Opinion

The Great Debate

from Breakingviews:

Ecuador economic “miracle” meets maturity

By Rob Cox

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Turn on state television here, and within an hour or so a public service message will appear extolling the “Ecuadorean miracle” of President Rafael Correa. The advertisements highlight big new infrastructure projects and endorsements by experts, even an American or two.

Coming on one of the many formerly private channels that Correa tucked under government control during his seven years in office, it’s easy to dismiss this as propaganda. Yet here’s the thing: nearly every ordinary Ecuadorean I met during a recent stay was able to answer the Reaganesque question, “Are you better off now?” in the resounding affirmative.

To the amazement of Correa’s critics, Ecuador has undergone a relatively sustained period of economic progress since he took office in 2007. Annual growth in gross domestic product has averaged 4 percent. Unemployment is below 5 percent. Wages are up. Inflation is a tame 3.1 percent thanks to the dollarization of the economy before his accession. The percentage of Ecuador’s 16 million people living below the poverty line has dropped to 25 percent from some 45 percent before Correa became president.

The infrastructure improvements are evident everywhere, from the shiny new Quito airport and the highway that leads to the capital, to the 95 new bridges spanning the jungle chasms of the Amazon region. Regional hospitals are being built, and universal education has been made more accessible to everyone, its quality improving. Infant mortality rates shrink every year.

It’s harder to reach the American dream if you’re reaching all alone

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“Hours of chaos” is how the New York Times described the work reality of more and more Americans. It highlighted Jannette Navarra, a Starbucks barrista, who is regularly forced to work part-time with fluctuating hours. She usually gets her work schedule three days ahead of the workweek, so she is always scrambling to arrange childcare for her son. Any hope Navarra has of advancing by pursuing a degree is shattered by her inability to schedule classes.

These sorts of lousy jobs are the increasing reality for many American workers. They are labeled “contingent” workers — part-time, temporary, on contract, on call. They generally earn lower wages than fulltime employees, with little or no benefits, and constant insecurity. They now represent one-third, perhaps as much as 40 percent of the workforce.

The Times focused on new technology that allows Starbucks to micro-manage worker hours to fit outlet demand. This really isn’t about technology, however. It’s about power. Workers have less power in the workplace in part because of continued high unemployment. When jobs are scarce, workers have learned to accept what they can get.

from Nicholas Wapshott:

Yellen shows her hand

The difference between the Federal Reserve Board of Chairwoman Janet Yellen and that of her immediate predecessor Ben Bernanke is becoming clear. No more so than in their approach to the problem of joblessness.

Bernanke made clear that in the post-2008 economy, his principal goal was the creation of jobs, not curbing inflation. He settled on a figure, 6.5 percent unemployment, as the threshold that would guide his actions.

While remaining true to the spirit of Bernanke’s principal goal, Yellen and the rest of her board refined the target in their meeting on March 18 and 19, a change in approach that at first sent the wrong signal to the stock and bond markets. At the press conference following the meeting, Yellen said she would not be raising interest rates “for a considerable time,” which could mean “something on the order of around six months.”

Why we should worry about the future of men

If you’re an American man you’re more likely to be unemployed than your female counterparts. Today more than 4.3 million Americans are considered “long-term unemployed” — out of work for more than 27 weeks. Fifty-six percent of them are men. The Great Recession emasculated generations of men, displacing many of them from the labor force and undermining their financial security. The effects may be felt for decades.

But does that mean the end of men and the rise of women, as author Hanna Rosin has suggested? Not quite. Male unemployment hasn’t come at the expense of women’s success; it reflects deeper structural changes felt by everyone. Technology and globalization has rendered many better-paying jobs, traditionally held by men, obsolete. Both men and women have the potential to thrive, but in order for that to happen we need policy that complements the modern labor market — rather than hold it back.

Even before the 2008 recession, male labor force participation had been declining while more women went to work. This trend was heightened early in the recession because men experienced the brunt of unemployment, losing jobs in male-dominated industries like construction and manufacturing. These jobs disappear more rapidly during recessions, when weaker firms need to shed workers.

A ‘Marshall Plan’ for Africa’s employment challenge

To Africa’s many challenges, add one more: unemployment.

Unemployment, independent of any other factor, threatens to derail the economic promise that Africa deserves. It’s a time bomb with no geographical boundaries: Economists expect Africa to create 54 million new jobs by 2020, but 122 million Africans will enter the labor force during that time frame. Adding to this shortfall are tens of millions currently unemployed or underemployed, making the human and economic consequences nearly too large to imagine.

Thus, even with the strong economic growth we have seen over the past decade, job creation in Africa remains much too slow. Africa needs a comprehensive, coordinated approach akin to America’s “Marshall Plan” in Europe after World War Two. That effort focused on building infrastructure, modernizing the business sector, and improving trade. By the end of the four-year program, Europe surpassed its pre-war economic output.

We can, and must, do the same for Africa. Entrepreneurs, politicians, philanthropic foundations, and development organizations — such as the World Bank, International Finance Corporation and USAID — must all work together to solve the unemployment crisis and make Africa an engine of growth. If we are outrun by the employment challenge, Africa will be a drag on global growth and resources for generations to come.

