I've been hearing some worries about the new Russian/China alliance, and how it would proves to be a power balancing move against the US. First, lets look at a few thing about China and Russia. China is the second largest market in the world, and Russia is the second largest oil producer. China is a rapidly growing country with double digit GDP growth in 2007, and is projected to continues growing at around 10% each year. China is a net exporter and is quickly becoming an exporter capital worldwide, China have a huge trade surplus ($300 billion) with the US. China is the second largest holder of US treasury securities ($400 billion). Russia, although a shell of its former self, is a strong economy with a 1.7 trillion USD GDP, 6% GDP growth, net exporter, and stock piles of nukes. Combine, we have two of the world greatest super power that does not like the US very much. Certainly sound like something to worries about.
The true, though, is that thing isn't as bad as it sound. Economic growth has become significantly important for all developed economies, or up and coming developing economies, and this is why a Russia/China unity might not be as scary as say a decade ago.
For China, after the fall of the Soviet, Communism has taken a hard hit to its cridibility as a form of government; and China has only been able to legitamized its rules base upon economic prosperity. However, rapidly growth demand resources, resources that either is highly competitive worldwide and resources that China does not have, among with is oil. Russia, then, seem a perfect partner for a country that need to secures oil resources to maintain its growth. China have two choice in this situation; they could either fight with Russia over the resources as they did in the past, or they can partner up with Russia and gain access to a much larger among of resources. For Russia, a partnership with China mean a market as well as global support on their own agenda. China is the second largest market in the global economy, and it is rapidly growing to eventually become the largest market.
Russia, as an economy trying to recover from the failure of the Soviet rules, need a market to sell too, and who is better to do that with than China in a more or less unilateral bases? Secondly, Russia has large stockpile of nuke as well as the dealiest none nuclear bomb, but their army is a shadow of their former self. China is a rapidly growing military while investing heavily in its military each year on almost the same level as the US. Combined, these two will prove to be a match for US military hegemony.
To dispell fear, we must first look at a few things. One of the fear that people have is due to China holding of USD. It is true that China holds a lot of US’s securities, but would China threaten the US if it was to sell it all off? It might, but not likely. The power that China hold over the US in this situation is a monetary one that could aversely affect the US economy. If the US was fighting back inflation, China would mess up any monetary policies to cut inflation by selling off their holding. Sound scary does it not? Not really if one is to take a step back and look at the situation from a global prospective, not a unilateral one.
Scenario one: US is fighting back inflation and China want to weaken the US long run well being by forcing in inflation by selling their holding. If the world is facing a growing US economy, the only result from a Chinese sell out would be other countries buying USD, which would not affect the US overall. On the contrary, it would push Chinese inflation up because they are buying Chinese Yuan when they are selling off their holding of US securities. Secondly, there is much interest at stake in the US economy, and its fall would spell disaster for the world around; hence, many countries will not sit by to watch the US economy fall if it could do anything to prevent it. Just look back at the dollar crashing in later 2006, and how fast it recovered the next day. Countries from around the world quickly bought USD to help bring the USD back up.
Scenario two: US is facing a weakening economy, like what we are face with right now. In this case, China really can’t do much. If China sell off their holding, then it would only help the US recover or help to weaken a blow from recession. Although, taking other things into consideration, a China sell out could could turn out to be bad for the US as this could lead to a flight of USD if other also see the huge swing in sell and decide that they too would not want to hold USD. Or it could lead to a slow down of foreign investment, which as I state in the post below, that could really hurt the US as we are living way beyond our mean. However, the US economy have to be doing extremely bad and to have lost the trust of people all over the world for this to happen.
Ultimately, the Russia/China alliance is one of convenient. China need to support its oil need, and Russia is the perfect provider. Russia on the other hand get access to the Chinese market, something long sought after by many.
There are other major political implications, such as the two security council veto which mean US unilateralism have some check. Russia military and China rapidly growing military combines could also prove to be a balance to US unilateral military power in past decade. However, this does not mean we’re returning back to the time of Cold War. Economic growth is to important at this time as symbolize by the important of the Olympic from China’s prospective. We must also remember that China and Russia are no friend either, and it is a little egocentrically to think that they join merely to counter US interest. All this mean is that US hegemony might not hold true for long, but it is not going to lead to war. As long as the US does not threaten Chinese or Russian securities or interests, or vise versa, then there really is no problem. With the current globalize world, advancement of technologies, and the advancement of the global monetary system over the years; there is just to much at stake to growth for China/Russia to fight the US.
