Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies?


9:00 am - October 29th 2010

by Sunny Hundal    


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The success of the entire Osborne and Cameron political project depends on one measure: job creation. Their theory says the private sector is being stifled and can easily step in to offset job-losses in the public sector, which they regard as having grown too large.

If jobs don’t get created in large numbers soon (2m jobs in five years is projected), the deficit won’t fall and our economy will remain stagnant.

In this second ‘mythbuster’, I explain why Tory dreams of such huge job creation are very likely to be mythical. Not only is the Conservative project a pipe-dream, but we are right to argue these cuts won’t work.

* * * * * * * *

Ever since the UK abandoned a target for employment and focused instead on inflation, Conservatives have said free markets will take care of jobs. The re-alignment by Ronal Reagan and Margaret Thatcher was complete when Labour shifted its focus to cushioning workers against instability and low pay while refusing to interfere too much with markets.

That was also around the time that deep structural problems in our economy set in.

1. Job creation is slowing down
This graph from the US makes a notable point: over the last decade net job creation in the United States was zero.

But the bigger trend is more worrying: job creation is broadly lower in successive decades (except when inflated due to war spending). Since the 1990s, job creation has fallen very consistently.

Though I’ve not yet found the data, the UK is unlikely to be much different. The graph below gives you an indication of where job creation took place more recently, as SMEs account for most new jobs.

.
The only industry going up fairly significantly is Real estate and renting, and then Construction (the lower blue line). At the same time, an increasing share of government revenue actually came from the financial sector. All of these are now in deep trouble.

While discussion on this subject in the media is nearly non-existent here, US studies point to the obvious problem: job creation is slowing down. Very possibly, permanently.

It’s not difficult to paint a gloomy picture. Unless an economy creates more jobs than it destroys every year, it cannot absorb the growth in population or immigration. But while our GDP has been growing thanks to growth in productivity, an increasing number of jobs over the last two decades were created in unstable environments. They were low paid and faced severe competition from foreign competitors.

An increasing number of our products are made in developing countries, and it’s no longer viable for companies to invest in massive factories here. In the US, annual incomes of the bottom 90% have been essentially flat since 1973, while the top 10% shot up over the same period.

2. Going back to square one takes longer
Another worrying sign for Cameron and Osborne is this graph also from the US: each subsequent recession took longer to bring unemployment back to the beginning of the crisis. Some say the US might have to wait until 2017 before the job market recovers fully.

The US is already having a jobless recovery of sorts; the same pattern is very likely to occur here unless specific measures are taken to stimulate employment.

3. Investment declining; long-term thinking dead
Most of our global competitors: Japan, Germany, France, China, South Korea, Taiwan etc, have focused on developing new technologies and given major incentives to strategic industries. We broadly gave up this practice and assumed the markets will take care of everything.

The same happened in the US. As Duncan Weldon shows here, investment has fallen dramatically in the US and the UK since the late 80s. Without a concerted effort to raise investment and offer incentives to potential growth industries, we are essentially pissing in the wind.

If you think China will help, think again. They cannot afford to let unemployment rise, which is why they poured a gigantic amount of money into a stimulus package in 2008 and have since deliberately kept their currency low (which helps exports).

China is already way ahead of us in new growth areas. It has invested so much in alternative energy that it now has 50% of the world’s wind power capacity. It is pouring billions (three times more than us) into green technology. The US is only now turning around decades of under-investment thanks to Obama’s stimulus.

Compare that to the paltry sums offered this week. The idea that Chairman Cameron’s five year plan will create 2m jobs is laughable, and only swallowed by political journalists who don’t bother with the bigger picture.

It’s not clear where the new jobs will come from. Spending on science is going to fall in real terms; companies are unlikely to take up the slack in R&D given the precarious economic environment. The much-vaunted Green Investment bank has a paltry £1bn to invest and it’s highly unlikely we will export our way into lots of new jobs.

Our economic strategy is not only a national embarrassment, it is in crisis. And for the time being nothing substantial is being done about it.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. astateofdenmark

”Though I’ve not yet found the data, the UK is unlikely to be much different.”

Sunny, meet ONS. ONS, meet Sunny:

http://www.statistics.gov.uk/hub/labour-market/people-in-work/employment/index.html

The ONS have even compiled a nice chart tracking GDP and employment in the UK over this recession:

http://www.statistics.gov.uk/cci/nugget.asp?id=2294

Thanks – though I think I went through that. I’m specifically looking for stats on job creation as opposed to just employment. Going back to the 1950s ideally.

