- Joined
- Mar 24, 2009
- Messages
- 16,743
Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5 per cent, is poised to rise above 10 per cent by the fall. It should peak at 11 per cent in 2010 and remain well above 10 per cent for a long time. The rate will peak above 10 per cent in most other advanced economies, too. These raw figures on job losses, bad as they are, actually understate the weakness in world labour markets. If you include partially employed workers and discouraged workers who have left the U.S. labour force, the unemployment rate is already 16.5 per cent. Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses. As a result, total labour income - the product of jobs times hours worked times average hourly wages - has fallen dramatically.
Moreover, many employers, seeking to share the pain of recession and slow down layoffs, are now asking workers to accept cuts in both hours and wages. British Airways, for instance, has asked employees to work for a month without pay. Thus, the total effect of the recession on labour income of jobs, hours and wage reductions is much larger.
A sharp contraction in jobs and labour income has many negative consequences on both the economy and financial markets. First, falling labour income implies falling consumption for households, which have already been hard hit by a massive loss of wealth (as the value of equities and homes has fallen) and a sharp rise in their debt ratios. With consumption accounting for 70 per cent of GDP in the U.S., and a similar percentage in other advanced economies, this implies that the recession will last longer, and that recovery next year will be anemic (less than 1 per cent growth in the U.S. and even lower rates in Europe and Japan).
Second, job losses will lead to a more protracted and severe housing recession, as joblessness and falling income are key factors in determining delinquencies on mortgages and foreclosure. By the end of this year, more than eight million Americans with mortgages will be unemployed.
Read the full article here.
Moreover, many employers, seeking to share the pain of recession and slow down layoffs, are now asking workers to accept cuts in both hours and wages. British Airways, for instance, has asked employees to work for a month without pay. Thus, the total effect of the recession on labour income of jobs, hours and wage reductions is much larger.
A sharp contraction in jobs and labour income has many negative consequences on both the economy and financial markets. First, falling labour income implies falling consumption for households, which have already been hard hit by a massive loss of wealth (as the value of equities and homes has fallen) and a sharp rise in their debt ratios. With consumption accounting for 70 per cent of GDP in the U.S., and a similar percentage in other advanced economies, this implies that the recession will last longer, and that recovery next year will be anemic (less than 1 per cent growth in the U.S. and even lower rates in Europe and Japan).
Second, job losses will lead to a more protracted and severe housing recession, as joblessness and falling income are key factors in determining delinquencies on mortgages and foreclosure. By the end of this year, more than eight million Americans with mortgages will be unemployed.
Read the full article here.