Sunday, September 23, 2007
Wednesday, September 12, 2007
US Overexposure
Countries in Asia are rapidly growing in today’s world; with rapidly growing economies, rapidly increasing wealth, and of course, huge export to the US; this begs the question as to what are they doing with all their money or where is the inflation? The US is notorious for being spender and not saver. On the average, individual in the US only save about .4% of their income compared to countries in Asia that save up to 30-50%. The US trade balance is also in the negative which indicate that we are sending a large amount of US dollars oversea, which again beg the question as to what those dollars are being us for? For the most part, they aren’t being stored away in mattresses and under beds, but instead, they are being reinvested into the US economy; either through investment or buying up US treasury.
There are some serious implications to this situation as this could potentially undermine the US economy, as well as US national security. US consumption has, for the past decade, been fuel by easy credits. It seem that people never asked questions as to where these credits are coming from if US consumer are not saving. The answer is oversea. Imagine then that with the currently weak US market, what if oversea investors - especially governments oversea - decided that keeping their money in the US just isn’t worth it anymore? Or just imagine what it would mean if China suddenly decided to sell off their US bonds. In other word, the world has been loaning the US money to buy their goods, and the US has just been willingly spend, spend, and spend.
In the faces of easy credits, easy financing, and a housing boom; the US has been on a no holds bar spending spread the past decade. Now, with a poor housing market, tightening credits, unstable stock market, huge foreign debt, huge trade deficit, and the list go on, the US economy has dug itself a hole that it might not be able to climb out of. And don’t expect foreign investors to keep pumping in the credits to keep the US afloat, especially since they are losing so much thanks to thing like the subprime mortgages and loans that are causing countries like China a fortune. The US has overexpose its market, and like a kid with a credit card, it has really done it big this time around.
Is there still hope? The US economy is big and growing, our unemployment number is low, and a lot of market is directly tied to the US; hence, no one want to see us crash and burn, so, yes, there is still some hope. However, we have to look at the situation for what it is. Our growth has been pretty unimpressive, our unit labor cost has been on the raise, and we’re are facing a bad credit crunch. Then, we have to worry if our unemployment number will be able to hold up. The unemployment statistic from the BLS shows that participation rate has drop for the month of august 2007, and the number of individual that are force to work part-time are rising. Things really look very dismal for the US from almost every prospective. So do we have hope? Very little if at all. There need to be some serious changes fast, if it isn’t already to late. We need to buy back our debt, balance our trade, and re-evaluate our financial sector. Or, maybe, the only way we’re going to fix this now is through a recession. Let all just hope that it would not turn into a depression.
There are some serious implications to this situation as this could potentially undermine the US economy, as well as US national security. US consumption has, for the past decade, been fuel by easy credits. It seem that people never asked questions as to where these credits are coming from if US consumer are not saving. The answer is oversea. Imagine then that with the currently weak US market, what if oversea investors - especially governments oversea - decided that keeping their money in the US just isn’t worth it anymore? Or just imagine what it would mean if China suddenly decided to sell off their US bonds. In other word, the world has been loaning the US money to buy their goods, and the US has just been willingly spend, spend, and spend.
In the faces of easy credits, easy financing, and a housing boom; the US has been on a no holds bar spending spread the past decade. Now, with a poor housing market, tightening credits, unstable stock market, huge foreign debt, huge trade deficit, and the list go on, the US economy has dug itself a hole that it might not be able to climb out of. And don’t expect foreign investors to keep pumping in the credits to keep the US afloat, especially since they are losing so much thanks to thing like the subprime mortgages and loans that are causing countries like China a fortune. The US has overexpose its market, and like a kid with a credit card, it has really done it big this time around.
