Dan Herman Research

When creative destruction hits a wall May 4, 2012

There isn’t a level of government in Canada, let alone across the world, that isn’t desperately concerned with job creation. Having just returned from a stint as a senior policy advisor at the Government of Ontario’s Ministry of Economic Development and Innovation, I can vouch first-hand for the whole-of-government focus on job creation that currently occupies the minds of those at Queen’s Park. And while pockets of job growth have managed to emerge in specific regions and where new industry and new innovations flourish, and while certain industries still struggle to attract the skilled labour they require, on aggregate few jurisdictions in Canada or around the globe have escaped the deflationary employment trends that has pushed global unemployment to new highs.

And while we in Canada, especially in Ontario’s manufacturing heartland, bemoan a 7.7% national unemployment rate and the exodus of manufacturing jobs, we’re still largely fortunate to have escaped the worst of it. For example, in Europe, the aggregate EU figure of 10.8% masks extreme highs in Spain and Greece, 23 and 21% respectively. Moreover, today’s unemployment rate in Europe is a full two-percent higher than what was recorded a decade ago, an increase that equates to a total number of unemployed (defined as seeking employment) Europeans that has grown to 25 million from 16 million just 4 years earlier.[i]  In the United States, while the unemployment rate has dropped to below 9% from its high of 10.6% in 2010, this doesn’t undo the displacing effects of unemployment for over 13 million Americans, more than double the number recorded in 2000. And perhaps more stunning is that for 42.5% of these unemployed Americans they’ve been unemployed for over 6 months.[ii]

To be sure, the accuracy of official unemployment rates are tenuous given they omit discouraged workers, i.e. those who have given up searching for work, and those who are working part-time when they are wanting full-time. Including these two categories of citizens near doubles US unemployment from 8.2% to 14.5%.  In Canada, the equivalent measure (R8) brings our 7.7% national unemployment rate up to 11.3%.[iii] And if that isn’t bad enough, when disaggregated by age group, youth unemployment across the EU hovers near 23%, with extremes of near-50% in Spain and Greece. In the US and Canada, this measure is lower at 16.4% and 13.9 respectively.[iv] ^, [v]

And these trends go far beyond the West. As Jim Clifton of the Gallup Organization reports, “the single most dominant thought on most people’s minds is about having a good job.”  Gallup’s annual world poll highlights the effects of globalization on the global labour market and the individuals that comprise it. As economic reach has penetrated previously undeveloped markets, it has spread expectations and demands for formal employment. China alone has stated the need to create 40 million new urban jobs over the next four years as part of its 12^th Five Year Plan (released in mid-2011) as part of its goal of balancing development and social stability. And while much of this labour will be found in lower-value add production, and local services, increasingly economies like China’s are moving up the value-ladder to hi-tech / innovative product and service offerings that have long been the domain of mature economies. And while these trends in developing economies regarding both labour supply and labour value can certainly be interpreted positively, they can also be viewed as significant stressors on the global labour market given the displacement and deflationary wage pressures caused in part by the growth of the global labour pool from 1.6 billion formal employees in 1992 to over 3 billion in 2012.

How many jobs exist to satisfy the wants of this formal labour pool? According to Gallup CEO Clifton, only 1.2 billion. Hence a massive shortfall of nearly 1.8 billion full-time positions. And this shortfall will continue to grow given that according to the OECD every year sees 40 million individuals added to the global labour pool.  The OECD’s more modest estimates of the global employment shortfall over the next decade is 600 million – 400 million to cover growth and 200 million for the currently unemployed. And those figures are contingent of global economic growth of 2-4%, should growth fail to meet those targets, increasingly possible given turbulence in emerging markets and stagnation in old ones, millions more will be added to the ranks of the unemployed.

Two questions result – where have the jobs gone and where will they come from? (more…)