The second graph is interesting – hadn’t seen that. It sort of confirms the view the recovery will take longer, though there’s not enough data to derive trends

Sunny…

All lovely points, but you offer no solutions.

You do in effect infer that the state should provide jobs though….except jobs created by the government are funded by the taxpayer. How do you expect to fund that?

Agreed.

On point 3 however, we didn’t just “give up” on innovation and developing industries for the future, rather market dogma has had it that simply limiting the state and letting capital freely do its stuff is the best recipe for innovation. Hence Cameron and Osborne stating as though it were immediately obvious, that theirs are policies that will increase growth, innovation, entrepreneurship etc. In contrast, those countries where new growth industries have arisen, have commonly done so through an actively interventionistic state (c.f Ha-Joon Chang for more details).

Most interesting from the data posted by astateofdenmark are the figures on full and part-time employment growth and jobs during the recovery. Full time jobs and employment has actually fallen during the recovery. This suggests two things:

1) Government action to keep people in jobs through stimuli worked (also reflected in the proportionately much lower number of job losses cf 80s and 90s)

2) GDP growth is not dragging up full-time employment.

Given the predicted slow rate of recovery in GDP for the next couple of years, it seems almost impossible to imagine a situation where full-time employment can grow to anywhere close to the levels dreamt of by the OBR and government.

6. astateofdenmark

This link should start you off (click on the excel):

http://www.statistics.gov.uk/statbase/product.asp?vlnk=8286

You want the column Workforce Jobs, which has quarterly numbers and goes back to 1978.

For older stats you might have to send an email to the ONS.

Job creation is only one part of the problem.

The other part, which is never discussed in media commentary, is the simple fact that according to orthodox business practice the first recourse is always to improve LABOUR EXTRACTION from existing staff rather than hire new staff.

Businesses will increase labour extraction as far as possible before taking on new staff meaning that, unless there is a decent level of growth, the lag on job creation will increase further and further.

Full time jobs and employment has actually fallen during the recovery. This suggests two things:

Yes it does suggest two things. First that employment is a lagging indicator (but surely everyone knew that), and second that labour market flexibility has prevented a rise in unemployment.

9. Mike Killingworth

The reason Sunny offers no solutions is the same reason that no one else does.

There aren’t any.

When jobs are created in a global economy, they are created wherever labour costs are lowest. For example, Italian-language call centres are created in Albania.

And this is before we get to the long-standing point that a public-sector CV (except for professionals such as architects or doctors) makes you unemployable in the private sector. I am not going to debate whether or not private sector employers are right or wrong to take this view, other than to notice that when formerly public sector functions such as social housing management are privatised, the existing staff largely continue to do the same work.

Conclusion: the deficit will not reduce, the credit agency rating of sterling will continue borderline and the co-alition may well go to the country early to seek a “doctor’s mandate” for a further round of cuts, including the sell-off of public housing in inner London and the means-testing of the State OAP. It is even possible that Cameron will ask Miliband to join him in forming a “grand coaltion” to push through such measures.

Greg: “Given the predicted slow rate of recovery in GDP for the next couple of years, it seems almost impossible to imagine a situation where full-time employment can grow to anywhere close to the levels dreamt of by the OBR and government.”

Are you forgetting, the public sector cuts are already netted out of both the employment and GDP figures. If you believe the growth figures, you should believe employment will go up, net, unless you think there will suddenly be huge productivity gains.

Sunny, what worries me about this sort of analysis, is that you seem to be advocating as a solution, the kind of debt bubble that got us into this mess – that turned a financial crisis into an economic calamity. We have had 4 quarters of growth, and you think we should still aim to be borrowing £400m per day? Until when? 2 years? 4 years? 8 years? We will be due another recession within 8 years, and it would be a good idea if the public finances are good enough by then that there is room for some fiscal stimulus.

“For older stats you might have to send an email to the ONS.”

I did last night (day job) – they don’t have any. If you want labour force stuff, the furthest back you can get is the 1990s. So I would be extremely grateful if somebody does find some good basic stats on employment, unemployment (ILO definition) going back to the 1950s.

This is one of the best articles I have read on LC. Well done Sunny.

None of the parties seem to have a plan to actually develop and grow the economy in a sustainable way. You used to hear the refrain a couple of years ago that it didn’t matter that China was bringing an extra million workers into the global labour market. They could do the grunt work and we will do all the high end R&D. There appeared two key problems with this argument. One our level of investment in R&D was very low and two that it reflected a type of colonial attitude which ignored the fact that the Chinese and other East Asians would be unlikley to accept low value work indefinitely. It was pretty much the condescending attitude that the Americans had to the Japanese in the immediate aftermath of WW2. And we all know what happened next.

