The following article from Reuters, which was posted on pen-l, speaks to
some of the issues raised by Andrew K and Massimo and others who have
participated in this thread. Putting aside the way Morgan writes
"economists say" as if all economists agreed on everything (don't you hate
that?), what do you think of the following scenario? /In solidarity, Jerry
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Economists See Buoyant Labor Market Nearing Peak
10:44 p.m. Nov 23, 1997 Eastern
By David Morgan
PHILADELPHIA (Reuters) - A new surge in corporate layoffs could be the
beginning of the end for the best labor
market many American workers have seen in decades, economists and labor
experts say.
With unemployment at a 24-year low, even unskilled laborers are having an
easier time landing jobs. Businesses
have come to fear losing skilled employees to competitors, and there have
been signs in recent months of a gain in
wages, giving many workers their first real pay raise since the economic
expansion got under way more than six
years ago.
But economists say the prevailing conditions of buoyant growth, falling
unemployment and higher wages won't last
long.
``Good thing, too,'' remarked Marvin Kosters, resident scholar at the
American Enterprise Institute in Washington.
``We are on an unsustainable path and need to cut back. We either need to
import more workers -- get more
immigrants -- or cut back on the additional people we put to work every
month.''
Economists, employers, and policy-makers, including Federal Reserve Chairman
Alan Greenspan, believe that
having ever-increasing numbers of people not only working but also drawing
fatter paychecks can now lead only to
inflation.
``We have to slow,'' said Donald Ratajczak, an economist at Georgia State
University. ``There's not a lot (of growth)
left out there to lower unemployment rates, certainly not enough to do it
without generating inflation.''
Luckily for them, help may be on the way from Asia, where economic
sluggishness has become widespread.
Merrill Lynch economist Bruce Steinberg predicts that Asia will tip the rest
of the world into an economic slowdown in
1998, leaving U.S. growth at an annual rate of 2.5 percent.
The U.S. economy, which has created 11 million jobs in only four years, is
currently expanding at a rate of 3.5
percent.
Economists say Asia's troubles already have forced U.S. companies to get
leaner and meaner. An inevitable result
has been an upswing in corporate layoffs. Chicago-based Challenger, Gray &
Christmas reports that announced job
cuts for the third quarter were at their highest level since 1994.
``And it's been a very heavy November. Lately, they've been coming in rapid
fire,'' said John Challenger, the
outplacement firm's executive vice president.
The biggest cuts have been announced by Eastman Kodak, which plans to
eliminate 10,000 jobs. Published reports
say General Motors Corp. also will shed 42,000 jobs as the giant automaker
streamlines key factories and unloads
others.
Asia's economic woes pose a double threat. On the one hand, slower Asian
growth reduces demand for U.S. exports.
There could be a stiffer penalty if cash-strapped Asian manufacturers seek
to off-load goods on the U.S. market at
cut-rate prices.
Most of the trouble has yet to reach U.S. shores. But on Friday South Korea,
once a glittering economic success,
said it needed help from the International Monetary Fund.
Economists say more layoffs are likely as corporations find their bottom
lines squeezed between rising labor costs,
slowing demand and lower prices.
Even if the economy does not slow of its own accord, economists expect the
Federal Reserve to slow growth by
raising interest rates early next year.
``A profit squeeze is quite possible,'' said Ratajczak. ''You could have all
of the problems breaking out -- that
(companies) won't be able to raise prices because of competition, that their
labor costs are going up and that they
may have to pay a little bit more for financing.''
Ratajczak foresees little immediate pain, predicting the U.S. unemployment
rate will not rise significantly above 5
percent before 1999. It currently stands at 4.7 percent.
Merrill's Steinberg says slower growth would be good for U.S. markets and
could lead to even lower interest rates.
But some warn that impaired profits could start the stock market on the
slippery slope to a 30-50 percent decline.
Others fear greater dangers.
``The economy is much more fragile than many people think,'' said Thomas
Palley, an economist with the AFL-CIO.
``These (Asian) countries are very, very big exporters. And if they start to
lower their prices, there's a knock-on effect
here at home where companies have to start lowering prices. You get a price
deflation going, which would be very
unsettling.''
Copyright 1997 Reuters Limited.
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