Is there still hope? The US economy is big and growing, our unemployment number is low, and a lot of market is directly tied to the US; hence, no one want to see us crash and burn, so, yes, there is still some hope. However, we have to look at the situation for what it is. Our growth has been pretty unimpressive, our unit labor cost has been on the raise, and we’re are facing a bad credit crunch. Then, we have to worry if our unemployment number will be able to hold up. The unemployment statistic from the BLS shows that participation rate has drop for the month of august 2007, and the number of individual that are force to work part-time are rising. Things really look very dismal for the US from almost every prospective. So do we have hope? Very little if at all. There need to be some serious changes fast, if it isn’t already to late. We need to buy back our debt, balance our trade, and re-evaluate our financial sector. Or, maybe, the only way we’re going to fix this now is through a recession. Let all just hope that it would not turn into a depression.
Monday, September 10, 2007
Maybe it is Time for a Recession
The word RECESSION, it mere utterance, conjures up images of pain and suffering. For many, recession mean jobs loses, lower standard of living, bankruptcy, and a promise of hard time to come; therefore, recession must be be avoided. However, recession is not something that can be avoid, as it is a natural part of market, and it is a natural part of the business cycle. Economies must expand and contract to be healthy in the long run. It cannot be expects to only expands because like a balloon, eventually it will burst. Nevertheless, the fear of recession is a real fear as it equate to loses for all, and with such fear, people have come to expect that the government, or the central bank, should play a role in preventing recession. Government, its central bank, certainly have weapons to fight back recession, but should it or how long could it?
Recession, although bad in many way, is a necessity to growth and development, and it is something that all healthy economies cannot do without. Recession help to eliminated the less productive sectors of the economy, weeding out the weak and less competitive firm. Recession cut excess from firms that been expanding to rapidly while forcing the need for more efficiency and productivity. What a recession does for an economy is to clean house, leaving it stronger afterward for growth. Recession is another part of Creative Destruction, an evil that we cannot do without.
If we look back at the late 1990 with the burst of the dotcom bubble and rapidly falling stocks prices, the United States was about to faces a recession, but the central bank avoided this by pumping a huge amount of credits into the market which had prevented a potential recession. This, however, in effect created the housing bubble that follow. Secondly, it allows firms that should of been dead to continues operating using borrowed funds, living off credits to cover it selves. Thirdly, this further boost the raise of private-equity and hedge funds that now operate largely on borrowing, and, farther more, these funds help keep weak and unproductive firms alive by buying them up. Finally, the excess loans that bank hold leave them extremely expose to the risk of default, and a recession would serves as a reminder to various banks to be reponsible lenders of funds. The United States, in essences, have been living on borrow times, and now times is catching up. The real estate market is extremely weak with a large amount of bad mortgages loans from various banks and funds, the stock market is unstable and declining, and more importantly, consumer and investor confidences are dropping. The Fed is worry about inflation, but the market does not seem to be as strong as the Fed has though it would be. Raising gas prices as well as the problems from "made in chine" has also farther undermine consumption.
As a final point, the US economy, thought, still remain optamistic in the hope that its low unemployment rate is a good indicator that it can fight off any major crisis in the face of a failing housing market. This path of thinking is going to cause the US economy much as raising unit labor cost, a shaky financial sector, and inpending tightening of loan should say otherwise, as these things directly impact the outer layer of the labor market (labors that have low hiring and firing cost).
From the look of things, it would not be surprising if the US does go into recession in the near future, but is that so bad? Maybe it is time for a little recession. The US market has been weak for the past decade with little innovations and changes, and US unit labor cost has been on the raise which mean we are becoming less competitive relative to the rest of the world. The credit market is finally starting to catch up to the actual market, and the problems the US created back in the late 1990s is starting to come back. So maybe it is time to face up to it and clean up the US economy. What people must understand is that the central bank job is not to prevent recession, but to only shorten its spell. Recession is a part of market and a part of growth, and it is not something to avoid, only limit.
The Global Hunt for Talent
Will the global hunt for talent shift the balance of power in favor of companies or employees? Are North American and Western European worries about losing jobs and talent justified?
First, we must look at the fundamental of supply and demand. What is a “global hunt for talent”? It is in essence, a right-ward shift in the demand curve for skill labors. Secondly, we must all realize that the labor market is unique from the products market, and that supplies cannot as readily adjust to demand. The increase demand for highly skilled labors take time and monetary investment to acquire in the long run because education and training, similar to other form of investment, take time to mature. This means that in the short-run, the stock of skill labors is some what limited; hence, we are left with a supply-side shortage. These two points together will push up wages as companies compete to acquire skills workers. Therefore, the global hunt for talent should shift the balance of power in favor of employees. This is because these employees now have more options, more offers, and they gain the abilities to say, “I’m going elsewhere.” This, however, is not the same case for less skill labors, and instead, it could be a long and painful period of unemployment or working at much lower wages.
