled. There are several reasons why. First, the rest of the world recovered, built up their own industrial capability, and started protecting their own markets while instituting mercantilistic policies. This cut off outlets for American products.

For a while, the American military involvement in Vietnam sustained the US economy. However, the Vietnam War was an even bigger boon to Japan. It was cheaper and more convenient for the US military to procure supplies from the Japanese. Plus, the emergence of the Soviet Union as an ideological threat prodded the American government to ensure that the Japanese economy revive quickly. What that meant in concrete terms was that it allowed the US market for electronics to be thrown wide open to Japan. (One of the first and the greatest beneficiaries was the Sony Corporation. It started as a small manufacturer of cheap transistor radios, but quickly grew to produce all sorts of electronic products, a large majority of which were shipped to and sold in the United States.)

The second reason why worker productivy stalled in the US was because of the oil shock of 1972. The Arab countries jacked up the price of oil in retaliation for American support of Israel. Practically every maker of goods in the US or supplier of a service depended on energy in one form or another. Cheap oil had sustained those companies for decades, but now that all changed. Those companies now had to revamp their operations. The increased costs had to be made up somehow, and compensation was effected, in part, by a lowering of productivity.

Third, the Vietnam War at first pumped money into the US economy, but it was not paid for. At the same time, Lyndon Johnson’s “Great Society” social programs required tremendous funding. So the US was spending money on both swords and plowshares, but deferring payment, i.e., building up the national debt. As a result, the inevitable happened: inflation exploded.

This was terrible for the American economy. It stagnated. Naturally, worker productivity plunged. And inflation continued to rise. Consequently, a neologism was born: stagflation.

Inflation eventually grew to the point where the prime interest rate, that is, the rate of interest that the best companies in the country pay for loans obtained from banks soared to 21% under Jimmy Carter. That caused a recession which continued under Ronald Reagan.

To get inflation under control, the Federal Reserve Board pursued a tight money policy that prolonged high interest rates and the poorly performing economy. Which meant that the national debt also grew under Reagan. He had criticized Carter during the presidential campaign for Carter’s budget deficit of roughly $75 billion. This sounds quaint in these days of budget deficits of hundreds of billions of dollars. The point is that Reagan’s budget deficits were huge, and led to the burgeoning budget deficits that are so common these days. (The Japanese suffer the same problem. Their debt to GDP ratio today is more than 200%.)

Bill Clinton not only brought the debt under control, leaving his successor with a surplus to work with, but had a record of employment growth that was unequaled since the 1960s.

The second George Bush had a miserable record of employment growth due to the financial crisis that his administration presided over. His successor, Barak Obama, faced an economy that was hemorrhaging 700,000 jobs a month when he took office. There was an ominous threat of the great recession turning into a depression.

It is beyond the scope of this essay to detail the steps that the Obama Administration took to turn things around. Analyzing the results will suffice.

Under Obama 11.3 million jobs were created. That was accomplished over the course of 75 straight months of job growth, the longest streak on record. (Source: CNN Money)

Let’s focus on just the final year of Obama’s presidency. From January 2016 to December 2016 an average of 187,000 jobs were created each month. Some commentators claim that Obama did nothing of value during his time in office, but that seems to be politically motivated. How can this record of job creation be ignored?

Donald Trump claims that he is bringing “jobs back to America,” but the facts prove otherwise. His record of job creation (although he has hardly been in office long enough to have instituted any policies to affect economic conditions significantly one way or another) is an average of 158,500 a month. Therefore, while this employment record is not abysmal, it is hardly extraordinary, either. And it is hard to see how Trump will be able to achieve his campaign promise of raising the growth rate of the American economy to 3% with these kinds of employment numbers.

At the same time, the Japanese economy is limping along. It regularly suffers recessionary conditions, although few workers feel any real pain. The economy is simply set up so that few are thrown out of work or face severe economic hardship.

Why? Because the Japanese did something very wise during the best years, when the country was enjoying substantial trade surpluses year after year: they invested the money.

Where? Where else but in the United States! Not only does Japan hold a great amount of US Treasury notes (although the Chinese have surpassed them in that regard), it also receives regular payments from real estate investments (the Chinese are making the same kinds of investments these days) and the operation of businesses in America.

So the reason why there is a disparity in employment calculation in the US and Japan is that Japan enjoys protections of its economy that the US does not. This means that it can be more flexible in the allocation of work throughout the country. America does not have that luxury.

That is combined with a stagnant birth rate. Japan is not even maintaining a replacement rate of new births. And it has a restrictive policy of immigration of workers to the country. So the employment problem just keeps growing worse.

Ironic, isn’t it? So many people in the United States complain of immigration problems, while the Japanese confront the opposite dilemma. Which country faces the worse quandary do you think?

Those who wish to comment on the opinions expressed here may send their thoughts to info@GoWizardry.com. The most interesting responses will be addressed in future postings.

Robert J. Terry

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