For all its tortured economic history since 1989, Japan has never really had an unemployment problem. Going by its unemployment rate alone, conditions don’t ever appear to be all that out of line. At its worst, in both the dot-com recession as well as Japan’s experience during the Great “Recession”, the highest it ever got was 5.5%. That’s more than it ever was during the country’s immediate postwar history, but nothing that betrays permanent depression.
But a comprehensive review of its labor market story gives us an entirely different sense than what comes out of the unemployment rate. Though many Economists claim that Japan’s are demographic problems, there is no doubt that those followed its monetary disintegration. If the Japanese are intent on committing demographic suicide, there’s a macroeconomic reason behind it, not the other way around.
It’s a familiar pattern molded to Japanese circumstances. Japan’s economy was rocked by monetary insanity in the eighties, and then mishandled along the same lines for nearly the three decades thereafter. The Asian flu was for Japan and the Japanese like 2011 was for much of the rest of the world following 2008; it confirmed the economic change as permanent largely because it proved the simple catchphrase I use often; they really don’t know what they are doing. The “they” is monetary policymakers, those who have given themselves the responsibilities of economic stewardship but also the ability to judge their own performance in that task.
Thus, despite the obviousness of what happened to Japan’s labor market, the Bank of Japan is still held in high esteem around the world. The economy didn’t suddenly forget how to grow, it has been mismanaged from the very start and the Japanese are paying an insanely high price for putting up with it.
In early 2018, Japan’s unemployment rate fell to a low level not seen since the immediate aftermath of the big bubble. And it means nothing. Just look at the charts above, the insignificance of that “achievement” should be perfectly clear in all dimensions (time being the costliest of them all).
Here in the United States, the Bureau of Labor Statistics (BLS) sends us another farce. These payroll Friday’s were always a little overwrought, but in the past four years they have become ridiculous spectacles. It’s not the fault of the BLS (apart from questions about their estimates for 2014), mainly it is the same issue as in Japan. What should be obvious is misinterpreted sometimes intentionally.
According to the latest figures, the unemployment rate in the US is now down to 3.9%. The reason it crossed the 4% line in April was perfect. Not in the manner of what a 3.9% unemployment should indicate, rather it was all the wrong things that expose the unemployment rate for what it is – meaningless.
The primary reason for its drop was another monthly subtraction from the labor force. Down for a second month in a row, in April by 236k, the HH Survey managed to increase by all of 3k. The result: a perfectly representative decline to 3.9%.
There are those who will claim that’s just the labor shortage getting worse. Companies are, according to much of the mainstream media, often desperate for workers. At some point, if the shortage was so bad and so obdurate as to be beyond all capability to correct, then we might expect the pace of hiring to slow. The labor force would languish behind, which many Economists are desperate to attribute to opioids and retirees.
The problem with that line of thinking is March 2017. For fourteen months now, the unemployment rate has been below even the much-reduced Federal Reserve lower bound for the economy’s central tendency at full employment. That’s fourteen months where labor pressures are building at this extreme. For a labor shortage of that degree (never mind it’s been talked about constantly for three years), a year and two months is an eternity. Even if businesses can’t find enough workers, they would paying through the nose for ones they can.
And yet, no wage acceleration can be found anywhere. As detailed yesterday, we find more often than not the opposite indication in some of the more comprehensive data. Inside the payroll report, average weekly earnings continue to be depressed just as they have since 2008. The chart above actually overstates the condition of the labor market to a considerable extent, which explains the chart below.
There is actually very little employment growth. That’s not what you hear in the media, the constant touting of monthly 200k gains or 2mm jobs per year as if either are good numbers. They aren’t, and in fact are very far from being good. Last year was one of the worst years in the US labor market in some time. That plus continuously depressed wage/income growth (why would businesses actually pay more, the stupidity of the labor shortage narrative aside?), there is no reason or incentive for the labor force to expand.
We are repeating Japan’s experience in the nineties.
The unemployment rate, therefore, has problems not just in its denominator (participation) but also its numerator. While labor force growth is practically nothing, employment growth is only a little more than nothing. Historically speaking, like Japan the US labor market came to a screeching halt and never recovered. The unemployment rate descends only because that small, relatively minor improvement over the bottom.
Neither are actually keeping up with population growth, which itself has slowed. The result is that a 3.9% unemployment rate is nothing like the one from the year 2000. It is, however, pretty comparable to the low Japanese unemployment rate in how little it describes of the labor market.
Japanification was never about zombie banks, it was about overactive central banks who are terrific at creating distractions and even better at selling them. Used car salesmen should spend some time training at one of the twelve branches of the Federal Reserve.
The real problem is that there is no one and nothing to hold them to account. It’s almost paradoxical at this point; the lower the unemployment rate goes the worse it is in the economy yet the more central bankers and Economists (redundant) can say it isn’t and be taken seriously.
We can only hope that at some point people start to realize the absurdity of these payroll reports. It’s pretty inconsistent this 3.9%, but it’s still being accepted on its face. What’s the threshold for when it goes too low to ignore? 3%? 0% If Japan is anything to go by, there just might not be a boundary for sanity.