The wage inflation in India’s IT sector is about 16% a year, and annual wage increase for project managers in IT average about 23% a years over the past four years are example of the wages increase due to increase demand for skills workers. (Economist, Pg 9.) We can farther see the war for talents by looking at the raising important of the Human Resource department in most large companies. A survey by Aon identified that among their top five best-paid managers in their companies were HR executives. (Economist, Pg 5.) Companies are also increasing training budget to meet this new demand for trained worker such as Infosys budget increase from $100m to $125m. (Economist, Pg 9.) Economic survey also shows that a huge percentage of employees have been contacted by other organization trying to capture their talent. From survey in The Economist, we see that India's companies has over 50% of its employees being contact by another organization. This farther shows how fierce the competition for talents is globally. Economist survey on talent shortage in organizations also show that there is over 80% shortage in Growth markets, over 80% in Specialised skills, and over 60% in Business leaders. This farther go to show the shortage, and why such a competition for skills workers is going on all over the world. This again show why the balance of power is shifting toward talented employees as they are now gaining more options, and as demand increase, competition will just get that much more fierce, and these employees will have that much more options and paid.
However, this does not mean that all employees are gaining power, especially when it comes to less skills employments. As countries develop and technologies develop, the less skills workers lost their market demand as their sector of the economy become obsolete or replaced. And, as stated above, training and improving a person stock of human capital take time and monetary investment that also take time to mature. Which mean for many, the market no long want to paid very much for their labors if at all, and due to the nature of the short-run, these people cannot improve their skills overnight, which all together is a shift in the demand left-ward plus a demand shortage. An example of the pain of unskilled labors would be India 17% graduate unemployment during the tech boom in India. (Economist, Pg 16.)
So, should America worries about the competition for brain, or is our worries even justified? The answer is no. We should pay close interest on the competition and tries to stay on top of the competition, but there are no real worries. America soak up about 30% of the world global supply of foreign students, America has some of the highest quality of universities, a quality and growing business environment, a stable economy, and a lot of wealthy companies that can paid a lot for talents everywhere. Sure, there are jobs being lost as it move to more productive place such as India, but these are jobs that are slowly becoming less and less compatible with our economy, jobs that requires much less skills. Secondly, we must realize that a lot of jobs are being destroyed daily, while a lot are being created. These jobs losses due to it being more cost effective elsewhere can just be added into the whole job creations and destruction process, and as a whole, job creations and destruction tend to balance it self out.
Europe, though, is not as lucky. European colleges are not what they use to be, the business environment is ridden with rigidities and regulations, and R&D investment is 30% less than America with many researcher oversea not wanting to return. (Economist, pg16) Jobs and wages rigidities make it harder for European employers to hire and fire employees, leaving them less flexible in competing with the rest of the world for talents. Also, a stronger EU will farther break down more barriers which will lead to an increase in labor mobility. The EU, though, is more of a confederation of states, which mean that rule and regulation are vastly different everywhere, which mean that certain area can be more attractive to labors than other, creating farther competition among themselves. This will mean that some EU countries will be losing labors while other will be gaining too much labor that it cannot support. However, on the global scale, Europe still isn’t doing to poorly. It is doing a lot to reform its immigration to better suit the time, unlike the US, and it still retain a lot of skills that are highly demanded in knowledge economies, such as German engineering expertise to Italy in Design.
Finally, North America and Europe might not have to worries as much when it looks at its competition in the area of creating skilled workers. The example of the 17% graduate unemployment for India from above is one of the reasons why there should be less worries. Yes, there are a lot of people graduating from various colleges all over the world in much larger number than the US, but a lot of these people does not graduates with the skills that employers demand, which mean that those graduating from the US or Europe will still have the advantages.
Source:"A Survey of Talent." The Economist. October 7th, 2006.
