San Francisco and Tokyo
If you want to see what a world swimming in jobs looks like, visit Japan. At airports people are employed to straighten suitcases after they tumble onto the baggage carousel. Men in uniform with fluorescent batons stand outside construction sites, and politely remind you that walking on to the site is probably not a good idea. In department stores smartly dressed women help you use the lifts. And in one of Tokyo’s best bars, a team of four people was involved in the preparation of your correspondent’s gin martini (from the freezer, of course, free-poured, and very dry).
Now the rest of the rich world is starting to look more Japanese. Since the heady post-lockdown days of 2021 gdp growth across the 38 countries of the oecd has slowed almost to a standstill, and in some countries is negative. Business confidence is below its long-run average. Yet there is not much sign of weakness in the labour market. Speaking on March 2nd Christopher Waller, a Federal Reserve governor, observed that America’s labour market was “excessively tight”. Across the oecd as a whole the unemployment rate was 4.9% in December, the latest month for which official data are available—the lowest in many decades (see chart 1). From the third to the fourth quarter of the year, the rich world added about 1m jobs, in line with the long-run average. In half of oecd countries, including Canada, France and Germany, there has never been a higher share of working-age folk in a job.
Unemployment is rising in a few countries, including Austria and Israel. One of the worst performers is Finland, where the unemployment rate has risen by more than a percentage point from its post-lockdown low. In the face of soaring energy prices and reduced trade with Russia, gdp fell by 0.6% in the fourth quarter of 2022. But “worst” is relative. At 7.2% in December, Finland’s jobless rate is still well below its long-run average. Meanwhile, most of the places synonymous with the sky-high joblessness of the early 2010s—Greece, Italy, Spain—are doing much better now.
This employment miracle hints at a profound change in Western economies. To understand why, return to Japan. Local employers dislike firing workers, even if they have little for them to do. In part because more and more people are retiring, firms struggle to find new staff, so they are reluctant to let people go unless they have no other choice. The result is an unemployment rate which barely rises, even in recessions. Over the past 30 years Japan’s jobless rate has varied by just 3.5 percentage points, compared with 9.5 percentage points for the average rich country.
A more Japanese labour market would have disadvantages. If workers do not leave poorly performing firms, they cannot join more innovative ones which drive growth. Indeed, the data suggest that rich-world productivity growth is exceptionally weak at present. On the other hand, spells of unemployment can exert a terrible human toll, especially on the young, who may earn lower salaries for the rest of their working lives. Countries where unemployment is less volatile also tend to have milder recessions, points out Dario Perkins of ts Lombard, a financial-services firm. When the labour market does not crack, people can keep spending even as growth slows.
What explains employers’ apparent Japanese turn? Perhaps, after the travails of the pandemic, bosses are simply kinder to workers than used to be the case. Another, more realistic, possibility is that firms are in a strong financial position. This may allow them to withstand lower revenues today without needing to slash costs immediately (see chart 2). Many firms received help from governments during covid. And in recent years corporate profits have been high. Businesses across the rich world are still sitting on cash piles about a third higher than before the pandemic.
A more intriguing possibility concerns the labour force. According to our estimates the rich world is “missing” 10m workers, or roughly 1.5% of the total workforce, relative to pre-pandemic trends (see chart 3). In Britain and Italy the workforce has actually shrunk. Early retirements and an increasingly elderly population explain some of the deficit. Covid may have pushed people to reassess their priorities, prompting them to drop out. Some even speculate that long covid is forcing people to stay on the economic sidelines. Whatever the explanation, falling participation has wreaked havoc with companies’ plans. Many fired staff when the pandemic struck, only to struggle to rehire them in 2021. That year vacancies across the oecd hit an all-time high of 30m.
Now that another downturn looms, employers may want to avoid making the same mistake. A recent global report by s&p Global Market Intelligence, a consultancy, identifies “a reluctance among companies to sanction job cuts due to the immense challenges they faced in rehiring post-pandemic”. In America gross job losses have so far not been as large as is normal for the start of the year. Daniel Silver of JPMorgan Chase, a bank, speculates that this is because “firms are reluctant to let go of workers given perceived difficulties in eventual rehiring.”
Labour-market pain may end up being merely delayed rather than avoided. In some past recessions unemployment only started to rise decisively some time after gdp started to fall. Yet “real-time” data give little sign that joblessness is about to surge. A recent survey by ManpowerGroup, a staffing firm, suggests that employers in most countries still have ambitious hiring plans. In America a survey by the National Federation of Independent Business, a lobby group, finds an unusually large share of small firms plan to create new jobs over the next three months.
Confronted with labour markets that are resilient even in the face of rising interest rates, central banks may be tempted to tighten monetary policy faster still. Further increases in rates, or another energy shock, could push some employers over the edge, forcing them to reduce headcount. Yet the pressure retain staff, come what may, could become a structural issue. Over the next decade rich-world populations will age rapidly, dragging further on labour supply. Good workers are likely to become harder to find. The search for the perfect martini maker will be even trickier than it is today. ■