[EAS]Structural vs. Cyclical

Sun Oct 19 04:18:26 EDT 2003

Subject:   Structural vs. Cyclical

(from NewsScan Daily, 17 October 2003)

DOT-COM REFUGEES SUFFER A HARD LANDING
While many older workers caught up in the dot-com frenzy probably feel
like  they've regained some sense of normalcy now that companies are
refocusing  on bottom lines and ROI, some of the twenty-somethings who
entered the  workforce during the dot-com heyday are facing a brutal
reality: for the  first time they're encountering lower salaries, set
hours, rigid corporate  policies and a more staid pace of business.
"Some are [coping], and some  are in culture shock," says John
Challenger, CEO of outplacement firm  Challenger, Gray & Christmas.
"Some people are having a difficult time with  the process
orientation, the caution and the lack of freedom and autonomy  in more
traditional companies." However, while they may not be practicing 
their golf swing in the company cafeteria anymore, some perks have
carried  over into traditional business practice, says Challenger.
"There is more  freedom to utilize technology-telecommuting [today.]
There's more openness  about managing based on someone's output rather
than clock-punching."  Challenger notes that the best way to reward
employees is not through fancy  gifts or outlandish toys, but through
old-fashioned values like respect and  competitive pay; challenging
tasks and responsibilities; a caring and  supportive work environment;
and visionary leadership. (E-Commerce Times 16  Oct 2003)
http://www.ecommercetimes.com/perl/story/31854.html

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A recent item in The Economist
<http://www.economist.com/printedition/PrinterFriendly.cfm?Story_ID=2121991>
reports on the work of Erica Groshen and Simon Potter, two
economists at the Federal Reserve Bank of New York, on "jobless
recoveries." They

> ... tried to measure whether job losses were due to cyclical or
> structural factors. If a job is lost because demand for the firm's
> product is temporarily low, then the job should come back as the
> economy begins to recover. But if a job is lost because a firm or
> industry is structurally in decline, then it never returns. In the
> sharp recession of the early 1980s, they found that job losses were
> split almost evenly between cyclical and structural changes. In the
> most recent slowdowns, however, most job flows were due to
> structural changes. By 1990-91 almost 60% of America's workers were
> in industries undergoing structural adjustments. By 2001 that figure
> was almost 80%. 

Their full article is at <http://www.newyorkfed.org/research/current_issues/ci9-8/ci9-8.html>.

   --PJK

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The job market 

New ideas needed

Oct 9th 2003 | WASHINGTON, DC 
>From The Economist print edition

Why many Americans are staying out of work

FEW statistics are followed more closely in George Bush's White
House than the monthly jobs figures. In 1992, unemployment cost his
father the election; the son has presided over more than 2.5m job
losses. Small wonder that the White House jumped on the latest
report, released on October 3rd. Reuters

It showed that non-farm payrolls rose in September, the first rise
in eight months. At 57,000, the net number of new jobs created was
barely half the 125,000 or so needed to keep up with new entrants
into the labour force; but at least it was not a drop. Better still,
August's job loss number was revised down by more than half. ÒThings
are getting better,Ó said Mr Bush.

Are they? One month of modest employment growth hardly proves the
end of Òthe jobless recoveryÓ. Nonetheless, there are reasons for
hope. One is that all of the increase in September's jobs came from
the private sector, much of it from a rise in the number of
temporary workers. The number of temporary jobs has risen for the
fifth month in a row. 

Hiring more temporary workers often precedes a rise in permanent
jobs as economies emerge from recession. According to Richard
Berner, an economist at Morgan Stanley, America's firms have spent
the past two years trimming their workforces, after taking on too
many employees during the bubble years of the late 1990s. With the
excess cut out, and profit margins bigger, he reckons hiring should
start again. 

The pace of job growth, however, may well continue to lag behind
that of previous post-1945 recoveries. This is because America's
recent slowdown was no ordinary recession. Structural changes in
America's economyÑsuch as technological innovation and moving
production abroadÑhave played a far bigger role than before in job
losses. Rather than temporarily laying off workers as demand slowed,
firms have been getting rid of them entirely. Those dismissed have
to find jobs in new firms and new industries, which takes much
longer than simply returning to an old employer. 

In a recent study, Erica Groshen and Simon Potter, two economists at
the Federal Reserve Bank of New York, carefully examined the
relative importance of cyclical and structural factors in the labour
market. They point out that temporary lay-offs, when a worker is
laid off during a recession but later returns to the same employer,
played a significant role in four recessions before the 1990s. In
the two most recent downturns, those of 1990-91 and 2001, they
figured little. 

The two economists also tried to measure whether job losses were due
to cyclical or structural factors. If a job is lost because demand
for the firm's product is temporarily low, then the job should come
back as the economy begins to recover. But if a job is lost because
a firm or industry is structurally in decline, then it never
returns. In the sharp recession of the early 1980s, they found that
job losses were split almost evenly between cyclical and structural
changes. In the most recent slowdowns, however, most job flows were
due to structural changes. By 1990-91 almost 60% of America's
workers were in industries undergoing structural adjustments. By
2001 that figure was almost 80%. 

This highlights two important points. First, it may well take longer
than expected for the jobs figures to rise, since they will have to
be new jobs, often in new industries. Second, today's trend towards
structural rather than cyclical shifts is an intensified version of
a phenomenon already evident in the 1990-91 slowdown. In one way,
this bodes well: although it took more than a year for job growth to
pick up in the early 1990s, about 18 months into the recovery
employment growth soared. 

Given that America had more cyclical excesses to work off this time,
and that structural shifts are even more important than in 1991,
employment may well take longer to rise than it did in the early
1990s. But rise it eventually should.

Time, unfortunately, is not on Mr Bush's side. With the presidential
election little more than a year away, the White House needs to
point to job increases now. Unfortunately, in their haste for
results, both Mr Bush's team and his Democratic rivals are pushing
wrongheaded ideas. The politicians' focus has been on trying to slow
down the pace of structural change, particularly in one area,
foreign competition. ChinaÑsource of soaring imports and the place
to which many American firms shift their productionÑis cast as the
chief villain.The pressure is on for China to revalue its exchange
rate or, say many lawmakers, face punitive tariffs.

Alas, the attempt to slow structural change in American industry
will not stop there. The fear of losing service-sector jobs to
foreigners is close behind. A study by Forrester, a business
research group, suggests that the number of such jobs that will be
outsourced to places such as India is likely to rise from 400,000
today to 3.3m in 2015. Already some states are trying to resist this
by ordering state agencies not to use call centres and the like in
India.

It would be better to address the factors that depress American
hiring directly. One good place to start would be the rising
non-wage costs of employing permanent workers, especially
health-care costs. After slowing in the mid-1990s, these are soaring
again, at double-digit rates since 1998. Finding a way to control
health-care costs would be a far more sensible way to help America's
workers than bashing China.