Are emerging markets like China the main reason for unemployment growth worldwide?


Contributor opinion.


 Are markets like China the main reason for unemployment growth worldwide? 

Many blue collar workers complain because they are unemployed and unable to find jobs.

Circleville Ohio, for example, was once well-known for its manufacturing and industrial growth, with easy to find jobs. Today, Circleville’s unemployment rate (8.50 percent, with job growth of -2.32 percent) is above the national average  (7.3 percent) and mirrors difficulties midtown America is experiencing everywhere.

Critics blame China, Taiwan, Malabo, Mexico and other countries for causing the latest unemployment rates. They say the government has betrayed American labor to benefit corporate demands and foreign subsidiaries.

At the same time, unemployment is worse in Europe, except for northern European countries, including Austria, Switzerland, Denmark and Belgium.

Analysts opinions differ, some say the unemployment rate is growing, others claim it is slowing down.

Claims about job growth confuse the average person, and I am skeptical because different analysts use the same statistics but report opposite findings.

Has the Obama administration, found a solution to lower the unemployment rate?  

If most countries stopped relying on China, Taiwan and other countries that manufacturer goods and export them worldwide, perhaps the worldwide blue collar sector would experience renewed job growth?

Despite the state of the economy, what country could the U.S. learn from (if any) to stabilize its increasing unemployment rate and stop exclusively relying on foreign labor?  (edited courtesy of Dave Kaiser) 


David Merkel

David Merkel.

““Comparable Worth” was a faddish idea for economic leftists that flowered (thankfully it was brief) in the 1990s.  The idea was that you could measure occupations on a technical basis, measuring education, effort, responsibility, and other aspects of the job, and figure out what occupations should be compensated similarly.

That’s a pretty difficult problem to solve in the absence of markets.  Granted, there are some Human Resources (what a phrase) consulting firms that have models in narrow contexts to try to solve salary questions inside similar corporations, but the consultants true up their models to the markets regularly, and are covering a more narrow range of jobs.

I want to muse about a different kind of comparable worth this evening, one that many Americans (and others in “developed nations”) might not like.  It is my guess that we are seeing the slow erosion of wage differentials across developing and developed countries, particularly for goods and services that are part of global trade.

Now, I am not saying that an unskilled auto worker in China will earn as much as a non-union auto worker in the US, which is backed by more capital investment, and requires a smarter worker.  I am also not saying that unionized workers in developed countries won’t earn more.  The viability of the firms their unions serve may be compromised, though.  What I am saying is that global corporations can choose where they produce goods, and on a productivity- and quality-adjusted basis they will use laborers that give them the best deal.

As for jobs that are internal to an economy, such as working at a retail store, the adjustment will be slower.  Internal job wage differentials across countries depend on the overall wage differentials across countries.  As overall wage differentials narrow, so would internal job wage differentials.

Also, given how many commodities are priced globally, and those have become a more important part of the cost structure recently (though the effect is not that bad if one takes a long-term view… increased productivity means we use less commodities to achieve the same ends as 40 years ago), the factor share going to labor in developed countries is probably being squeezed a little.  So, what does this imply for workers in the US and the developed world?

As the rest of the world develops, their living standards will slowly converge with those in the US.  They will demand a greater share of the world’s resources in the process, making the affluent life more expensive.  This will in turn drive more technological innovation to make commodities stretch further.

Now, perhaps some will say that the solution is to cut off or limit free trade.  That won’t work.  The US is so dependent on free-ish trade that any significant reduction of trade would drive inflation up in the US.  Beyond that, the US benefits from its reserve currency status.  Where else does a country get goods and services, and hand over bonds denominated in their own currency?  What a sweet deal for the present — an inflationary pity when it ends.

I started out my career with a goal of being a development economist, and doing work in the Third World.  That ended when I learned that the models used by the development economists did not work, and that capitalism and free trade did work.  When the developing world began to make great strides after the end of the Cold War, I was happy.  I’m still happy about it today; poverty is slowly but steadily being eliminated across a wide swath of the globe, and that is a good thing for most.  But to many Americans (and others in develop nations) who are finding themselves out-competed by foreign competition, this is not a happy time.

