The US Department of Labour released its March unemployment report last week. There were 98,000 new jobs added to the economy during the said month, and the unemployment rate fell to 4.5 per cent — the lowest in nearly a decade. In other words, the US appears to be inching towards full employment.
But is it, really?
Breaking it down
The unemployment rate globally is a rather simple ratio — it is calculated by dividing the number of people unemployed by the total number of people in the labour force. An unemployment rate of 6 per cent simply means that 94 per cent of those who want to work are working.
The remaining are unable to find jobs, although they want to. That is, the unemployment (or joblessness) rate measures the rate when people actively seeking work can’t find it.
Practically, if the unemployment rate is 4 per cent or lower, the region is considered to be at ‘full employment’. Able-bodied people already employed take temporary time off for illness, to have a child, or care for a sick individual. But for each one per cent uptick in the rate above 4 per cent, the job situation is considered to get worse, because then, the economy begins to go down with it.
People out of work can’t pay taxes to support the government. Worse, they draw more benefits in terms of subsidised housing, food assistance and cash unemployment payments, draining already weak government coffers. If this situation persists, the economy really suffers.
From 2009 to mid-2012, US unemployment had been the highest since the Great Depression of 1929. For nearly 42 months straight, the overall unemployment rate in the country was higher than 8 per cent — a level unseen in modern history.
Only since October 2012 has the rate dropped to below 8 per cent and by May 2015, it significantly improved to 5.5 per cent. Today, this number stands at 4.5 per cent — almost close to full employment.
Is it accurate?
Thinking about the unemployment rate alone is not enough, though. When people drop out of the workforce altogether, unable to find work, the unemployment rate will appear to improve because the government only counts those who are “actively seeking work”.
This second key indicator, the so-called labour force participation rate, is also crucial in labour economics. In Jan 2005, this rate for the US was 65.8 per cent. Which meant that 34.2 per cent of the workforce was no longer actively seeking work — they either retired or went on disability. By December 2011, this percentage dropped to 64.
A year later, it fell again to 63.7 per cent. By September 2015, so many people had become disgusted looking for jobs and not finding them that the number of people actively looking for work dropped to 62.4 per cent, the lowest in recorded history. Today, this number is just slightly better at 63 per cent.
The real picture
If all those retired and disabled people returned and started looking for work, the unemployment rate would rise, as there would be more competition for the same number of jobs.
Don’t forget also that the US continuously adds people into the workforce — students graduating from high schools and colleges, and immigrants coming into the country to work.
Economists say the country needs to keep creating about 150,000 new jobs each month to simply accommodate all the new entrants to the labour market — this, not counting those who want to return to work.
In such a context, the increase of just 98,000 jobs for an economy the size of America’s — a staggering $18.5 trillion in GDP and a population of 330 million — is nothing but ominous. Yet, paradoxically, the country is at full employment!
This is the biggest problem the world is facing: the prospect of higher national wealth when there is practically zero job growth. A big reason for this, of course, is automation, which is mercilessly eliminating jobs.
If a certain activity involves manual labour, chances are there are engineers working in innovation labs around the world to replace those tasks with machines.
This effort is global. In Dallas, a start-up is offering robotic lawn mowers on rent for $99 a month, dealing a body blow to thousands of undocumented migrants who sweat under the hot sun to keep yards looking nice and tidy. Most of these undocumented workers have few skills, so the easiest jobs they can get is to mow people’s lawns. What will happen to them if robots take over the American yard?
In the deep outback regions of Australia, Caterpillar has already deployed fully autonomous mega trucks for mine operations. There are no drivers to drive these machines. An ad boasts, “What if your trucks could respond to calls to shovel, move into position, haul to dump points and even report for maintenance — all without an operator on board? That’s what Cat®Command for hauling enables.”
The problem for workers is that they can do nothing to stop this automation from taking hold. This creates tremendous anxiety because they feel helpless. Their livelihoods are threatened and there are no meaningful alternatives. Workforce retraining looks great on paper but try to ask a middle-aged employee to go back to school, learn new skills and start all over in a job. This could very well be impossible when there is so much competition for the few new jobs that are being created.
It is this anxiety which first fuelled Brexit, and resulted in Trump’s victory — two iconic moments in 21st century history. In this environment, politicians do what their constituents tell them to: look inwards, be protectionist and take care of their citizens.
This is why there has been a raft of new restrictions on work visas — H-1Bs in the US and Tier-2 visas in the UK. These countries simply cannot invite others to dinner — they don’t have enough food for themselves.
The ripple effect will be felt far and wide. Until recently, India was touted as the country which would produce human capital for the rest of the world. No longer. India needs to face the grim prospect of welcoming back resources from far away nations, and severely dampen the hopes of those who want to go to foreign countries to work. And it needs to find jobs in India for those who return.
And all this at a time when India is producing graduates by record numbers in a domestic economy that is unable to offer jobs to all who graduate. The country’s Labour Bureau reported that for the entire Q3 quarter in 2015 — the latest for which data is available — just 1.34 lakh new jobs were created across eight major industries including textiles, metals, automobiles, and IT/BPO. Only 56,000 new jobs were created in the IT sector during this quarter — a pittance.
Our colleges and universities release up to 50 lakh new graduates each year. Lakhs more never go to college. Yet, India’s GDP growth is robust — the highest among G-20 nations. It is expected to cross 7.4 per cent now that demonetisation woes have subsided. Something is simply not right with these numbers.
As I have said in these columns repeatedly, jobless growth (macro economic) is the single biggest headache for the world. What is troubling is that there are no good solutions anywhere. And it is the gorilla in the room no Indian leader wants to talk about.