Lack of jobs is the real problem now, not falling markets

Unemployment rates have to drop, only then will aggregate demand go up, which will then boost economies across the globe

The crash of falling shares all over the globe has given rise again to fears of more recessions. Most commentators are focusing on European sovereign debt as the crisis de jour. However, one may point out that the problems with European sovereign debt have been going on for over a year. There are enormous potential problems due to misallocation of capital in emerging markets that haven't yet appeared on the radar. But the real problem that is bothering economies, at least for now in developed markets, is the lack of demand, and for 'demand', read jobs. Until the unemployment rate drops and more people become employed, aggregate demand will suffer.
In the US, the president and his Democratic party have put a Bill before Congress that is supposed to create jobs. The programme basically has two elements. It hopes to create jobs by spending money to build, or rebuild physical infrastructure. It also hopes to create jobs with classic Keynesian stimulus by cutting taxes. In short, it is attempting to cure the problems with money.
This is normally not such a bad idea if you were farsighted enough to understand the concept of a business cycle. It is a good idea to squirrel away some savings in good times to carry you over the bad. But politicians can't resist spending money, usually on their friends and families. Economists and promoters always assure us that business cycles are a thing of the past. So many governments, again in the developed world, didn't save for the inevitable rainy day and the cabinet is bare.
The US Opposition party, the Republicans, feel that just spending money is not a good idea, although they spent over eight years doing just that. Enthralled by newfound fiscal orthodoxy, they are worried that the money has to come from somewhere and that somewhere is the rich. These rich, we are told, are "job creators" and if you tax them they won't create jobs. If you look at the US economic history over the past 50 years, you will find that this thesis is simply not true. Strong economic growth and job creation did in fact occur when taxes for the wealthy were high. So reigning in the taxman is not the answer.
Many people today are looking at the Chinese model. China has been able to create millions of jobs and move those employed millions out of poverty. They were able to do this with industrial policies that limited household income in order to spur manufacturing growth and investment. This had the obvious secondary effect of speeding up employment and, with it, household income.
Seems like a good idea, until you consider that the programme was and is filled with unsustainable subsidies and imbalances. The Chinese economy is tilted in an unprecedented way towards investment and away from consumption. Its currency has been kept low artificially in order to move the excesses of this policy onto its trading partners. The subsidies are given disproportionally to friends of the state in the state-owned sector. The private sector, the main source for jobs, has been starved. The combination leaves China inordinately exposed to a global slowdown, trade restrictions, enormous bad debts, and eventually serious job losses.
The Chinese have another way to hinder job growth. They don't protect property rights. Since property rights can be denied at any time, the private sector's incentive to grow and hire more employees is severely restricted.
India and Brazil have sadly adopted labour codes from Europe. These laws weren't worried about creating jobs. They were worried about protecting workers. They have been exceptionally successful. They have worked so well that it is almost impossible for employers to fire even the most incompetent employee. In addition, there are myriad of taxes and regulations that make compliance difficult and require vast amounts of time to do so.
The Noble Laureate Ronald Coase proposed in his famous theorem that it did not matter what the initial allocation of property rights in the law was. As long as the transaction costs were low enough, the parties could bargain their way to an efficient outcome. And that is the rub.
Bureaucrats and politicians have raised transaction costs. They do so by failing to define property rights; failing to enforce property rights; creating barriers to realising property rights, and finally constantly changing the property rights. This is the last thing that employers need. Employers, to create jobs, must invest. Any investment is a bet on the future. If the laws are inconsistent, they cannot make this bet, because they don't know what the future holds.
To create jobs, governments need to do theirs. Their job is to create clear property rights and enforce them. But this is one job that none of them seem able to do.
 (The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).


Job growth to slow down in non-IT sectors, NRIs coming back

Telecom, financial services, construction and auto sectors are going slow with their hiring plans, primarily due to spiralling costs, interest rates and inflationary pressures. Also, an increasing number of NRI professionals are moving back to India in search of greener pastures, faced with declining salaries and job cuts abroad

New Delhi: Growing economic uncertainty may slow down hiring activities in a host of sectors, but the IT space is likely to remain unaffected and non resident Indians (NRIs) returning home due to the gloom in Western markets might emerge as an attractive talent pool, reports PTI.