Be aware of the global competitive position of your industry, and adjust your career accordingly.  Build up your own ability to deliver special (hard to duplicate) value for your employer and work where your personal competitive advantage is maximized.  That’s not easy, but the easy path probably embeds a future that is less well off.

Part Two

I spend a certain amount of time musing about nested problems — problems where there are a wide number of feedback loops, some amplifying, some dampening.

The big wonder is watching the non-commodity developed markets run hyperloose monetary policies with current account deficits for the most part, while emerging markets run tight monetary policies with (for the most part) current account surpluses.

The simple solution is to let currencies adjust the situation, but that solution is resisted by producers in emerging markets,who gain a disproportionate advantage over consumers in their own country by keeping the currency cheap.  And, the exporters have a concentrated economic interest to keep the currency cheap.  Consumers who might like a more expensive currency have no way of concentrating their arguments versus the exporters.

The natural pressure is for currencies to realign, but the cabals of emerging country exporters and central banks can resist it for a time.  Only for a time.  Much as those inflating the real estate bubble thought it would never end, the same is true for those that manipulate currencies.  It will come to an end, the only question is when?

And when it happens, will it be violent?  Governments, even as a group, do not have absolute control.  The legacy of failed currency interventions weighs in favor of markets, and against governments once crises happen.

How can developed country governments have steep positive yield curves, when emerging markets have inverted curves, and there is no effect/change?  The change will come, and I think that is in the next two years.

The Aftermath

This will feed the necessary change where relative advantage to export/import goes away, and where the value of accumulated debts from developed nations declines to reflect what can truly fund.  Also, developed nation investments in the emerging nations will prove to have value in supporting the changes, though the effects will be unevenly distributed.  Investments in emerging market non-exporters/importers will do best, as will those of developed market exporters.

Do I know this will happen? No.  But that is the way the pressure is currently going now.  Governments and Central Banks can resist pressure for a long time in the short run, usually at a cost of increasing the pressure in the long run.  In the long run, the differential effects of cultural choices are realized through the power of markets.

To me, that means a relative decrease in living standards in the developed world, and a relative increase in the emerging markets.  This is consistent with my views in my controversial piece on Comparable Worth.  No one likes that piece, not even me.

But what I would highlight here to investors is what is truly scarce.  Unskilled labor is not scarce, skilled labor is scarce.  Good ideas are scarce.  They always are.  Paper capital is not scarce.  Real capital, that which makes labor more efficient is scarce.  Resources are scarce, including energy.  Investors, aim at scarcity, and the rise in prices will aim more paper capital to solve human problems.


I am not trying to posit one single track for which economic change will occur, but more of a baseline scenario.  All sorts of things can upset this, including war, plague, etc.  A scenario like this allows for more rational investment, assuming realignment takes place, no matter how it takes place.”



Steven Hansen. 

“I think the question is wrong, as it is based on an incorrect assumption that imports have had anything to do with unemployment. here is my econintersect post of 11 January which you are free to republish:

A recent article in the Economist suggested that there was:

…… a remarkable improvement in America’s external accounts. At the end of 2005 the current-account deficit reached 6.2% of GDP, the sign of a society living dangerously beyond its means. But by the third quarter of 2013 it had dropped to 2.2%, the lowest since 1998, a level it could easily sustain indefinitely.

The current account deficit should never be a major concern as the flows must balance out over time – one way or another. But what made this post interesting to me was the discussion of the decline in imports – which were attributed to:

  • lower oil imports and higher domestic production of oil;
  • the demographic shift of boomers from spending to saving;
  • more favorable dollar and rising foreign labor rates favor USA over foreign production.

This post was accompanied by the following graphic:

Adding to this story, it is very obvious that imports have been stagnating.  The graph below is based on current dollar – and shows there has been no growth since 2007 (which means inflation adjusted growth has contracted) just as the graphic above suggests.

Although the Economist post talks about oil production being up in the USA (and therefore requiring less oil imports), the driving factor historically was price (not the quantity of oil being imported). For the last two years, oil imports had little effect on the growth or contraction of imports.