Strategic investment in new industries is a must but the free market model of globalisation that we are pursuing will inevitably suck further jobs overseas, depress demand, create credit and asset bubbles and lead to further economic crises. This chap is very good on this

http://www.gfceconomics.com/creditcrunch.html

“All lovely points, but you offer no solutions.”

I think the UKs problems are partly the result of the centralisation of the country, which despite limited devolution in Scotland and Wales, has not been addressed. The economy is essentially orientated around what is good for the London and the south east of england, plus marginal constituencies. And the decision to abolish regional development councils constitutes a big fail in this as well. So I think solutions have to start from the premise that regions need more powers, including exploring the feasibility of seperate currencies (if people object to the Euro on the basis that the eurozone is not an optimal currency area, then logically you’d have to object to the pound on the same grounds)

What it is needed is more entreprenuership, people willing to take the risk and setting up businesses. Now how you do this others know more than me about, but I think you need easy access to credit at a cheap rate, understanding banks who support businesses in the early years, a generous but rational welfare state so the price for failure isn’t destitution (people don’t take risks and set up businesses when family homes are on the line, if they already have a reasonable and safe salary). You also need heavy regulation on big business so that small businesses are not stifled, and a far strong competition comission.

“In the US, annual incomes of the bottom 90% have been essentially flat since 1973,”

Apologies, but this is absolute and total bollocks. No, really Sunny, it is. You’ve been had there by someone spouting off.

“Another worrying sign for Cameron and Osborne is this graph also from the US: each subsequent recession took longer to bring unemployment back to the beginning of the crisis.”

Yup, and this year’s Nobel Prize was awarded for pointing out why. As the economy becomes more complex then we have greater division and specialisation of labour (this is actually the same thing as saying as the economy becomes more complex). Which means that the sorting and matching required to get labour back to work continually takes more time as the economy gets more complex.

This isn’t a function of some ghastly neoliberalism, it’s simply a corollary of having a more complex economy.

“The idea that Chairman Cameron’s five year plan will create 2m jobs is laughable, ”

Err, you do know that the economy creates 2.5 million jobs each and every year, don’t you?

“Which means that the sorting and matching required to get labour back to work continually takes more time as the economy gets more complex. ”

The thing is, logically this shouldn’t be the case. Matching labour to appropiate vacancies is something that could probably be easily done by a decent database – it’s therefore something that should be taking a shorter amount of time compared to the 1970s.

If it were that easy then they wouldn’t have just given the Nobel for explaining it, would they?

Tim

Nearly 2.5 million jobs are destroyed each and every year, you do know that. don’t you?

“New research from the Globalisation and Economic Policy Centre at The University of Nottingham has found that 1 in 7 private sector jobs are lost in the UK each year but more are created than destroyed. Based on 1997-2005 data from Customs and Excise (VAT registered businesses) and the Inland Revenue (PAYE registered businesses), the first comprehensive survey into this topic found that 2.65 million British private sector jobs are destroyed annually, and 2.76 million created (the equivalent of 51 000 lost and 53 000 created each week). ”

A bit like the Pupil Premium – the jobs don’t count unless they are in addition to what we’ve currently got, not instead of.

“Nearly 2.5 million jobs are destroyed each and every year,”

Sure: and agreed it’s the net number that counts. But “The idea that Chairman Cameron’s five year plan will create 2m jobs is laughable, ” is clearly and obviously wrong.

And yes, such details are important.

For example, where Sunny’s gone wrong on his US figures is that US income figures are measured by household. And the US figures do not adjust for the changes in household composition over time. It’s a detail, sure, but a very important one.

Some good points and some not so good, Sunny. It is not that we do not invest enough, we do not save enough.

A simple national account identity:

S – I = CA

If you save more than you invest then you will have a current account surplus. If you save less than you invest i.e. like us. Then you will have a current account deficit. We import capital and the surplus countries export capital.

Emerging markets investing a higher share of GDP than us is what is known as stating the bleeding obvious. The clue is they are developing economies.

The nonsense that British workers are competing with Chinese or Asian workers has already surfaced on this thread. British low wage or any wage workers are competing with other British workers. Ricardo showed us that just recently. In fact, nearly two hundred years ago.

The economy generates millions of jobs every year. If it is not generating enough then that suggests a supply side problem and it will require supply side solutions. One third of a million new firms are created every year and it is this number that falls when the economy is depressed. It is wrong to focus only on the jobs being lost and not on the new jobs being created. I was reading a report just recently about financial services jobs in Edinburgh. For two years the media has been full of X amount of jobs being lost from various firms. Two years later Edinburgh financial services employs 4,000 more now than before the financial crisis.

