Friday 5 December 2014

China/UK - the importance of jobs and labour supply

"Supply side factors are also important. China's working age population has started to shrink and the number of new labor force joiners is declining. The UNPD forecasts China's working age population to decline by about eight million during the next five years, compared to flat in the past five years. Of course, China's labor supply to the non-farming sector will continue to rise as surplus labor from the agricultural sector continues to be transferred out. However, the decline in working age population does provide more room for such transfers in the next few years even with growth slowing.
Changes in both labor demand and supply mean China faces less employment pressure than a decade or even a few years ago, and needs less growth to maintain labor market stability. Assuming continued modest gains in labor productivity, and taking into account the structural upturn of labor intensive service sector, we estimate that 6-7% growth in non- farming GDP and 6-6.8% growth in overall GDP in 2015-16 would be sufficient to generate more than 11 million new non- farming jobs each year, a level we think is associated with a general stability in the labor market. Over the longer time horizon, and as labor transfer progresses further and if services growth speeds up, sub-6% growth would be sufficient for labor market stability."
I came across the above quote whilst doing some research recently. It is a section for a review of China's economic prospects for next year. This was the positive part where they try to suggest with low growth in labour supply, China will more easily be able to maintain political stability.

It is always entertaining reading an economists view on political impacts, as they can never get it right.

However, more interesting is the reversed nature of the argument deployed as compared to the one we see the Government and  media outlets push in the UK. Here, we are told, immigration is good and adds to the economy and so social stability. This report on China suggests the opposite, a reduction in labour market supply will help wages and promote social stability and even allow China to cope with a lower GDP growth rate than in the past.

Basically a nice example that economists and others can theorise on whatever they like and take differing views accordingly. Somehow I don't think we would ever see this reasoning applied to the UK situation on the BBC though!



Budgie said...

I was not aware until recently that the Roman Proletarius class (non-propertied workers) suffered increasing poverty as a result of the expansion of slavery.

As the Roman Republic (then Empire) expanded, an increasing supply of conquered peoples were imported as slaves into Rome (and Italy). The net result of these immigrants, who had only to be housed and fed, was to depress wages of the indigenous working class.

A similar thing is happening in the UK. Immigrants, particularly from east Europe, come here as an adventure, maybe just to learn the language and survive, depressing wages both because of their willingness to take jobs beneath their skills, and simply because of excess supply.

Such a massive inflow of immigrants to the UK also pushes house prices up (supply and demand again). Without these millions of extra people, housing supply would have more nearly matched demand and house prices would have reduced by more than the 20% post 2008.

Yes, Cameron can claim UK growth by increasing the GDP artificially in this way, but it is a false picture of the economy. He has boosted labour supply, but at the expense of a creaking infrastructure and overpriced housing.

Jer said...

On the plus side, when the economy goes pop again, we may see a lot of emigration. A large population floating between Poland/Baltics and the UK depending on which one is currently least fucked.

Does mean that when things go a bit pear shaped here GDP will plummet - if I'm right...

Electro-Kevin said...

Jer - It would have to really go *pop* for that to happen.

The fact is that mass immigration (to pay for pensions/cover work) was actually instigated during a baby boom in the 50s and 60s and continued under both parties.

The state of the Border Farce shows Cameron's true commitment to controlling immigration.

The western economies best in control of their debts and doing well all have selective immigration policies.

Nick Drew said...

emphasis on 'selective' - economies with declining populations tend to worry about it a lot

lots of places I go in Europe, businessmen envy the UK's ability to absorb young immigrants with (relatively) little social strife

emphasis on 'relatively', natch

Budgie has already answered ths point, of course (and Kev, many times)

Electro-Kevin said...

"lots of places I go in Europe, businessmen envy the UK's ability to absorb young immigrants with (relatively) little social strife"

Due to the easy nature of the indigenous people. Plus the fact that much turmoil is swept under the carpet by police and local authorities.

I mention it 'many' times because the subject is key.

There will never be enough jobs, enough houses, enough schools, enough money, enough...

if we leave the borders open.

Tory 'successes' ? So what ?

Ordinary people are getting poorer and will continue to do so.

There is no reason why the safe country you grew up in can't go Mad Max in the next generation, Nick.

On the original post.

'Economists getting things wrong' (to that effect)

Well if these people got things right they wouldn't be economists. They'd be multi millionaire bankers doing business from super yachts.

Just like our fantastic lawyers - who are, axiomatically, wrong 50% of the time.

Electro-Kevin said...

BTW - I think my new avatar is more in keeping with my personality and my real looks.

I reckon I could pull this one off at a fancy dress do.

Steven_L said...

Just like our fantastic lawyers - who are, axiomatically, wrong 50% of the time.

You sure about that one Kev? I've seen a few cases where both sides lose and both sets of lawyers win.

DJK said...

Globalization and open borders are leading an international race to the bottom for working class wages. Surely, the same thing will happen with benefits. Universal benefits / welfare state is not compatible with an open border policy. (Discuss!)

Anonymous said...

You are absolutely correct.
I realised some years ago, and thought it ironic that it was liebour who finally killed the welfare state with their economic policies and immigration open door.
As the State desperately tries to keep it in life support look out for all kinds of nasties as they grab as much of people's wealth as possible.

andrew said...

Not incompatible, just costly and not just in money terms.

At the moment we send ~ 12bn pa to undeveloped countries, to help educate them etc, jolly good.

Due to the 'way things are' (high house prices) we have a generous welfare system and so lots of jobs that need to be effectively subsidised by tax credits (otherwise no-one will do them).

Because we have the (relatively) free movement of goods, if the wage level (minimum wage) is set too high, those jobs will disappear to China where possible (even more than at the moment).

Because we have the (relatively) free movement of labour, relatively high wages, lots of people come from Europe to work here.
Instead of sending aid to europe, we let people come here.
I understand that London is in the top 20 largest french cities - just counting the number of French in London

The trouble is that this does cost money (primary Schools/Hospitals/Courts... need multilingual staff etc)

There is also an increase in unemployment - especially at the bottom end - some people will come to the UK temporarily and live in conditions UK nationals wont put up with and outcompete us. How big that increase is is a matter for debate. - but to what extent this really happens is debatable (fixed lump of work fallacy)

The calculation is complex.

Personally I think we mix up
effect - 'I feel worse off because my pay has not gone up' with cause - 'lots of immigrants'
- Mostly Incorrect

The better one to me is
effect - 'I feel worse off because my pay has not gone up' with cause - 'your job can be done in India/China for 50p per hour'
- Mostly inorrect - but less incorrect than immigration.