First, we must look at the fundamental of supply and demand. What is a “global hunt for talent”? It is in essence, a right-ward shift in the demand curve for skill labors. Secondly, we must all realize that the labor market is unique from the products market, and that supplies cannot as readily adjust to demand. The increase demand for highly skilled labors take time and monetary investment to acquire in the long run because education and training, similar to other form of investment, take time to mature. This means that in the short-run, the stock of skill labors is some what limited; hence, we are left with a supply-side shortage. These two points together will push up wages as companies compete to acquire skills workers. Therefore, the global hunt for talent should shift the balance of power in favor of employees. This is because these employees now have more options, more offers, and they gain the abilities to say, “I’m going elsewhere.” This, however, is not the same case for less skill labors, and instead, it could be a long and painful period of unemployment or working at much lower wages.
The wage inflation in India’s IT sector is about 16% a year, and annual wage increase for project managers in IT average about 23% a years over the past four years are example of the wages increase due to increase demand for skills workers. (Economist, Pg 9.) We can farther see the war for talents by looking at the raising important of the Human Resource department in most large companies. A survey by Aon identified that among their top five best-paid managers in their companies were HR executives. (Economist, Pg 5.) Companies are also increasing training budget to meet this new demand for trained worker such as Infosys budget increase from $100m to $125m. (Economist, Pg 9.) Economic survey also shows that a huge percentage of employees have been contacted by other organization trying to capture their talent. From survey in The Economist, we see that India's companies has over 50% of its employees being contact by another organization. This farther shows how fierce the competition for talents is globally. Economist survey on talent shortage in organizations also show that there is over 80% shortage in Growth markets, over 80% in Specialised skills, and over 60% in Business leaders. This farther go to show the shortage, and why such a competition for skills workers is going on all over the world. This again show why the balance of power is shifting toward talented employees as they are now gaining more options, and as demand increase, competition will just get that much more fierce, and these employees will have that much more options and paid.
However, this does not mean that all employees are gaining power, especially when it comes to less skills employments. As countries develop and technologies develop, the less skills workers lost their market demand as their sector of the economy become obsolete or replaced. And, as stated above, training and improving a person stock of human capital take time and monetary investment that also take time to mature. Which mean for many, the market no long want to paid very much for their labors if at all, and due to the nature of the short-run, these people cannot improve their skills overnight, which all together is a shift in the demand left-ward plus a demand shortage. An example of the pain of unskilled labors would be India 17% graduate unemployment during the tech boom in India. (Economist, Pg 16.)
So, should America worries about the competition for brain, or is our worries even justified? The answer is no. We should pay close interest on the competition and tries to stay on top of the competition, but there are no real worries. America soak up about 30% of the world global supply of foreign students, America has some of the highest quality of universities, a quality and growing business environment, a stable economy, and a lot of wealthy companies that can paid a lot for talents everywhere. Sure, there are jobs being lost as it move to more productive place such as India, but these are jobs that are slowly becoming less and less compatible with our economy, jobs that requires much less skills. Secondly, we must realize that a lot of jobs are being destroyed daily, while a lot are being created. These jobs losses due to it being more cost effective elsewhere can just be added into the whole job creations and destruction process, and as a whole, job creations and destruction tend to balance it self out.
Europe, though, is not as lucky. European colleges are not what they use to be, the business environment is ridden with rigidities and regulations, and R&D investment is 30% less than America with many researcher oversea not wanting to return. (Economist, pg16) Jobs and wages rigidities make it harder for European employers to hire and fire employees, leaving them less flexible in competing with the rest of the world for talents. Also, a stronger EU will farther break down more barriers which will lead to an increase in labor mobility. The EU, though, is more of a confederation of states, which mean that rule and regulation are vastly different everywhere, which mean that certain area can be more attractive to labors than other, creating farther competition among themselves. This will mean that some EU countries will be losing labors while other will be gaining too much labor that it cannot support. However, on the global scale, Europe still isn’t doing to poorly. It is doing a lot to reform its immigration to better suit the time, unlike the US, and it still retain a lot of skills that are highly demanded in knowledge economies, such as German engineering expertise to Italy in Design.
Finally, North America and Europe might not have to worries as much when it looks at its competition in the area of creating skilled workers. The example of the 17% graduate unemployment for India from above is one of the reasons why there should be less worries. Yes, there are a lot of people graduating from various colleges all over the world in much larger number than the US, but a lot of these people does not graduates with the skills that employers demand, which mean that those graduating from the US or Europe will still have the advantages.