FRED Graph

Remember the good ole days when most believed the USA was going to be manufacturing nothing within a few years. Although China is now the world’s number one manufacturer, this was not at the expense of destroying USA production.

So the USA’s production is now growing at approximately its historical rate of growth, and manufacturing employment has returned to growth – growth in manufacturing employment has not occurred since the 1990s.

FRED Graph

I have blamed free trade agreements for the decline of manufacturing employment from 2000 until the Great Recession. The days of the free trade agreements sucking jobs out of the USA are over for a variety of reasons (primarily logistics).

As the above chart shows, there is now a slight growth in employment in the manufacturing sector as manufacturing returns to the USA. However, the new dynamic in employment is robotics – and this dynamic will likely grow stronger in the coming years. Dynamics are funny things, and can change momentum and direction with few noticing. For now, I consider this THE dynamic to watch in jobs growth.

Going forward in 2014, the shrinking growth in imports is at least signalling that the USA economic growth is becoming more balanced between what is being produced domestically and what needs to be imported.”


Claude Nougat. 

“The unemployment problem affects all developed countries, some more, some less, but everyone suffers. It’s a problem that has little to do with the 2008 Great Recession (which was primarily a financial problem) and in fact, unemployment was at high levels before the crisis and even if the crisis goes away and unemployment recovers somewhat, it’s not likely to get better than where it was pre-2008.

The reasons are structural, of course, but have relatively little to do with a wave of cheap goods from China and other developing countries – the so called BRICS that are at the head of the pack. We’ve had waves of cheap goods before, in the 1960s and 70s coming from Japan. Big corporations relocate their manufacturing to the BRICS and other emerging countries like Vietnam, but the beneficial effect for their shareholders (in terms of higher returns) is going to be temporary.

Because something else is at work.

We are entering the “second machine age” as futurologists tend to call it (the first was started by the Industrial Revolution) – and the jobs tied to manufacturing and that are so adversely affected by unemployment are in fact destined to disappear at an even higher rate in future. And not because of competition from third world countries.

What is happening is this (and I’m speaking of effects over the long term): gradually, machines are taking over. In the “first machine age”, machines complemented the work of humans, enabling them to work faster and produce more. In the “second machine age”, with the computer revolution and increasingly “smart” computers, machines are not so much complementing human work as substituting it. Humans will eventually find that everything is manufactured without their input and solely relying on the inputs of machines. Unemployment is like to increasingly affect not just blue collar workers but white collar workers too.


And that is why the middle classes’ survival is threatened. Even a college or graduate school degree can no longer guarantee a job, and this will happen in a future that is in fact quite near to us, if not here already.

Not a happy prospect unless we are willing to consider how society can change, in particular the relationshio between work and salary. Guaranteeing a basic income, regardless of whether a person is employed or not, and by “basic income” I mean just enough to satisfy basic needs (food, shelter, health care, culture and entertainment) to every citizen in a country that has moved into the “second machine age” might be the only solution.”



Dock David Treece.

“As an Ohio resident, I can tell you that the problems of Circleville are typical of this entire region, now colloquially known as the “rust belt.” All over the Midwest, particularly in smaller cities that have traditionally relied on small numbers of large employers such as automakers, unemployment rates have remained at elevated levels, even as populations have dwindled due to lack of job availability.

All of this has gone on while the “outsourcing” wave which began more than 20 years ago reached fever pitch. Some blame President Obama, others blame our American educational system, while still others look simply at economics. The real reason for the problems being faced by towns like Circleville is a combination of all these and more.

Unfortunately, this phenomenon is nothing new. The same things happened to many western European nations hundreds of years ago while those countries rode their own “outsourcing” wave through colonization. The US went through a similar set of circumstances with Japan back in the late 1980s after large numbers of then-high-tech jobs had been sent overseas.

Like China today, Americans then thought Japan would own the world. Instead what occurred was a new wave of innovation in production and what was being produced, which refocused jobs and development stateside, with Japanese firms being left to engineer their own products to compete on the world stage. In the meantime, the Japanese economy had so much trouble adjusting that the island nation found themselves in a Keynesian liquidity trap after years and a lost decade.

