gordeeva_o_g_praktikum_po_perevodu_ekonomicheskih_tekstov_s

UNIT VII

INFLATION AND LABOUR MARKET

Federal Reserve employs a new view on inflation

Level of joblessness exerts less influence on U.S. price trends

For decades, a simple rule has governed how the Federal Reserve views the U.S. economy: When unemployment falls too low, inflation goes up, and vice versa.

But Fed officials have rethought that notion. They believe it takes a far bigger change in unemployment to affect inflation than it did 25 years ago. Now, when inflation fluctuates, they are far more likely to blame transitory factors, such as changes in oil prices or rents, than a change in the jobless rate.

One explanation for why inflation is influenced less by changes in unemployment is that the public has come to expect inflation to remain stable. When inflation moves up or down, it is less likely to get stuck at the new level because companies and workers don’t factor the change into their expectations – and ultimately into their behavior. Another explanation is that the Fed is better at adjusting interest rates in anticipation of swings in unemployment before those swings can affect inflation.

This new view of the economy helps explain why the Fed stopped raising interest rates last summer while core inflation, which excludes food and energy prices, was rising. And it helps explain why the Fed is reluctant to cut rates now, even though it sees inflation edging lower over the next two years.

The new view “has profound implications,” says former Fed economist Brain Sack, now at Macroeconomic Advisers, a St. Louis forecasting firm. It means the unemployment rate is less important and the public’s inflation expectations are more important in Fed rate decisions.

In the late 1950s, economists discovered a tendency for inflation to rise when unemployment was low and to fall when unemployment was high. At lower unemployment rates, they concluded, companies paid more to attract scarce workers and recouped the higher wage costs by

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raising prices. This relationship was shown on a chart called the Phillips Curve, after Alban William Phillips, one of the first economists to identify it.

In the 1960s, U.S. presidents and Fed officials sought to exploit the Phillips Curve by letting inflation edge higher in exchange for lower unemployment. But in the late 1960s, economists Milton Friedman, who died last year, and Edmund Phelps, both of whom would later become Nobel laureates, independently deduced that the reduction in unemployment would be temporary. Once workers began to expect higher inflation, they would want higher wages. In the long run, they argued, unemployment would gravitate to some “natural” level no matter what inflation did.

Harvard University economist James Stock and Mark Watson of Princeton University presented evidence at a Fed conference in late 2005 that inflation’s long-term trend has varied little since 1984, and that most fluctuations were the result of transitory disturbances, such as a change in energy prices.

Indeed, when core inflation rose last year, the Fed blamed higher rents and oil prices rather than an overheating economy. It appears to have been right; as energy prices have come down and rent increases moderated, so has core inflation.

Now with unemployment running 4.6%, at or below the Fed’s view of its natural rate, inflation may edge up after the transitory impacts of energy and rent subside. That could require the Fed to push unemployment up sharply to bring inflation down.

Polarizing job scene in the U.S. means those in middle lose out

You don’t need to be a Ph.D. economist to know something big is happening in the U.S. job market.

The salaries of Wall Street’s financial engineers are surging while wages in industrial companies stagnate. Manufacturers complain about “skill shortages” while cutting payrolls. The number of health-care jobs soars 45% over 15 years, outstripping the 25% increase in other jobs.

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Computers seem to have infiltrated every job, yet demand for unskilled, low-wage immigrants doesn’t abate.

For decades, employers in the U.S. and other industrialized countries sought more skilled workers as technology and the availability of low-wage workers abroad diminished the employers’ appetite for lesser-skilled workers at home. It was painful but simple: Employers of all sorts wanted more skills and more education, and paid more to get them.

It is no longer that simple. Cue the Ph.D. economists.

There’s still strong demand for high-end workers – the stars of finance, software, law, sports and entertainment – as well as for the highest-skilled factory workers. The only news is the intensity of demand, which is pushing up pay for those at the top.

But – and here’s the switch – demand is increasing for some workers at the low end of the pay scale: the ones who wipe brows in hospitals, care for kids, clear tables at bistros, stand guard in office-building lobbies. In 1980, about 13% of workers without any college education were working in these personal-service jobs, according to calculations by David Autor, a Massachusetts Institute of Technology economist. In 2005, 20% of them were.

