The Hindu Business Line : When less productivity is better than more for US

THE concern over jobs continues to haunt the US. It is fast becoming the campaign theme of the frontrunners for the Democratic Presidential candidacy, Mr John Kerry and Mr John Edwards.

The issue is serious. While the economy grew 6 per cent (annualised) in the second half of 2003, it was not accompanied by any significant job creation.

The unemployment rate is still close to 6 per cent. New jobs just about match losses, leaving the sum total of employment unchanged.

The pace of job additions lags well behind what has been seen in past economic and business cycles at this stage of a recovery.

Why is it different this time? In his usual, clinical style, the Chairman of the US Federal Reserve, Mr Alan Greenspan, dissects the situation. It is not what Mr John Kerry and Mr John Edwards would like to hear.

To begin with, Mr Greenspan thinks it is against the long-term interests of the US economy to legislate or place restrictions on outsourcing, which popular belief holds responsible for job losses.

Outsourcing is not a current fad but has existed in some form or the other for a long time. The shift of production to Asia and Latin America to save costs was officially sanctified by regional trade groups and agreements like ASEAN and NAFTA.

The new thing is that service jobs are also not immune from movement to cheap locations. Indeed, any product or service, which is tradeable, is good for cost arbitrage between the First and Third Worlds.

In the past, this has not led to any job destruction in the US. On the contrary, the economy absorbed both its own pool of labour and immigrants comfortably and the need for more workers could be met only because of the relatively open doors maintained by the US to immigration.

Mr Greenspan traces the genesis of jobs being out of sync with the uptrend in the economy to the rising tide of productivity.

As is well-known, there have been phenomenal increases in productivity in the last few years out of which there have been several beneficial fallouts - higher wages, higher profits and no cost-driven pressure on inflation.

But Mr Greenspan thinks productivity has reached its limits. To meet rising demand and raise production, businesses will have to get into the hiring mode and this will considerably brighten the jobs picture.

Falling productivity is necessary to get US back to work!

Tax cuts, low interest rates, easy money - nothing seems to be working.

Now offer a prayer for low productivity.

More Stories on : Insight | Economy | Financial Scan

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
When less productivity is better than more for US

Centurion Bank CoD gets `fair' credit rating

As part of community service initiatives
SBI set to adopt a village in Maharashtra

Defaulters beware, banks might bar you!

UCBs urged to be vigilant against fake relief bonds

World Bank demands hefty premiums — Govt move to prepay external debt faces rough weather