It may not be likely that history will repeat itself for the American economy in the years ahead, but what is likely is that the future will look more like the distant past than recent history. In other words, while the market for blue collar American jobs has suffered in recent years, this won’t be the case forever.

In fact, based on the research we do every day in helping to guide investment for clients, we have found an increasing number of “reshoring” instances – with jobs coming back to this country in focused industries and geographies. Unfortunately, many of the policies coming out of Washington – through both the Obama administration and the Fed – have done more to stall this process than encourage it. Thankfully, this won’t last forever. Policies will eventually change, allowing the economy of the US (and the blue collar job market) to expand, making the US a largely self-reliant nation once again – just as it has done numerous times through different market cycles.

In fact, a large number of US companies are on the verge of making substantial investments modernizing domestic facilities, after years of opening and expanding operations outside this country. The average age of production facilities for US companies is over 21 years – the longest on record (Wall Street Journal) – at the same time US companies are also holding the largest cash reserves in history.

All of this spells expansion for domestic production by US companies – provided the right policies out of Washington. While they may not get those policies under this administration, things may change after 2016.”


Catherine Haig.

C. Bonjukian Patten

“The United States was always the leader in employment/creating jobs however since year 2000 American apathy has taken over the usual American aggressiveness.

We are apathetic to everything we see, hear and are a part of. We could end hunger and poverty in America but we turn the other cheek; as long as it is NOT happening to us we’re okay with it.

We complain, moan and get angry about a lot of things but do nothing about it. Other countries, India, Pakistan, China have all learned to do business from America and now they are killing us with it.”



Themistocles Konstantinou.

“Germany’s policy in Europe  is the reason for high unemployment, especially in the southern region. If someone counts for the past  years all the measures that have been taken place under Merkel’s fiscal policies, It literally answers every question.

The only way to help the economy, is to ease the financial pressure set against people and allow them the ability to live and spend money freely.

This is the key factor for growth and the key factor to fight unemployment. Europe mimics the Chinese mercandillistic model of State Capitalism, that only works on places like China and North Korea! It doesn’t work in Europe.

European countries are straggled and out of frustration, unemployed people have started to commit suicide. For the last 3 years, in Greece alone, we have a decade high record number of 4000 suicides. That’s why!”


Jaime Ortega Simo.

“1- China, the Philippines and India have mastered production growth, thanks to their large population numbers and high competitive market labor entry.

2- Their work ethic is more productive and faster than what the average U.S. employee offers to most manufacturing companies. Companies with high demand & supply rates can easily replace workers by integrating young well trained employees that work longer hours. Most westernized countries cannot compete with those hour rates, only comparable, with those generations that worked during the age of England’s Industrialization or Americas industrial boom.

3-Workers in most brick economies have less rights, which makes it easier for businesses to write a simpler contract and undermine the employee benefits U.S. laborers enjoy. In most developing countries, there is no such thing as ‘unions’ and activist groups that support worker benefits, so it’s another plus for most western businesses that do not want to cope with constant law suits.

4- The minimum wage paid to employees in developing countries, could literally make any start-up foreign business grow easily without financing high demands on productivity costs. In other words, if I have a business I risk higher in investing on American employees because their wages demand more spending for the overall revenue I profit for my overall business.

5- I highly doubt that depending on China, and other manufacturing partners will help unemployment go down. The only possible way unemployment would stabilize worldwide, is if we devalue the current rate of the dollar worldwide(which Standards & Poor and Moody’s has successfully done), and pay employees the equivalent of minimum wage (converted by inflation) to the Yuan, demand more productivity, and give employees less rights. Governments in Europe are already using the American “subcontractor model” to provide jobs which give employees less benefits. But it’s already messing retirement plans for those 50 and up.

6- I find it impossible, that transnational corporations abandon markets like China, unless government intervenes. But that wouldn’t stimulate the economy to grow, even though, it might allow unemployment to significantly decline worldwide. So I think, we’re stuck.”



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