A tough job market

Last week, the U.S. Labor Department released the latest numbers the nation’s unemployment rate, and at 8.1% it is the highest ever in my lifetime.

Many talent recruiters in Silicon Valley, who only recently were flooded with work, now find themselves doing the resume polishing and job searching that they used to do for others.

Shanghai’s Korea town, a cool neighborhood on the far west side where I spent a Saturday last spring with my Korean students, has been decimated in recent months as Korean companies layoff Chinese workers and Korean pull their staff out of China.

In response to a sharp fall in exports, Japanese companies have been forced to cut costs by eliminating jobs, lowering wages, and replacing much of their work force with temporary workers who have no job security and fewer benefits. Nontraditional workers now make up more than a third of Japan’s labor force. It’s causing a generational shift in attitudes towards employment, consumption, and savings.

“Younger people are feeling the brunt of that shift. Some 48 percent of workers age 24 or younger are temps. These workers, who came of age during a tough job market, tend to shun conspicuous consumption….
Economists blame this slow spending on widespread distrust of Japan’s pension system, which is buckling under the weight of one of the world’s most rapidly aging societies. That could serve as a warning for the United States, where workers’ 401(k)’s have been ravaged by declining stocks, pensions are disappearing, and the long-term solvency of the Social Security system is in question.”

A lot of comparisons are being made between the current situation in the United States and that of Japan in the 1990s. The government response in both countries differs – and hopefully has a different outcome – but it does seem that Americans are beginning to gradually shift towards Japan’s frugality and higher savings.

In just the last several months in China, 2,400 factories in the Guangzhou area, the manufacturing heart of southern China, have closed and over 20 million migrants workers have lost their jobs (some commentator pointed out that that number is roughly equivalent to the population of Australia). The bulk of layoffs coincided with the Chinese New Year, so many who returned home for the holiday will simply stay and resume farming or take up lower paying jobs in inland areas and not go back to the coastal cities.

Another notable region that has hit a particularly rough patch is Eastern Europe, including some parts which experienced a real estate boom and others that are now are constrained by the euro and no longer have central banks capable of lowering interest rates.

Finally, one of my favorite economics writer, Michael Lewis, chronicled Iceland’s dramatic boom and bust. It’s a bizarre story of a small, sparsely populated (just over 300,000 people), very homogenous (99% urban, 84% Lutheran) country that went overboard in building a financial industry that was way out of proportion with it’s size, while a real estate and asset bubble made it one of the wealthiest countries in the world. When its currency and asset prices crashed, it brought down the government, caused public debt to skyrocket (to 850 percent of the GDP!) and bankrupted several of its largest banks. Far and away the country with the hardest fall in the current financial crisis.