How are labor markets holding up?

Posted by: Paul Donovan

22 Nov 2019
  • The story of the global slowdown this year was simple. Taxes on trade hurt exports. Uncertainty about trade hurt investment. This is particularly true for large companies, with complicated global supply chains. Investment in the OECD slowed from around 4% growth in early 2018, to around 1% growth today.
  • Despite this, global labor markets stayed strong. Employment rose in most major economies. The increases were quite big. Can this last?
  • There are two supports for labor markets. First, uncertainty about global trade hurts large companies. Small and medium sized firms are hurt a lot less, if at all. Small and medium sized firms are about 70% of private sector employment in the US and Europe.
  • Second, companies are not cutting investment because they fear future demand. Large companies are delaying investment because they fear the next tweet on the Trump Twitter Feed. If the problem is uncertainty and not weak demand, a company may grow by hiring more labor rather than investing. If expanding is a mistake, hiring is easier to reverse than investment.
  • This means that the slowdown in investment may be less of a threat to global labor markets than normal. Indeed, it may be helping keep employment strong.

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