We have a problem at the moment because new firms can’t get finance. So we need to find solutions to get them finance. Moreover, politicians will not be creating any new employment. However, there is plenty that they could do to remove disincentives and create better incentives for the people who will create the jobs.

20. Mike Killingworth

[19] If we do not save enough, Richard, why is the Bank of England asking us to save less (by setting negative real interest rates)?

Why is the idea that labour in country A is in competition with labour in other countries a “nonsense”? Please give the quote from Ricardo which says that. If it’s merely your interpretation of the theory of comparative advantage, perhaps you should re-read it.

The nonsense that British workers are competing with Chinese or Asian workers has already surfaced on this thread. British low wage or any wage workers are competing with other British workers. Ricardo showed us that just recently. In fact, nearly two hundred years ago.

Perhaps you would like to explain the ‘nonsense’ to the Dyson workers laid over when production was shifted to the Far East.

“We have tried very very hard to make manufacturing work,” Mr Dyson said yesterday. “It has been very successful, but as we look at the future and the enormous sums we need to plough into the business in order to produce new products and be competitive and continue to grow, we believe this is the way we have to go.”

He said the fact that Britain remained outside the euro was only “a relatively small factor” in the decision. The driving force was the much lower labour and production costs in the far east and the fact that the company’s suppliers were increasingly based in the region.

http://www.guardian.co.uk/business/2002/feb/06/manufacturing.globalrecession

Or alternatively you could try it on with the Burberry workers

http://www.timesonline.co.uk/tol/news/uk/article650365.ece

Globalisation, outsourcing, whatever you want to call it has been sucking manufacturing jobs out of the UK for years. The only reason the impact on UK unemployment hasn’t been greater has been that some of the City’s profits were recycled into expanding public sector employment in the regions outside London. Now that source of employment is will be heavily scaled back we should see unemployment rise sharply.

Sunny, you might be an economist but you don’t know what you are talking about. Nor do I but I have run a business or two.

The VAT chart. Yes it shows SMEs as the main creator of jobs, and all . Not surprising when 99.9% of companies in the UK are SMEs. But it only shows companies, not employees. So it doesn’t correlate to number of jobs created. A small number of large companies can make a huge difference to the job creation figures. SMEs only employ 60% of the working population.

And it’s not governments who create jobs. It’s people. Lots of people starting lots and lots of small businesses. From little acorns trees will grow.

http://stats.bis.gov.uk/ed/sme/Stats_Press_Release_2009.pdf

And it’s not governments who create jobs. It’s people. Lots of people starting lots and lots of small businesses. From little acorns trees will grow.

Yeah right. Like it was lots of individual people starting lots of individual businesses that created the manufacturing powerhouses of Germany or Japan. Nothing to do with Governments providing the education system to train the workers, building the infrastructure and providing targeted investment for R&D etc etc etc.

20. Mike Killingworth

If we do not save enough, Richard, why is the Bank of England asking us to save less (by setting negative real interest rates)?

It would have disastrous consequences if we suddenly switched from consumption to saving. Therefore, it requires a more gradual longer-term change. Moreover, saving money in deposit accounts is not the only way to save. I can’t think why people who save that way should get a positive rate of return.

I don’t agree with Paul Krugman on everything but on international trade economics there is no better economist. He seems to have forgotten some of it recently but that is neither here nor there. Here he is on Ricardo’s simple but difficult idea. The idea is so simple that Professors in other disciplines struggle to understand it. The other essay is dealing with the myth of nations competing with each other.

http://web.mit.edu/krugman/www/ricardo.htm

http://www.pkarchive.org/global/pop.html

http://www.scribd.com/doc/23125626/Paul-Krugman-Competitiveness-A-dangerous-obsession

bubby, I think you are suffering from a severe bout of manufacturing fallacy fetishism.

http://www.project-syndicate.org/commentary/bhagwati3/English

bubby, I think you are suffering from a severe bout of manufacturing fallacy fetishism.

You are being rather disengenuous and slippery Richard. You started by arguing that workers in Britain were not directly competing with workers in low labour cost countries in Asia. I provided evidence which showed that they clearly were.

You have now switched tack and are arguing that the its not vital to have a maufacturing base and that a country can survive on services alone.

This is a different argument.

I am familar with Bhagwati’s arguments and I think they are utter bollocks.

