Dr. Susmit Kumar, Ph.D.

Recently in India, some economists have argued that as India has been experiencing nearly 7% GDP growth rate, there has to be corresponding job growth also. As per these economists, proper surveys are needed to find the jobs being created due to 7% GDP growth rate. We will see in this article that despite having 2% to 3% GDP growth rate in last nearly two decades (except the few years of recession), the US kept losing a significant amount of good paying jobs year after year (Chart 1), with job growth coming from mostly low-wage industries. As India is following the US economic policies, there is no wonder that most of the job growth in India may be coming from low-wage industries, which are not being considered in the existing surveys. In this regard, it should be noted that India’s trade deficit with China (Chart 2) is following the same trend as the US trade deficit with China (Chart 3). Due to over-valued dollar, even a low-wage worker in US has living standard of a middle class worker of India (please see my article: Coal India - Niti Aayog Needs to Treat India as a Country, Not as a Firm). But once a high-wage or middle-wage worker in India loses his job and gets a low-wage job, he will be nowhere.

In the three years of the Modi administration, the GDP growth rate is spectacular but it is jobless growth. Hence the Modi administration needs to be very cautious in Niti Aayog driven privatization policy in every sphere because the same has led to the precipitous decline in the US good-paying job since 2000 as shown in Chart 1. A private firm works for the shareholders. Stock market forces these firms to show profit every quarter. Hence CEOs have to come up ways to reduce expenditure and increase income. They squeeze as much money from the firm (like keeping it lean and thin, i.e. having as few employees as possible) as possible for the shareholders. They lay off employees even if the firm has profit year after year. In worst case, they just shut down the firm and imports from overseas, mainly China, as they can make more money by manufacturing overseas. This may be good for a firm, but not good for a country. 

Last couple of years, India had about $130 billion trade deficit a year which means that Indian economy is losing about $260 billion (considering the loss of associated jobs as explained in my article The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy), nearly 13% of $2 trillion GDP, of economic activity (as well as millions of jobs associated with this loss) each year.

In the last three decades, the US economy witnessed three recessions as shown in Chart 4 – (i) during the early 1990s, (ii) during the early 2000s, and (iii) the 2008 Great Recession. As shown in Chart 5, the unemployment rate went up at the onset of all three recessions and came down after a year or two. During the non-recession years, the unemployment rate was between 4% to 6%, and the GDP growth rate was in 2% to 3% (U.S. GDP by Year Compared to Recessions and Events, Kimberly Amadeo, April 19, 2017). Hence during the non-recession years, a significant number of jobs was created.

The United States lost five million manufacturing (good paying) jobs between January 2000 and December 2014. Between 2000 and 2007, growing trade deficits in manufactured goods led to the loss of 3.6 million manufacturing jobs in that period. Between 2007 and 2009, the massive collapse in overall U.S. output hit manufacturing particularly hard (real manufacturing output fell 10.3 percent between 2007 and 2009). This collapse was followed by the slowest recovery in domestic manufacturing output in more than 60 years. Reasonably strong GDP growth over the past five years has not been sufficient to counter these trends; only about 900,000 of the 2.3 million manufacturing jobs lost during the Great Recession have been recovered (Manufacturing Job Loss - Trade, Not Productivity, Is the Culprit, Robert E. Scott, August 11, 2015, Economic Policy Institute, US).

During the recent three decades, the US has lost a massive number of good-paying jobs due to:

(i)     a decrease of nearly 35% (from 14.2% in 2000 to 9.3% in 2008) of the world export market in just eight years (thereafter it is hovering around 9%), as shown in Table 1, and

(ii)   a record increase in US trade deficits since the mid-1990s mostly due to its disproportionate imports of goods for domestic consumption, as shown in Chart 6.

As The New York Times reported (Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014), based on a study, the deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery in the US has been in low-wage work, at places like strip malls and fast-food restaurants (in India that would be in kirana stores and dhabas). Job losses and gains have been skewed. Higher-wage industries — like accounting and legal work — shed 3.6 million positions during the recession and have added only 2.6 million positions during the recovery. But lower-wage industries lost two million jobs, then added 3.8 million. There was a drastic reduction in mid-wage jobs also. As per the same study (Tracking the Low-wage Recovery: Industry Employment & Wages, National Employment Law Project, April 27, 2014),

·         Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.

·         Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.

·         Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

(Source: Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014)

Chart 1.

(source: http://money.cnn.com/2016/03/29/news/economy/us-manufacturing-jobs/index.html)

 

 

Chart 2. India’s Trade Deficit with China (in 2016, it was $53 billion which is not in chart)

(Source: http://www.dbs.com/in/personal/aics/templatedata/article/generic/data/en/GR/082015/150814_economics_weak_yuan_to_widen_india_china_trade_deficit.xml)

 

Chart 3. US Trade Deficit with China

 

Chart 4. US GDP Growth Rate (1990-2017)

 

 

Chart 5. US Unemployment Rate (1990-2017)

 

 Chart 6. US Monthly Balance of Trade (1975-2017)

 

Table 1 (Data source: World Economic Outlook which is published twice a year by IMF)

 

Additional information