Companies in the telecom, financial services, construction and auto sectors are going slow with their hiring plans, primarily due to spiralling costs, interest rates and inflationary pressures, experts said.

At the same time, the hiring outlook for the IT industry is steady and human resource providers say that feedback indicates the companies are already geared up for the challenges arising out of economic uncertainties, especially in the Western world, which serve as key customers of Indian technology firms.

Some experts also believe that an increasing number of NRI professionals were moving back to India in search of greener pastures, faced with declining salaries and job cuts abroad.

This could give Indian companies a chance to target this attractive resource pool, they said.

According to a study by, a recruitment tendering platform, hiring of non-resident Indians (NRIs) will account for 19% of total recruitment activity during October-December this year, compared to 11% in the year-ago period, representing a growth of 8%.

Hiring of NRIs accounted for 21% of total recruitment activity during April-June 2011.

“The high economic growth in India, with many good opportunities, has fuelled the NRI thought process to head back. In addition to that, many Indian companies are shutting their offices in the West,” CEO Rajesh Kumar said.

Looking ahead, he said, “An increasing number of high-value NRI professional recruitment is likely to take place in the coming quarter, as wage gaps have declined sharply. An increasing number of people is now returning because now the advantages of returning back to India outweigh the disadvantages by far.”

A survey by, a job search portal for senior management professionals, also said that as many as 62.9% of the respondents do not expect the global economic scenario to impact the hiring plans of Indian IT firms.

Nearly 92% of the respondents believe that the impact will be limited to the next six months and only 8.1% expect any long-term fall-out, the survey said.

However, the picture is not that rosy for a host of non-IT sectors.

Leading job portal said the employment market was seeing a slowdown, with sluggish hiring activity in the telecom, insurance and realty sectors amid economic uncertainty and rising inflationary pressures.

“Hiring has definitely slowed down in telecom, insurance, construction and financial services,” managing director and CEO Hitesh Oberoi said.

“Rising inflation and consequently higher interest rates have resulted in slower growth in sectors like real estate and automobiles. This will impact job creation in these sectors,” Mr Oberoi noted.

Headline inflation, which has been ruling above the 9% mark since December 2010, touched a 13-month high of 9.78% in August.

The central bank has hiked key policy rates as many as 12 times since March last year to tame inflation. With rising rates, corporates have also expressed concerns about expensive credit hurting their expansion plans.

Grappling with global economic uncertainties, especially the escalating European debt turmoil, many companies worldwide are cautious about their business prospects, resulting in slower hiring activities.

“If the European debt crisis worsens in the coming months, this could have an adverse impact on overall job market, especially for exporters,” Mr Oberoi said.


12th Plan document will not be ready by 1 April 2012

Traditionally, the Plan panel has been unveiling the policy documents after the lapse by several months and this time it would be no exception. The documents for 10th and 11th Plans were finalised much after the beginning of the respective Plan periods

New Delhi: The 12th Plan document that seeks to raise the economic growth rate to 9% during the five-year period will not be ready by 1 April 2012, the day the next Plan begins, reports PTI.

As per the schedule, the Planning Commission will begin writing the 12th Plan document that runs into several volumes after March 2012.

Traditionally, the Plan panel has been unveiling the policy documents after the lapse by several months and this time it would be no exception, sources said.

“The Commission is scheduled to complete spade work relating to formulation of the Plan document by March 2012.

This includes submission of reports of steering committees and working groups and eliciting views of different ministries and departments,” the official said.

After the finalisation of the document, it will be placed before the full Planning Commission, the Union Cabinet and the National Development Council (NDC), the highest policy making body of the country. This exercise is likely to take time.

The documents for 10th and 11th Plans too were finalised much after the beginning of the respective Plan periods.

The 11th Plan which began in April 2007 was approved by the NDC in December 2007. Similarly, the 10th Plan which begun in April 2002, was cleared for implementation by the NDC in December 2002.

As far as progress of the 12th Plan documentation is concerned, the NDC had approved the ‘Approach Paper’, which provides a broad framework of the government policy to be pursued in the five-year period to achieve the desired growth rate, 20th on August last.

The Approach Paper would be the basis for running the various government programmes and schemes till the new Plan is unveiled and implemented, the official said.


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