The great bulk of the UK population lives outside the South East. What internationally competitive service sectors will mop up the millions of manufacturing jobs that have been lost in these regions now that the Public sector is being pared back?

Worth quoting Krugman at length. He did, after all, win the Nobel for his work on international trade:

“Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, “what would happen if people who work for such low wages manage to achieve Western productivity?” The economist’s answer is, “if they achieve Western productivity, they will be paid Western wages” — as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).”

“Constant employment is a reasonable approximation: The standard textbook version of the Ricardian model assumes full employment in both countries. But in reality unemployment is constantly a concern of economic policy — so why is this the usual assumption? There are two answers. One — the answer that Ricardo would have given — is that international trade is a long-run issue, and that in the long run the economy has a natural self-correcting tendency to return to full employment. The other, more modern answer is that countries have central banks, which try to stabilize employment around the NAIRU; so that it makes sense to think of the Federal Reserve and its counterparts acting in the background to hold employment constant. This is not at all the way that non-economists think about the issue. Both supporters and opponents of free trade normally claim that their preferred policies will create jobs; free-traders are forever warning that the Smoot-Hawley tariff caused the Great Depression. And the alternative view does not come at all naturally. During the NAFTA debates I shared a podium with an experienced, highly regarded U.S. trade negotiator, a strong NAFTA suppporter. At one point a member of the audience asked me what I thought the effect of NAFTA would be on the number of jobs in the United States; when I replied “none”, based on the standard arguments, the trade official exploded in anger: “It’s remarks like that which explain why people hate economists!””

Or we could even be Keynesians about this. The employment (or unemployment, to taste) levels in any one economy are determined by hte level of aggregate demand in that economy.

Trade has absolutely nothing to do with it.

Finally, all this hankering over manufacturing jobs as they’re “well paid jobs”. No, they ain’t. Service sector jobs pay more than manufacturing, have for a long time.

Or we could even be Keynesians about this. The employment (or unemployment, to taste) levels in any one economy are determined by hte level of aggregate demand in that economy.

Yes I am arguing that outsourcing has actually reduced aggregate demand in our economy. Only the expansion in credit prevented this becoming more obviously until recently.

As Graham Turner has noted:

“The problem with moving so many jobs abroad is that it left a demand gap in the West that in the end got filled by credit growth. Our trade deficits soared, and wages were under concerted downward pressure in many industries. Without the credit growth, the economies would have performed very poorly over the past decade or so. Both the US and UK would have suffered from persistent deflation in recent years. That deflation was mitigated by the credit bubbles, but it resulted from outsourcing with few checks and balances. I am not against free trade. But as I argue in the book, allowing companies to shunt jobs around from one country to another creates demand shortfalls reminiscent of the 1930s.

I have no doubt we will see more stringent controls on subprime loans. But I also suspect that unless there is radical change, there will be another bubble, and we will be caught unaware gain, with the regulators discovering another gap in their armoury. If we had balanced growth, with wages being allowed to rise, there would be no need for excessive borrowing. Tighter lending controls, which I do think are necessary, might then be more effective. ”

http://www.spectator.co.uk/coffeehouse/793531/qa-with-graham-turner.thtml

29. Mike Killingworth

[27]

The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all.

Many thanks, Tim. The reason “laymen” think as we do is that the Ricardian model is a poor representation of reality. The purpose of a “model” is to, er, model the real world. Instead we get what’s ‘is name complaining that New york garment workers should conform to the model.

If labour were as Ricardo supposes it to be there would be neither need nor possibility of in-service training, in-between-jobs retraining etc etc.

26. bubby

bubby, I think you are suffering from a severe bout of manufacturing fallacy fetishism.

‘ You are being rather disengenuous and slippery Richard. You started by arguing that workers in Britain were not directly competing with workers in low labour cost countries in Asia. I provided evidence which showed that they clearly were.

You have now switched tack and are arguing that the its not vital to have a maufacturing base and that a country can survive on services alone. ‘

Providing examples of firms switching production to low cost regions is not providing evidence that nations which are made up of workers compete with each other. I provided a Nobel prize winner saying nations do not compete. Firms compete nations do not.

Some products if they were to be produced in high cost areas would not exist. There is very little value in the manufacturing element of a product. Take the IPod when it was first produced. They were manufactured in China and 6% of the end value went to the manufacturers. The other 94% was split between the innovators, distributors, marketing and retail. Now what would happen if the IPod was manufactured in a high cost area? The manufacturers in say the US would have to compete with other US firms for labour. The cost of the product would be prohibitively expensive and less would be sold. So how would that make us better off? The driver is firms in the high cost area competing with each other for labour. As I said workers compete with each other not the workers in nations who are still in the ‘ economic catch-up ‘ stage.

