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Global Labor Market Challenges

October 31, 2011

Project Syndicate has a recent article by Michael Spence, a Nobel laureate in economics from the Stern School of Business, entitled The Global Jobs Challenge. In it, he describes three massive structural challenges in the global labor market.

The first challenge is to generate enough jobs to accommodate the inflow of new entrants into the labor market. Clearly, a wide range of advanced and developing countries is failing to do so. Youth unemployment is high and rising. Even in fast-growth developing countries, surplus labor is awaiting inclusion in the modern economy, and the pressure is on to sustain job creation.

The second challenge is to match skills and capabilities to the supply of jobs – an adjustment that takes time. It is also a moving target. Globalization and major labor-saving technologies have thrown labor markets in many countries into disequilibrium. Skills mismatches abound. Moreover, with continuing rapid growth in developing countries, the global economy’s structure is far from static, and it seems clear that the pace of market adjustment is lagging that of structural change.

The third challenge is distributional. As the tradable part of the global economy (goods and services that can be produced in one country and consumed in another) expands, competition for economic activity and jobs broadens. That affects the price of labor and the range of employment opportunities within all globally integrated economies. Subsets of the population gain, and others lose, certainly relative to expectations – and often absolutely.

These challenges are relevant in addressing the macro issues of unemployment as well as immigration. Unemployment is surplus labor. As the author describes, it can result from too few jobs created for new entrants into the labor market (first challenge) or as a result of skills mismatch (second challenge). Skills mismatch has been addressed before in this blog on the issue of what percentage of the U.S. unemployment rate is due to skills mismatch.

There is a belief among certain policymakers that the way to address high unemployment is to restrict immigration. The theory is that fewer workers coming into the U.S. will, essentially, reduce the pool of surplus labor. This clearly doesn’t apply in the context of high skill immigration as businesses who wish to sponsor a worker for immigration generally must demonstrate that there exists a lack of able, willing, qualified, and available U.S. workers to perform the work. And reports have shown that, in the context of low-skill immigration in the agricultural sector, in fact, businesses have not been able to hire U.S. workers to replace undocumented workers who leave.

It is worth noting that, on a micro level, the nature of work itself is changing at a rapid pace. There was an interesting opinion piece in the New York Times this morning about “shadow work,” or unpaid labor that has become a part of our economy. Examples are shoppers bagging their own groceries at self-checkouts, people pumping their own gas, and workers who draft their own correspondence. These have all been enabled by technological advances.

As robotic devices replace human workers, end-users like customers and employees are taking on the remnant of the transaction that still requires wetware — a brain. New waves of technology change how things are done, and we docilely adapt — unavoidably so, as there’s usually no alternative.

This rapid change evokes Schumpeter’s description of capitalism as “a perennial gale of creative destruction.”

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