The losers? “The sagging middle,” says Princeton University economist Alan Krueger.

As Harvard economists Lawrence Katz and Claudia Goldin put it recently, “U.S. employment has been polarizing into high-wage and lowwage jobs at the expense of traditional middle-class jobs.”

Here’s the hypothesis evolving among these and other academics. Technology and globalization are boosting demand for the mosteducated workers, those prized for abstract or conceptual skills.

By contrast, technology and globalization are eroding demand for workers who do routine tasks in factories and offices, many of whom are high-school or even college grads. The voice-mail system does away with switchboard operators, back-office software eliminates bookkeepers, robots replace assembly-line workers. Or the work is shipped overseas to a foreign factory or an office linked to the U.S. by fiber-optic cables.

But technology and globalization are not eroding demand for personal-service workers. Those tasks can’t be done by computer or shipped offshore. The services have to be delivered in the U.S. – and in person – either by natives or by immigrants.

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Indeed, as the folks at the top make more money, more of them want nannies, gardeners, personal trainers and gourmet chefs. These workers are indirect beneficiaries of the upward flow of wealth. Their wages have been rising while those of midlevel factory and office workers, though still higher than those of many service employees, are stagnating.

Some economists speculate that same economic forces are at play in Europe, but are hidden because rules and customs that restrain incomes at the top also restrain demand for personal-service workers at the bottom. That means less inequality than in the U.S., but also fewer jobs overall and more people on the sidelines, the ones who would be service workers if there were jobs to be had.

So what, if anything, should the U.S. do about this? That’s a harder question than understanding the phenomenon.

Economists warn that shoring up the middle by shielding manufacturing industries from imports or otherwise meddling with the market would cost consumers heavily. Some, certainly not all, suggest letting the market be, and using the tax code to transfer money from winners to losers. Others suggest “professionalizing’ personal-service jobs, perhaps encouraging unionization, to boost wages. Unlike factory jobs, advocates reason, these jobs can’t be moved offshore or automated if employers have to pay more.

The more popular solution – at least among economists – is a familiar one: Educate all workers so they’re better at interpersonal or abstract skills (the jobs of the future) as opposed to dial-turning or key- board-pounding (jobs rapidly disappearing jobs of the past).

When Yasuyuki Nambu was an engineering student preparing to graduate from university in 1976, he was struck by the injustices of Japan’s workplace. Men were far more likely to be hired than women and were paid much more for the same work. Women who left their jobs to start a family found returning to work almost impossible. Mr. Nambu had the idea of creating a non-profit organization to place women in

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flexible, part-time jobs. His father suggested turning this job-placement scheme into a commercial venture. The result was Pasona, a firm that now has annual revenues of around $2 billion and which sends around a quarter of a million people off to a job every day. Japan has thousands of temporary-staffing agencies today, but Mr. Nambu’s was the first, and is still one of the biggest. Mr. Nambu has helped to change the way Japan works.

Before Pasona, job placements were handled by a government agency and offered little more than empty, make-work employment. Moreover, part-time and temporary employees were treated as outcasts from Japan’s corporate-welfare model, founded on the principles of lifetime employment and seniority-based wages that depend on length of service, not performance. Under this model, privileged “regular” workers enjoyed benefits such as training and the use of company holidayresorts, and were even reimbursed for the cost of traveling to and from work. In return, they were expected to remain loyal to their employers. All this was denied to “non-regular” or temporary workers, who were also paid much less.

In the 30 years since Mr. Nambu set up shop, non-regular employees have gone from the periphery of the Japanese labour force to the mainstream. The trend got a big push during the economic downturn in the 1990s, when big companies retained staff but changed their status to non-regular workers and hired temps whenever openings emerge. And a generational backlash against the stereotypical “salaryman”, or whitecollar worker, created a new group of young people, known as “freeters” who drifted from job to job. As a result, the number of non-regular workers has increased from around 20% of the labour force in 1990 to one-third of all workers today.