‘ Without the credit growth, the economies would have performed very poorly over the past decade or so. ‘

You can’t take credit growth out of the equation and imagine everything else staying the same. Take credit out of the model and everything else also changes.

Anyway an interesting thread but I have to leave.

#6 – astateofdenmark I clicked the excel, and once again I only have jobs by sector, but not jobs created versus jobs destroyed.

We need figures on net job creation, and that’s not easy to get it seems for the UK.

Tim W:
The annual incomes of all but the top 10% of Americans have been flat since 1973 – ‘median wage stagnation’ in the jargon – up just 10% in real terms in 37 years. During the same period the incomes of the top 1% have tripled, and social mobility has stalled. As economist Larry Katz puts it, “that broken elevator is what gets people down the most”

From here

Joe Otten #10 – I’m not sure what calamity I’m advocating, other than pointing out that strucutural problems will make it very difficult for Cameron to see the economy create net new jobs.

I’m not talking about running continuous high deficits, so I’m not sure what you’re referring to, and neither do I think we’re in deep deep shit. I know Liberals have convinced themselves this is the case (and you were remarkable sanguine just before the election) but our economy has survived much worse in the past… and we’ve shown that a few times on here.

33. Mike Killingworth

[30][31] Of course Richard has to leave because his own arguments eat themselves.

If manufacture represents only 6% of the cost of an iPod, and let’s say labour represents two-thirds of the manufacturing cost, and Chinese labour costs a quarter of American labour, then the extra cost of using American labour is 4*2/3*0.06 or adding 4% on to the price of the product. So all that’s needed to repatriate the manufacture is a 5% import tax on it. Sure, that would reduce the demand, but how price-elastic is iPod demand anyway?

@33 Mike Killingworth

I am not convinced by Richard W’s figures but his argument still has merit.

For a moment I’ll accept that 6% of the end value of an iPod goes to China where the device is assembled. The components that go into an iPod are sourced from other low wage countries — storage, whether it be flash RAM or a hard disk, might come from Malaysia; the display is likely to come from a Korean owned company which will have spread its manufacturing across several countries. Energy for manufacture is an important consideration, and much of that will come from China.

And the wage ratio between a developing country and the USA is more like ten- or twenty-fold than four.

Easier numbers to understand are the component prices versus selling price. iSuppli argue that components for an iPod Nano cost $45, or one third of the retail price. In other words, one third of the retail price goes to low wage countries.

If you do your maths again, wage cost becomes 15 * 2/3 * 0.33 if the device is entirely manufactured in the USA or Europe. Or three times as much. An iPod Nano would sell at twice the current price, or probably more owing to reduced economies of scale.

There is a further argument about enough hands. You could scoop up all of the dextrous unemployed people in more developed countries and there wouldn’t be enough to make the stuff that those nations buy from China.

35. Mike Killingworth

[34] Thanks – interesting.

If the wage differential is that great, it’s hard to see where jobs in the “first world” are going to come from.

@35 Mike Killingworth

Remember, Mike, I was performing back of an envelope calculations. Hourly rate in a Chinese electronics factory is about $0.65, more in Malaysia, lots more in South Korea. I can’t say that an iPod manufactured in Europe would cost three times as much in construction, because we would do it differently. But the manufacturing cost would be massively greater.

“First world” jobs are created when we do something absolutely new, or when we provide a service/make something that has to be close to the spot. Established “First world” jobs disappear when transport and time barriers betwixt consumer and supplier are eroded.

Can people stop complaining about jobs going to China and India and Bangladesh and Indonesia and Malaysia?

You bastards, get some perspective.

There are not a set number of jobs in the world.

In the ten years to 2009, global employment grew from 2.74 billion to 3.21 billion.

So in the 470 million new jobs that have been created in the last 10 years, can you spot how many have been “stolen” from the UK by those pesky poverty stricken yellow bastards? Nope, me neither.

I should perhaps point out that 470 million is the net figure. Billions of jobs have been created and destroyed in the last 10 years.

@LO

It’s easy to say “get some perspective”, but if you lost your job because the business owner moved his workplace to the far-east (as with Dyson – personally I think Sir James should be stripped of his knighthood for that, but that’s probably justme) wouldn’t you be right to be pissed off? Not at the workers in the other countries but at the bosses who can – merely to not pay decent wages – ship out to other countries? If a worker witholds his or her labour it’s called holding the country to ransom, but apparently if a capitalist fatcat sacks a factory-load of people and sets up elsewhere that’s good economics and we mustn’t grumble. It’s bollocks, frankly.

