Worry on the Jobs Front

A spectre is haunting Europe, not of communism as Marx had once written, but of the capitalist pink slip. Growing unemployment in the entire Eurozone since the 2007 crisis has skyrocketed following the recent debt debacle. The job situation is equally grim in the US. What is beginning to worry economists is that double-digit unemployment resulting from structural changes might become the "new normal". This is bad news for the rest of the world.

In its latest report, the OECD estimates that if the numbers of those who have given up looking for jobs were added to that of those seeking full-time work, the unemployed population of the European Union would be double the official figure of 47 million. Similarly, the slight drop in the US jobless number masks the reality of the large numbers of jobless who have stopped looking for work.

Until recently, economists in Europe and the US maintained that unemployment, though high, is cyclical. As hundreds of billions of dollars of stimulus funds kickstart the economy and the recession ends, they claim, employment will return. Now that joblessness rates are sticking stubbornly close to double digits well after the recession is officially over, there is dawning realisation that the jobless recovery may be due to something fundamental that has changed in the economy. A large and low-cost labour pool in emerging economies and outsourcing have changed the nature of business worldwide. In industry itself moving to higher value knowledge-based production in which traditional blue-collar workers have no place.

The most significant structural change has been the rise of green technology and bioscience companies, which require mathematics, engineering and science graduates and hard-to-come-by skilled workers. High-school educated factory employees once earning good wages in automobile and other manufacturing cannot find similar jobs to which they can return. Unemployment numbers stay high while new technology companies limp along without adequately skilled staff.

The US government has been talking of expanding workers' training and ramping up education to innovate for the future. But with government deficits reaching record levels, individual states are considering laying off thousands of teachers rather than building the foundations for future growth.

Factory positions that were eliminated as a result of the downturn are not being revived, but replaced by automation and outsourcing to lower-cost countries. While capital and goods have been moving freely across borders, labour has not. Capital has therefore shifted increasingly to countries like China, for instance, to take advantage of cheap labour. Corporations have improved their bottom lines, but jobs have disappeared and wages stagnated. It is no surprise therefore that the European and US middle classes tend to see China, India, South Korea and other emerging economies as culprits. I was recently in Paris for the French release of my book on globalisation and was asked repeatedly by liberal and well-meaning interviewers how Europe could stop Chinese and Indians from taking their jobs. "Isn't it unfair?" they asked, conveniently forgetting that export-driven economic growth was what the western doctor had prescribed for Asia. Structural change means they are exporting their labour in the form of assembled western goods.

Events surrounding the recent launch of Apple's iPad tablet computer provides a nice example of this new kind of labour export. While Apple enthusiasts in Paris mobbed stores to grab the latest gizmo, news reports from China talked of workers' unrest and a string of suicides in the military-style Foxconn factory that assembled the iPad. Long hours, sleeping in barracks within the factory with little pay, the workers who produced the technological wonder were driven to desperate action.

A recent New York Times analysis of what goes into producing an Apple bestseller is the economics of outsourcing. For assembling a $600 iPhone 4, the Chinese factory gets 7 per cent of the profit margin, and some 30 per cent goes to pay the suppliers of components in South Korea, Germany, France, Japan and others. Apple's profit margin is over 60 per cent. Consumers worldwide enjoy Apple products, profits go to the parent company in California and crumbs fall on the plates of the Chinese workers who toiled to assemble them. American workers are out of this supply chain. This is a structural change that may not have many fans among the growing ranks of the unemployed.