The result is a two-tier labour market, with huge differences in pay and benefits between regular and non-regular workers, even if they are doing the same jobs. But rather than being a manifestation of the problems bedeviling Japan’s economy, Mr. Nambu believes, freeters are a solution to its ills. They provide flexibility that is beneficial to both employees and employers, he says. As for concerns about growing inequality, the best way to address them is to extend some of the benefits offered to regular workers to freeters, too. Pasona has gone about this in several ways. It has worked to increase the pay of temporary staff, initially by reducing its own margins. It has promoted individual retirement-savings accounts even before they were enshrined in

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Japanese law. And it has pushed employers to reimburse non-regular workers’ transport costs.

For Mr. Nambu, Pasona’s mission transcends the workplace. “We want to provide solutions to society’s problems,” he explains. He even refers to his managers as a “shadow cabinet” on the basis they, rather than the government, are in a position to remedy many of Japan’s pressing issues – from the declining birth rate to revitalizing rural areas

– by establishing a more flexible labour market. The private sector, not the government, ought to lead that transformation, he says. Such outspokenness has prompted criticism from the establishment. Mr. Nambu’s flashy ways do not go well in traditional, buttoned-up Japan. Although businesses privately support him, because temporary employees suit their interests, government officials worry that he is undermining traditional Japanese labour practices that, they believe, serve the country well by maintaining loyalty and equality. They would prefer to return to a world in which regular employment is the norm. But the battle continues.

As U.S. Manufacturers Shift Toward Services, Productivity Rises, but So Do Economic Risks

The U.S. manufacturing sector is morphing into the service sector, at great reward and risk to the economy.

In recent years, manufacturers have so greatly improved productivity that companies need fewer people to actually produce goods. Many other production jobs, especially low-skill ones, have been shipped to lower-cost countries. The result has been clear to workers: Those types of manufacturing jobs are just disappearing.

What isn't so well understood is this: Of the workers employed by manufacturing companies, a growing proportion can be found in cubicles instead of on the factory floor. In fact, of the 17 million jobs left in the U.S. manufacturing sector, about 52% are involved in the actual production of goods. The rest are consumed by service jobs.

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Thomas J. Duesterberg, chief executive of Manufactures Alliance, an Arlington, Virginia, research and trade group, says the distinction between goods and services is blurring, for good reason. «Given the demands of global competition and increasing sophisticated production, it makes sense for companies to combine what used to be service increasingly with products they offer», he says. Indeed, if they don't do so, manufacturers risk all jobs – production and service.

The upshot is improved productivity for the U.S. economy in general, and better profits and lower costs for manufacturers.

Now the downside. The act of making a good generally has a greater proportionate impact on the economy than providing a service. Arguably, then, the loss of those jobs could have a greater proportionate impact as well.

Manufactured goods are complex, filled with parts and components representing a broad spectrum of industries. Cars made in Detroit need steel made in Indiana, which needs iron ore mined in Minnesota, which needs both ore freighters on the Great Lakes and railroads to deliver it. Put another way, for every dollar spent on a truck or car, an additional $1.82 in goods and services is generated from other industries. The effect is that manufacturing provides 16% of gross domestic product but generates 26% of the total value of the economy.

Take that production out of the economy, and you lose the revenueand job-producing spillover on downstream suppliers and industries.

Old. Smart. Productive

New Yorker Emma Shulman is a dynamo. The veteran social worker spends 50 hours a week recruiting people for treatment at an Alzheimer’s clinic at New York University School of Medicine. Her boss, psychiatrist Steven H. Ferris, dreads the day she decides to retire: “We’d definitely have to hire two or three people to replace her,” he says. Oh, one more thing about Emma Shulman. She’s nearly 93 years old.

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Shulman is more than one amazing woman. She just might be a harbinger of things to come as the leading edge of the 78 million-strong Baby Boom generation approaches its golden years. Of course, nobody’s predicting that boomers will routinely work into their 90s. But Shulman

– and better-known oldsters like investor Kirk Kerkorian, 87, and Federal Reserve Chairman Alan Greenspan, 79 – are proof that productive, paying work does not have to end at 55, 60, or even 65.