Now: I’m not an economist by any means. So feel free to put me right on the above; I am willing to learn – right now it looks like apologism for capitalism.

“The annual incomes of all but the top 10% of Americans have been flat since 1973 – ‘median wage stagnation’ in the jargon – up just 10% in real terms in 37 years.”

That is, I’m afraid, still nonsense.

Think of what this claim means. That living standards have hardly changed in the US in 40 years. An entire generation has the same standard of living as their parents did? Not believable just on hte face of it.

And there’s a number of reasons why the number is wrong.

1) Consumer inflation (that’s what the “real” means, after adjusting for inflation) we know is badly measured in the US. The so called “hedonic adjustment”, which is the adjustment made for the way that items at the same price get better and better (a $2,000 computer is vastly better than a $2,000 one 40 years ago, cars are better etc) is known to overstate inflation. Similarly, new products which then drop swiftly in price (computers again, mobile phones etc) is known to overstate it. So the adjustment from nominal to real is known to be wonky.

2) The only accurate information we’ve got on incomes is through the tax records. Americans are taxed as households. The household income numbers do not adjust for changes in household size. Meaning that using household incomes understates, quite significantly, the rise in personal incomes.

3) “Personal income” isn’t even the right number to be using for this is cash income. Americans get a significant part of theior total compensation in the form of medical insurance. Total compensation has been rising strongly, much faster than the cash portion of wages.

My apologies, but as I said up above, you’ve been had by someone deploying statistics in a highly partisan manner.

These points are made here (looking only at the last decade, which is in itself something of a cheat, for we’re looking from peak of a boom to depth of a recession, but still these points hold).

http://economix.blogs.nytimes.com/2009/09/10/reader-response-falling-incomes/

42. Mike Killingworth

[36] Thanks, Charlieman. Don’t have a problem with any of that – my issue is with those who think, because they place more value on theory than they do on reality, that the loss of jobs for the reasons you state is unproblematic because jobs are created for the reasons you state.

A breakdown of the estimated costs of an iPod nano shows that the value is not in the manufacturing.
http://www.geek.com/wp-content/uploads/2010/09/ipodnano_BOM.jpg

Using Apple products is interesting because it shows that using old fashioned conventional trade statistics gives a totally misleading picture.

‘ The total cost of the 30GB iPod is estimated to be $150 and, although the trade statistics show $150 going to China from the US for each iPod you see in an Apple store, the real picture is much different thanks to the complex nature of the iPod’s supply chain. The value added by China is actually only on the order of $4, meaning that much of the $150 figure actually winds up in a variety of different places. ‘
http://arstechnica.com/apple/news/2007/06/ipod-manfacturing-is-valuable-to-many-countries.ars

‘ Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese. ‘
http://people.ischool.berkeley.edu/~hal/people/hal/NYTimes/2007-06-28.html

The bilateral trade statistics nowadays are a load of bollocks.

Much of the angst about manufacturing vis-a-vis services is caused by how we choose to classify things. If Mr Sugar Pill mixes some music and sells it on the internet should we classify him as manufacturing music or providing a service? He could legitimately be put in either category. Why should we count the engineers who write software programs as services and not manufacturers? Mankiw got a load of criticism a few years ago for saying the people who create a Big Mac are manufacturing a product just the same as widget producers are manufacturing a product. There is no obvious logic for calling them services and not manufacturers.

The best way to visualise the global trading system is as a huge miraculous machine that turns bananas into PCs- soy sauce into rap music- potatoes into cars-oil into iPods. It is a miracle which we should celebrate not castigate.

The thread is getting a bit off the original point. I know for a fact that Mr Cameron will not create 2 million jobs. Can the private sector create 2 million jobs? I don’t know and neither does anyone else. However, it seems obvious to me that if we want the private sector to create jobs then we need to reduce their costs of actually creating jobs. Short-termism would be reducing wages. A better way would be a radical restructuring of the tax system.

@Richard W

If Mr Sugar Pill mixes some music and sells it on the internet should we classify him as manufacturing music or providing a service?

I’m pretty sure that remixers (ie: people like Mt Eden, David Starfire, etc) are classed in the former insofar as remixing is now seen as a legitimate artform in itself. Your point could easily be applied to any producer of music – someone like George Martin who produced the Beatles arguably had as much of an impact on the music as the four scousers. Unless art is reduced to a “service” then it will remain the former – though with stuff like the X Factor and the factory-pop I kinda see your point. I think… I’d always argue that art is a special case scenario though. I have a bias 😉

Just a thought, I wonder how many of the new jobs that actually are created pay only the NMW. This would mean that those who become unemployed in the public sector who are paid a living wage, and who are entitled to tax credits, will become subsidized by the taxpayer.