Source:"A Survey of Talent." The Economist. October 7th, 2006.
Can we Trust Unemployment Data?
The first step to understanding why unemployment data might be unreliable, and that it is not telling the whole unemployment story, is to first understand how unemployment is measure. Each month, the BLS surveys about 50,000 households, surveying individuals over the ages of 16 that are not institutionalized. These individual are then assigned to one of three groups:
1) Employed: People who worked full-time or part-time during the past week (or was on sick leave or vacation from a job.)
2) Unemployed: if the person didn’t work during the past week but looked for work during the past four week.
3) Not in the labor force: If the person didn’t work during the past week and didn’t look for work during the past four weeks.
This is the definition used to collect unemployment data in the US. From this, we can make four obvious observations about the data that induce it to tell a misleading story.
1) Part-time work and full-time work are very different.
2) The data does not account for illegal immigrant workers, or those that work in the illegal sector of the economy.
3) The data does little to account for individual that have temporary been to discourage to look for work after so many fail attempt.
4) People can lie on the survey to make themselves look better.
For the first point of observation, part-time work is not the same as full-time work. However, under the current definition for measuring unemployment, both kinds of work are treated equally. This is misleading because if an economy have a lot of part-time workers and few full-time workers, then the health of the economy would not be as good as the unemployment data would show.
If we use the 2006 Part Time Data from the BLS, we can see how significant part-time worker are to the labor force. Just looking at the January 2006 data, we see that there are 139,512 workers in nonagricultural sector and 1,970 workers in the agricultural sector. Part-time worker for Jan. 2006 equal 24,505 for all industries, and 24,058 among nonagricultural industries, that is 17% of the workers are part-timer. Among the part-timers, about 20% or 1 in 5 is part-time due to economic reasons. This percentage is consistent for almost every month in 2006. One in five workers are working part-time is a pretty significant among, and when they are treated equally as full-time workers for unemployment data, the data seem to exaggerate the health of the economy and employment, or at the least, it is not fully accurate in representing the state of unemployment.
The next point of observation deals with those that are not included in surveying unemployment. For illegal immigrant or those that are working illegal jobs, they are not considered as part of the labor forces. Nevertheless, their works and labors still contribute to the overall state of the economy. But if a surveyor was to ask a drugs dealer if he is currently employed, or has he been looking for work in the last four weeks? The drugs dealer would certainly not report that he is employed as a dealer, or he been look to enter into the drugs dealing business. The same can be said for illegal immigrants that are working and hiding from the US government.
Data on illegal immigrant living in the US can be obtain from Homeland Security. However, the statistical data could very well be undercounting the actual number of illegal immigrants living in the US because collecting such data is more than just difficult, and it could very well be alter to make Homeland Security look better. The data show that there were about 5 millions illegal immigrants living in the US in 1996, and the number was growing at about 270,000 a year by in 1996. This data show that there are some 5 millions plus individuals not accounted for in the unemployment data. Add in all those that are working illegal jobs of various nature, and we are talking about a huge hole in the unemployment data. This again shows why official unemployment data can be uncertain.
The next point of observation deals with people that are just sick and tired of rejection, of others criticism them, and constantly being told that they are not good enough. These individuals might decide to take a temporary break from job hunting to regroup before heading out to hunt again. They might decide to take a month off from searching to reorganize themselves, and repackage their selling points. People that had became to discourage to continual looking for work might take a temporary break, or people might take a break to find new way to package themselves for potential employers. In either case, under the current way of collecting unemployment data, these individuals might very well be categories as “not in the labor force.” In both situations, the people wanted job, they are willing and ready to go to work, but they just could not find a job. However, if they are considered to be “not in the labor force,” instead of “unemployed” then the unemployment data again is not accurately stating the state of unemployment. This again shows why official unemployment data can be uncertain.
1) Employed: People who worked full-time or part-time during the past week (or was on sick leave or vacation from a job.)
2) Unemployed: if the person didn’t work during the past week but looked for work during the past four week.
3) Not in the labor force: If the person didn’t work during the past week and didn’t look for work during the past four weeks.
This is the definition used to collect unemployment data in the US. From this, we can make four obvious observations about the data that induce it to tell a misleading story.
1) Part-time work and full-time work are very different.
2) The data does not account for illegal immigrant workers, or those that work in the illegal sector of the economy.
