Monday, December 8, 2008

Putting Job Losses in Perspective

The U.S. economy lost 1.9 million jobs in the first 11 months of 2008, with December losses expected to push the total above 2 million. The November loss of 533,000 jobs is the highest number since December 1974. The unemployment rate rose to 6.7% and could pass 8% before the downturn is reversed.

To put these numbers in perspective, consider the case of China. As the country upgrades from low-value added agriculture to higher-value added industrial and service sector output, its economy created more than 80 million jobs between 1994 and 2004. In the four years 1998-2002, the economy successfully absorbed 3 million laid-off workers from money-losing, restructured, state-owned enterprises.

During the more recent period 2003-7, the economy created 51 million new jobs, the equivalent of a new city of 10 million workers every year. During these five years, 24.8 million laid-off workers were re-employed in new enterprises.

In March 2008, well before the financial crisis erupted, China’s goal was to generate 15 million jobs a year by 2020, raising the number of urban and town residents from 280 million to 510 million.

The global slowdown has complicated this goal. Numerous low-margin factories in south China have closed down, with employees returning to their rural homes. Tens of thousands of new graduates from an increasingly educated population will find it harder to secure employment. Indeed, China’s leadership has announced that it will return to 10% growth in 2009 from an estimated 7.5% this year. The difference is millions of jobs.

As the policy-makers in Washington D.C. struggle to reverse the current economic decline, imagine what it must be like in the inner circle of China’s counterparts.

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