Don’t ignore America’s youth unemployment crisis

Recently, Reuters columnist Zachary Karabell proclaimed that “The Youth Unemployment Crisis Might Not Be a Crisis.” Having spent much of the past several years writing about record levels of youth unemployment and speaking with hundreds of struggling young adults across the country, I was intrigued to say the least.

In reality, the article itself does an excellent job demonstrating why youth unemployment is a crisis in America. Unemployment for 15- to 24-year-olds is nearly 16 percent, twice the national average. College graduates are doing slightly better, but young people with just a high school diploma face unemployment rates of nearly 30 percent. High schools dropouts fair even worse. Young people of color face truly shocking labor market conditions: for African American teenagers, the jobless rate is 40 percent. Economists predict this could have serious long-term consequences for the economy. One study claims that nearly 1 million unemployed young Americans will lose $22,000 each in earnings over the next ten years. Youth unemployment is an unmitigated disaster for young people and the economy as a whole.

Decades of economic data on youth joblessness shows that: 1) lack of work early in an individual’s career leads to lower future wages; and 2) entering the job market during a recession scales up individual challenges to entire generations. The data is as solid as it is disturbing.

from Nicholas Wapshott:

No, austerity did not work

There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

Take Spain, which has just emerged from two years of recession by posting a third quarter growth rate of 0.1 percent. Technically the Spanish slump is over. But a glance at their job figures shows the country has a long way to go before it can genuinely say it has escaped the diminishing effects of austerity -- in the form of tight fiscal policies, public spending cuts and labor and entitlement reforms -- imposed indirectly by Germany through the European Union.

With unemployment high, France forces stores to close early

The French like to refer to the Champs Elysées in Paris as “the most beautiful avenue in the world,” and 300,000 people stroll up and down it every day to see for themselves, many of them tourists looking to shop. No surprise, then, to find that retailers from Nike to LVMH are willing to pay premium rents for space on the avenue, which runs in a straight line from the Place de la Concorde up to the triumphal arch at Etoile.

Just don’t try to buy anything in the evening. This week a Paris court of appeal ordered the cosmetics chain Sephora to close its flagship store on the avenue at 9 p.m., rather than staying open until midnight during the week and until 1 a.m. on Fridays and Saturdays. It was the latest ruling over store-closing hours that has already forced several other big name retailers in Paris both on and off the avenue to close early, including Apple, France’s Monoprix and the Japanese clothing retailer Uniqlo. Two other stores on the Champs Elysées, Abercrombie and Fitch and perfumer Marionnaud, are also facing legal action.

France has a raft of regulations governing shopping, and its labor unions ensure that they are strictly enforced. As well as strict limits on opening and closing hours, the rules only allow sales during certain periods of the year, price promotions are circumscribed, loss leaders are illegal, store sizes are limited and even the types of shops allowed to open up are regulated. The Swedish clothing retailer H&M fought a long legal battle against the Paris city authorities before it won permission in 2008 to open on the Champs Elysées; City Hall vetoed the plan on the grounds that it was one clothing store too many, and would change the character of the avenue. The issue was finally decided in H&M’s favor by the Conseil d’Etat, the nation’s highest administrative court.

Five years after recession, we still can’t agree on what causes joblessness

Although the Fed announced months ago it is considering pulling back its purchase of assets, unemployment remains historically high. What, if anything, can the government do to get people back to work?

In order to determine the right policy prescription, first we must diagnose what’s causing unemployment. Is the high unemployment due to low demand from the recession, known as cyclical unemployment, or has the world changed and jobs are not coming back, known as structural unemployment? Most likely it’s both. It is impossible to know precisely how much new unemployment is structural and how much is cyclical. This uncertainty has sparked a contentious debate about the nature of unemployment that has been raging since the start of the recession, and lately seems to be hardening into absolutism. The cyclical camp fears that acknowledging an increase in structural unemployment will be used as an excuse to support tightening monetary policy, and gives the government a pass on fixing unemployment. But actually, saying all unemployment is cyclical is what lets the government off too easy. Structural unemployment can be helped with policy, but the solutions take more political will, creativity and leadership. We can lower the structural rate by changing tax incentives to encourage mobility, both job and location, and building a wealth cushion to finance productive job transitions.

If unemployment is cyclical then all the government has to do is reignite demand. For example, if people aren’t buying much then firms don’t produce or sell as many goods, and therefore employ fewer people. Typically to compensate for recessions, monetary policy makers lower interest rates. This encourages people to buy more or firms to expand. That creates more demand and firms hire again. If the Fed creates more inflation, which lowers real wages, then firms can hire more cheaply.

from David Rohde:

Two American families — and two Americas

Over the last 20 years, two middle class American families -- the Stanleys and the Neumanns -- have done all the right things. Milwaukee natives, they worked hard, learned news skills,  and tried to show their children that strivers would be rewarded.

But their lives -- as captured in an extraordinary Frontline documentary -- are an American calamity. Followed by filmmakers for two decades, they move from dead-end job to dead-end job, one of the couples’ divorces, and most of their children spiral downward economically, not up.

The Stanleys and the Neumanns are a microcosm of the middle class that President Barack Obama -- and House Republicans -- will spar over for the remainder of Obama's presidency. And they are part of a global trend. Across industrialized nations, income inequality is growing and people like the Stanleys and Neumanns are the losers.

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