3) The data does little to account for individual that have temporary been to discourage to look for work after so many fail attempt.
4) People can lie on the survey to make themselves look better.
For the first point of observation, part-time work is not the same as full-time work. However, under the current definition for measuring unemployment, both kinds of work are treated equally. This is misleading because if an economy have a lot of part-time workers and few full-time workers, then the health of the economy would not be as good as the unemployment data would show.
If we use the 2006 Part Time Data from the BLS, we can see how significant part-time worker are to the labor force. Just looking at the January 2006 data, we see that there are 139,512 workers in nonagricultural sector and 1,970 workers in the agricultural sector. Part-time worker for Jan. 2006 equal 24,505 for all industries, and 24,058 among nonagricultural industries, that is 17% of the workers are part-timer. Among the part-timers, about 20% or 1 in 5 is part-time due to economic reasons. This percentage is consistent for almost every month in 2006. One in five workers are working part-time is a pretty significant among, and when they are treated equally as full-time workers for unemployment data, the data seem to exaggerate the health of the economy and employment, or at the least, it is not fully accurate in representing the state of unemployment.
The next point of observation deals with those that are not included in surveying unemployment. For illegal immigrant or those that are working illegal jobs, they are not considered as part of the labor forces. Nevertheless, their works and labors still contribute to the overall state of the economy. But if a surveyor was to ask a drugs dealer if he is currently employed, or has he been looking for work in the last four weeks? The drugs dealer would certainly not report that he is employed as a dealer, or he been look to enter into the drugs dealing business. The same can be said for illegal immigrants that are working and hiding from the US government.
Data on illegal immigrant living in the US can be obtain from Homeland Security. However, the statistical data could very well be undercounting the actual number of illegal immigrants living in the US because collecting such data is more than just difficult, and it could very well be alter to make Homeland Security look better. The data show that there were about 5 millions illegal immigrants living in the US in 1996, and the number was growing at about 270,000 a year by in 1996. This data show that there are some 5 millions plus individuals not accounted for in the unemployment data. Add in all those that are working illegal jobs of various nature, and we are talking about a huge hole in the unemployment data. This again shows why official unemployment data can be uncertain.
The next point of observation deals with people that are just sick and tired of rejection, of others criticism them, and constantly being told that they are not good enough. These individuals might decide to take a temporary break from job hunting to regroup before heading out to hunt again. They might decide to take a month off from searching to reorganize themselves, and repackage their selling points. People that had became to discourage to continual looking for work might take a temporary break, or people might take a break to find new way to package themselves for potential employers. In either case, under the current way of collecting unemployment data, these individuals might very well be categories as “not in the labor force.” In both situations, the people wanted job, they are willing and ready to go to work, but they just could not find a job. However, if they are considered to be “not in the labor force,” instead of “unemployed” then the unemployment data again is not accurately stating the state of unemployment. This again shows why official unemployment data can be uncertain.
Looking at Unemployment
The traditional way to look at keeping a stable employment rate, or at least when trying to attempt to move employment rate toward specific number, is by looking at the job finding rate and the job losing rate in an economy. When these two number are constant, all other things equal, the unemployment rate always tend toward equalibrium, or the natural unemployment. This is especially important because this model of the labor market show that the size of the labor market doesn't matter. Even in the event where there are constant influx of new workers into the labor force, which might result in what some European call hysterisis, the result still remain predictable. In such instance, even if there is not one specific point that the unemployment tend toward, it often move toward a predictable and observable band. This tell us that what matter is the rate of job finding and job losing rate in an economy, and it is controlling or adjusting these number that often have the best result when in come to unemployment.
However, that also mean that if a nation, like France, make it harder for people to lose their job, it would make it harder and slower for companies to find worker, which would mean that less people would be working. (Why, because if employment contract is hard to break, employer have to be more careful who they hire.) When trying to manipulate these numbers, careful positive analysis must take place for any policy that attempt such thing, else the result can be very counter productive. Just look at America, which lost about 90,000 job daily. Such number seem devasting, but if we look at the job finding rate and job losting rate for America; the job losing rate has been constant at about 1% for the last decade while the job finding rate has been increasing. The result is that America umployement has gone from an average 7-8% from the past to a good 4-5%.