Old. Smart. Productive. Rather than being an economic deadweight, the next generation of older Americans is likely to make a much bigger contribution to the economy than many of today’s forecasts predict. Sure, most people slow down as they get older. But new research suggests that boomers will have the ability – and the desire – to work productively and innovatively well beyond today’s normal retirement age. If society can tap their talents, employers will benefit, living standards will be higher, and America’s problems financing its Social Security and Medicare systems will be easier to solve. The logic is so powerful that it is likely to sweep aside many of the legal barriers and corporate practices that today keep older workers from achieving their full productive potential.

An analysis by Business Week finds that increased productivity of older Americans and higher labor-force participation could add 9% to gross domestic product by 2045, on top of what it otherwise would have been. (This assumes, for example, that over the next 40 years better health and technology reduce the productivity gap between older workers and their younger counterparts.) This 9% increase in gross domestic product would add more than $3 trillion a year, in today’s dollars, to economic output.

harbinger - предвестник.

Business Week June 2005

Aging Japan Faces Economic Woes

Japan is wrestling with unprecedented demographic time bomb – one that is already starting to go off. With the average woman bearing 1.33 children, the government projects Japan's population will start declining in three years. By around 2007, the proportion of the

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population over 65 will have jumped to 20% from 10% in just 21 years, a rate of graying that is nearly twice as fast as any other major nation.

Until very recently, most Japanese assumed these population pressures were problems looming in the future. But evidence is mounting that consumers and businesses, anticipating this future, are already taking action that is hurting the second-largest economy now. Anxious households are saving far more than expected, stifling economic growth. An expensive, aging work force is squashing corporate profits – and thus stock-market values - by adding extra payroll costs equal to some 0.7% of gross domestic product over the past two decades. And Japan's top companies like Toyota Motor Corp. are shifting their operations overseas in search of more vigorous growth.

One immediate solution to the shrinking work force would be large-scale immigration. But Japanese leaders remain adamantly opposed to this, and foreigners still account for just 1.4% of the country's total population.

Anxiety about the future is one reason Japan's savings rate remains stubbornly high – currently around 10%, compared to 1% in the U.S. For many years, that helped finance Japanese industry and enable a high level of investment. Still, economists had expected the saving rate to plummet as Japan's population aged, producing a large number of retirees who spent from their savings. This spending, economists once assumed, would buoy consumption and overall growth. One study around 1990 predicted that Japan's saving rate would fall to around 5% in 2002, and then go negative around 2007. The economists got it wrong.

Rather than the boon they were once considered, such high savings have driven a steady decrease in consumption over the past 10 years – except for a blip in 1996 ahead of an impending increase in the sales tax. And sagging private consumption, which makes up 55% of Japan's GDP, has in turn dragged down real GDP growth to an average of just 1.05% a year over the past 10 years.

The Wall Street Journal, February 2003.

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Offshoring Should Be The Least Of America’s Worries

Outsourcing has become America’s national economic obsession and justifiably so, particularly because of the human cost. But in worrying about the flight of jobs overseas, we should not lose sight of other, perhaps more significant, economic challenges.

It is not outsourcing or a weak economy that is dragging down job growth, but the fact that the economy is happily becoming ever more efficient. US businesses are producing more without adding workers. The congressional Budget Office expects growth this year of 4.8 per cent, a particularly excellent figure given the scant signs of renewed inflation.

Higher productivity ultimately translates into higher incomes for American workers and that in turn feeds continued economic growth.

Thanks in part to sound policies in the 1990s, the US is blessed with a fundamentally strong economy. But it still has a long “to do” list. It is vital that the American people wake up to the seriousness of economic issues whose impact may be less apparent than outsourcing.

More importantly, the current strong recovery is coming at a horrific price – record Federal budget deficits, surging Federal spending, out-of-control balance of payments deficits and expansionary monetary policy that has driven interest rates close to zero and left the world awash in liquidity. No doubt some stimulus was needed to ensure a soft landing from the 2001 recession. But this much is dangerous.

In terms of its effects on employment, outsourcing jobs to India is no different from the automation that terrified US workers after the second world war. Then America went on to enjoy a long period of prosperity. There is no reason it cannot do the same now - provided we fix policies that may seem to have little to do with the furor over outsourcing.

Europe’s Work In Progress

Why does Europe's productivity growth lag so far behind America's?

America's short-term economic prospects may be fragile, but at least its productivity continues to impress. In the year to the third

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