As I wrapped up a chapter on labor markets today, a student asked what the labor market in China was like. I couldn't give her precise numbers regarding the unemployment rate, so had to look back on some work that students of mine did last semester when they wrote about the macroeconomic experiences of different countries. Here is a graph of the official rate of unemployment in China:
The rate above is based on the number of job seekers registering as
unemployed with the government. This is in contrast to the
unemployment numbers we hear for the US, which are based on household
surveys. Some economists have used surveys to determine the "real"
unemployment rate in China. A graph from one of these papers shows much higher rates
of unemployment than the official statistics let on:
What's interesting is not just the difference between the two, but what the future holds for China. US imports were way down in 2008 and this doesn't bode well for the employment situation in China-- and we're already hearing about rising unemployment.
A first order effect of the recession is that demand for China's products is falling. The second order effect is that the world is going to become more protectionist. We've already seen the "buy American" clause in the "stimulus" plan. Canada has responded with a similar provision and Europe has increased export subsidies.
As the world spirals down, countries are cutting off trade flows. Really bad news for export-reliant countries like China where exports have made up about 20% of their recent high GDP growth. Korea (another export heavy economy) actually saw GDP fall 5.6% last quarter- that's not an annualized rate! Singapore saw a similar decline.
Unfortunately, the unemployment rate in China is going to climb still higher. While we don't know what to do about fixing the first order effects (although we *think* spending a bunch of money remodeling schools and filling in potholes might help), those second order effects could be avoided-- another sad case of public choice being a great way to understand political decisions.
What's interesting is not just the difference between the two, but what the future holds for China. US imports were way down in 2008 and this doesn't bode well for the employment situation in China-- and we're already hearing about rising unemployment.
A first order effect of the recession is that demand for China's products is falling. The second order effect is that the world is going to become more protectionist. We've already seen the "buy American" clause in the "stimulus" plan. Canada has responded with a similar provision and Europe has increased export subsidies.
As the world spirals down, countries are cutting off trade flows. Really bad news for export-reliant countries like China where exports have made up about 20% of their recent high GDP growth. Korea (another export heavy economy) actually saw GDP fall 5.6% last quarter- that's not an annualized rate! Singapore saw a similar decline.
Unfortunately, the unemployment rate in China is going to climb still higher. While we don't know what to do about fixing the first order effects (although we *think* spending a bunch of money remodeling schools and filling in potholes might help), those second order effects could be avoided-- another sad case of public choice being a great way to understand political decisions.
Is there an economist in the room?
It seems that lawyers, even the ones who became politicians or professors, could use some help in understanding the real world effects of legislation when it is aimed at economic issues. The debate at http://volokh.com/posts/1234456329.shtml demonstrates the state of confusion when it comes to "Buy American" legislation, although to be fair I thought DiverDan's comment and some others were good. I myself as an aspiring lawyer (1L UGA) will admit that I find these issues difficult, as one law school joke goes "I came here because I was told there would be no math." Maybe you economists can clear some things up for the lawyers, and the politicians and professors.
Interesting comments over at the Volokh Conspiracy.
I guess my point is that I don't think politicians are getting a bunch of confusing advice from economists. The voice is pretty clear that free trade is good (http://www.npr.org/templates/story/story.php?storyId=6575443).
The problem is that the electoral calculus works against economic common sense. You have a small group of people to whom "buy American" means a lot. The benefits are clear to them and so they can spend money lobbying. The costs fall on all of us and are tiny- even if costs were 25% higher (to pull a number from the Volokh post) on $500 billion of spending, that'd only be about $400 per person. If there are half a million employed because of the spending, thats $250,000 per worker. The math isn't that hard.