Thursday, Oct 08, 2009

Danny Boy sings the blues

New Statesman: This crisis is far from over

BY DAVID BLANCHFLOWER.
Over the past week, the labour market has received a great deal of attention around the world and the news has been universally bad. Unemployment continues to rise apace. People say the labour market is a lagged indicator. It may have been in the past, but not during the great financial pandemic of the Noughties. To see recovery, I will be looking for firms to start hiring again - there is no sign of this yet .If anything, it looks as if the jobs picture in the US may have started to get worse again.
There is a lesson here for the UK, which is that a few data points do not make a trend. You shouldn't read too much into a few months of rising house prices when wages are falling, profits are down and credit is scarce.

Posted by little professor @ 08:52 AM (988 views)
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4 Comments

1. flashman said...

Unemployment is most certainly a lagging indicator. Blanchflower is claiming that this is no longer the case because unemployment ticked up in the UK and US before the economies started contracting.

Unfortunately this employment contraction was a symptom of a changing world economy. Many traditional industries cannot compete with their foreign competitors. They reacted to this by attempting increases in productivity and then by laying people off. Unemployment, therefore, increased. However, the economy didn’t contract in this period because many of our more modern industries have a global customer base and were therefore experiencing strong growth, which offset the GDP losses from the ‘traditional’ industries. The problem for domestic employment is that these global companies are either capital intensive or the majority of their new recruits work in the growing foreign markets.

Economic growth has been re-established (artificially induced and feeble, I know) but unemployment is still increasing. This is because unemployment is a lagging indicator.

My guess is that house prices will be hit by a perfect storm of simultaneous recovery and increasing unemployment. I say perfect storm because the feeble recovery will lead to higher interest rates while unemployment continues to rise.

The global shift I alluded to earlier, will probably result in unemployment remaining sticky long after a supposed recovery. I just hope that our more competitive globally based companies continue to base themselves here.

Thursday, October 8, 2009 09:13AM Report Comment
 

2. Neil B said...

When will everyone stop equating rising house prices with a recovery?

Thursday, October 8, 2009 09:32AM Report Comment
 

3. Pedro said...

Whats the problem..like Danny Boy notes,the Dutch have solved this dilema by creating 50,000 public sector jobs.Hey,what a great idea-why stop there create another 5million public sector jobs & everyone who is currenrly unemployed or on incapacity benefit can have a secure well paid job with final salary government guaranteed pension-in fact,why stop there Danny,why don't we all work for the Government,we can allways just print a load of new money to pay ourselves.Phew,I was worried for a minute that the whole UK economy might be bust...thank goodness for forward thinking "economists" like Danny.

Thursday, October 8, 2009 10:45AM Report Comment
 

4. Magol said...

blanchflower is a Keynsian fool. By judging the economy on short term job statistics he undermines the long term structural stablity of the economy. Job creation through public sector deficit creation only stores up problems for the future - either deflation or if enough money is printed to create confidence loss in fiat (as we are starting to see) discontinuous hyperinflation and societal collapse.

He is a modern day John Law and we should send him to live with his contempories in Zimbabwe

Thursday, October 8, 2009 12:23PM Report Comment
 

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