Is that suggesting that for a nation that have a shrinking labor force - due to an aging population - they should support immigrantion as a way to reshape the population pyrimid, and rebalance the shape of the population? That could be a solution, however, there are something that we must pay attention to if such a policy is embrace. The above discussion show that influx into the labor force will not creates huge jump in umployment, and in the long run, it make no real different. But, we must pay attention here to the rates of finding and losing job. Influx doesn't matter under the assumption that it does not alter these important rate, but what if it does?
The best way to look at the labor market is through Schumpeter's creative destruction. In such a model, economy are always breaking down the old and building new to replace it, job are destroy to be replace by better more advance job. What would happen when the influx into the economy is behind the current technological state of the economy, and that they are so behind, it is impossible for them to catch up? If we denote influx into the labor force as theta, then we must have two different theta value, one that represent those that can be added to the economy, and one that will have to eventually give up and leave. In such situation, I would assume that the second theta value would have some motifier to the job finding rate as it is a whole group of people that have no chance of finding job at all. How big of an impact it will have, though, I do not know. Maybe in the long run, it is neglectable. But that is why economic analysis is for, and hopefully I can get some real number for this situation.
Now imagine another situation, what would happen in the model if we have a constant out flow of workers without inflow?
However, that also mean that if a nation, like France, make it harder for people to lose their job, it would make it harder and slower for companies to find worker, which would mean that less people would be working. (Why, because if employment contract is hard to break, employer have to be more careful who they hire.) When trying to manipulate these numbers, careful positive analysis must take place for any policy that attempt such thing, else the result can be very counter productive. Just look at America, which lost about 90,000 job daily. Such number seem devasting, but if we look at the job finding rate and job losting rate for America; the job losing rate has been constant at about 1% for the last decade while the job finding rate has been increasing. The result is that America umployement has gone from an average 7-8% from the past to a good 4-5%.
Is that suggesting that for a nation that have a shrinking labor force - due to an aging population - they should support immigrantion as a way to reshape the population pyrimid, and rebalance the shape of the population? That could be a solution, however, there are something that we must pay attention to if such a policy is embrace. The above discussion show that influx into the labor force will not creates huge jump in umployment, and in the long run, it make no real different. But, we must pay attention here to the rates of finding and losing job. Influx doesn't matter under the assumption that it does not alter these important rate, but what if it does?
The best way to look at the labor market is through Schumpeter's creative destruction. In such a model, economy are always breaking down the old and building new to replace it, job are destroy to be replace by better more advance job. What would happen when the influx into the economy is behind the current technological state of the economy, and that they are so behind, it is impossible for them to catch up? If we denote influx into the labor force as theta, then we must have two different theta value, one that represent those that can be added to the economy, and one that will have to eventually give up and leave. In such situation, I would assume that the second theta value would have some motifier to the job finding rate as it is a whole group of people that have no chance of finding job at all. How big of an impact it will have, though, I do not know. Maybe in the long run, it is neglectable. But that is why economic analysis is for, and hopefully I can get some real number for this situation.
Now imagine another situation, what would happen in the model if we have a constant out flow of workers without inflow?
Introduction
Hi, my name is Nghia Le, and welcome to my blog. I just graduated from the University of Nebraska, Lincoln with a BA in international studies. My area of specialty includes: East Asia and SE Asia development, macroeconomic, and mathematic. I have studied Chinese for four years, Japanese for two and a half years, and of course I can speak my native language, Vietnamese. I was born in Vietnam and moved to the US when I was seven years old. Currently, I just want to take a sometime away from school to experiences life a little more, to take what I have learned and to see it put to use. Afterward, I hope to go back to school to get a Phd in economic.
Before moving here (blogspot), I've been using msn window live to blog with, but the service proved to be less than satisfactory. That is why I have decide to move here. So, I'm going to be moving some of my old stuff over here. My old blog is at http://evyugi.spaces.live.com/. Most of the early posts here are stuffs I moved from there, but if you want to see more stuffs, feel free to visit it.
Before moving here (blogspot), I've been using msn window live to blog with, but the service proved to be less than satisfactory. That is why I have decide to move here. So, I'm going to be moving some of my old stuff over here. My old blog is at http://evyugi.spaces.live.com/. Most of the early posts here are stuffs I moved from there, but if you want to see more stuffs, feel free to visit it.
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