“Who will create Cameron’s 2m jobs, magic fairies?”

No, ginger rodents 🙂

BTW Sunny, good to see your new comrades in BNPlite slagging people off for the colour of their hair as well as that of their skin.

Is that what they mean by ‘progressive’?

This is an interesting piece; only just read it.

Do the figures for net job creation in the above data include temporary jobs? One of the features of the labour market in recent decades, as I understand it, is the rise in the numbers of “temporary” workers (whether “temporary” in any real sense) who might otherwise have been categorised as “full-time”.

Lower job security (or: “labour market flexibility”) is, of course, one of the features of Thatcher / Blairite economic reforms.

I’d also be curious to know what percentage of the net job creation in each decade is as a result of increased labour force participation rates. There are far more women employed now (in the 2010s) than, say, 50 years ago – which, in my opinion, is a good thing – but those (net) jobs are only “created” once.

E.g. in Jan 1948 (earliest data point available) just 32.0% of women were “employed” (according to official statistics, definitions, etc.), whilst in Dec 1999 the figure was 60.1%. The latest data point (Sep 2010) shows 58.6%.

Source: US Bureau of Labor Statistics @ http://www.bls.gov/data/

In a trite example with 1950s social norms dictating 100% employment for men and 50% for women, moving to a perhaps slightly unrealistic (!!) 100% for both men and women in 2020, the jobs added in the intervening years could never show up after that date.

I’d also like to know the number of jobs created / destroyed through changes in demographic trends – e.g. in an extreme case, jobs might be “created” through higher birth rates / lower death rates, later retirement ages and significant net immigration; counter to that, jobs might be “destroyed” through stagnating birth rates (stable population), increased longevity, earlier retirement and net emigration – simply as a function of the change in the total working population.

Or do the figures already take this into account?

(As you say: “Unless an economy creates more jobs than it destroys every year, it cannot absorb the growth in population or immigration.” True – but if the growth in population or immigration is half now what it was in the 1950s, comparing two lines on a chart and saying “oh, one is lower than the other” is a somewhat simplistic analysis.)

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  1. Liberal Conspiracy

    Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? http://bit.ly/a4hJ1H

  2. Stuart Sorensen

    RT @libcon: Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? http://bit.ly/a4hJ1H

  3. Adam Jennison

    RT @libcon: Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? http://bit.ly/a4hJ1H

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  6. Rachael

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  7. Staffordshire UNISON

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  9. Si Evans

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  10. Hannah Horton

    RT @libcon: Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? http://bit.ly/a4hJ1H

  11. sunny hundal

    Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  12. Hot In Business

    Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? | Liberal Conspiracy
    http://safe.mn/1huI

  13. Rooftop Jaxx

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  14. Chad

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  15. Peter Pannier

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  16. London Bessie

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  17. Simon Pearce

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  18. richdavidson

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H

  19. Taobh Clé

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  20. Anubis

    RT @sunny_hundal: Who will create Cameron’s 2m jobs? I explain simply why Osbornomics won't work http://bit.ly/a4hJ1H (final try!)

  21. Wendy Maddox

    RT @libcon: Myth-busting pt 2: Who will create Cameron’s 2m jobs, magic fairies? http://bit.ly/a4hJ1H

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  23. sunny hundal

    (when I say employment driving, I mean that mostly for western world obvs. See first graph here on US jobs http://t.co/hlNPTCvz )

  24. Simon Godefroy

    (when I say employment driving, I mean that mostly for western world obvs. See first graph here on US jobs http://t.co/hlNPTCvz )

  25. sunny hundal

    @MrHarryCole @OliverCooper @LukeBozier you guys joining the convo late. See these graphs and links on job creation http://t.co/wOHcl0I3

  26. Owen Blacker

    (when I say employment driving, I mean that mostly for western world obvs. See first graph here on US jobs http://t.co/hlNPTCvz )

  27. sunny hundal

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  28. Atiff Ghafar

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  29. BevR

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  30. Tim

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  31. MARKO_D7

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  32. SyzygySyzygysue

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  33. Wladyslaw Mejka

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz

  34. Alexander George

    In 2010 Cameron & Osborne pledged they'd create 2m jobs in 5 years. I said then it was the stuff of 'magic fairies' http://t.co/hlNPTCvz





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