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Global Demand Dearth Costs $1.2 Trillion In Lost Wages, $3.7 Trillion In GDP

Tyler Durden's picture




 

Recently we’ve seen quite a bit of evidence to support the notion that global demand has never recovered from the 2008 crisis and further, that central banks’ collective efforts to create demand via ‘the wealth effect’ and other similarly elusive concepts have failed. This is apparent virtually everywhere you look, from depressed global trade, to a sharply decelerating China, to flatlining US economic output, to a worldwide deflationary supply glut

Needless to say, lackluster global demand has a negative impact on employment opportunities. Employment is of course an important factor in explaining economic growth. When jobs are being created at a healthy clip, there is a multiplicative effect on the borader economy as more jobs equals more spending which in turn boosts profits and drives investment in a virutous economic circle. Of course when the jobs gap grows, this circle reverses itself and becomes a self-feeding downward spiral. By studying the global jobs gap and comparing pre-crisis conditions to post-crisis conditions, The International Labor Organization has been able to quantify the economic impact of subpar global demand and it is astonishing.

 Here's more from the new ILO study:

Nearly eight years have passed since the first signs of crisis emerged in the global economy. Despite encouraging signs of recovery in 2010–11, the more recent period has seen global unemployment march higher, to an estimated 201 million in 2014…

 

At the global level, employment growth has stalled at a rate of around 1.4 per cent per year since 2011. This compares favourably with the crisis period (2008–10) when employment growth averaged just 0.9 per cent, but remains significantly below the 1.7 per cent annual rate achieved between 2000 and 2007…

 

The global jobs gap, which the ILO estimated by comparing pre-crisis trends in employment-to-population ratios (accounting for demographic change) with actual, observed trends since the onset of the crisis, stood at 61 million in 2014. That is, there were 61 million fewer people in employment globally in 2014 than there would have been had pre-crisis employment growth trends continued…

 

 

Looking at trends in employment elasticities over three historical periods (1991 to 1999, 1999 to 2007 and 2007 to 2014), the global employment intensity of growth has not varied significantly, declining slightly from an average of 0.35 during the period from 1991 to 1999 to 0.33 between 1999 and 2007, and then to 0.32 during the crisis and recovery period from 2007 to 2014.3 Thus, over these periods, each percentage point of global GDP growth has been associated with an increase in employment of between 0.32 and 0.35 per cent. Viewed in this context, the weak global employment performance during the post-crisis period has not been due to a marked decline in the employment intensity per se. Rather, weaker employment performance seems to reflect the fact that global economic growth has been far weaker than during the pre-crisis period…

 

A potentially key factor explaining the slow recent growth performance is a shortage in global aggregate demand. In particular, the growing disconnect between labour incomes and productivity may have affected private consumption and global demand, thereby also reducing private investment. A vicious circle may be at work, with lower demand affecting output and employment, thereby further depressing demand.

 

The global jobs gap corresponded to an estimated $1.218 trillion in lost wages around the world. This is equivalent to approximately 1.2 per cent of total annual global output and approximately 2 per cent of total global consumption.

 

What are the effects of this shortfall in wage incomes in terms of global GDP reduction? In the absence of the current global jobs gap, aggregate global wages in 2013 would have been $1.218 trillion above the actual, observed level. Because workers typically spend a significant share of wages earned, there are important multiplier effects to consider when estimating the impact of wages on overall GDP. 

 

As a result of multiplier effects and the virtuous circle of increased wages, higher consumption, increased profits and investment levels resulting from closing the global jobs gap, an estimated $3.7 trillion would be added to global GDP – equivalent to a one-time, 3.6 per cent boost to global output.

*  *  *
In sum, there are 61 million fewer people employed globally than would have been employed under pre-crisis conditions and this is not only a direct result of, but in fact perpetuates, subpar global demand. So to those who steadfastly contend that the increasingly deflationary global economic environment is solely attributable to oversupply, we would encourage you to consult with a few of these 61 million jobless individuals who, were they employed, would have generated $1.2 trillion in wages that would have likely added $3.7 trillion to global GDP. 
 

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Wed, 05/20/2015 - 13:29 | 6114064 InjectTheVenom
InjectTheVenom's picture

well, i'm sure the ultra-secret TPP will solve this mess ... /huge sarc

Wed, 05/20/2015 - 13:54 | 6114143 Oh regional Indian
Oh regional Indian's picture

Call me not a dumb ass.

I wrote this on May 19th 2008:

We always speak of six-sigma as a statistically improbable outcome in any normal distribution.  I firmly believe, we don’t live under the same bell curve that all our assumptions are based on.  We live in a four or even five sigma world from our current core assumption set.  Worthy of pondering.

v Macro economic trends: The US Dollar is under severe, sustained pressure. If true impact of “Real” inflation is accounted for, the canary has already fled the coal mine.

 

v China is staggering under its own curious set of circumstances of a large population set “herded” into rapid “development” mode, much like India.  Most of the “gains” are hype. Credit, cheap and plenty until recently (private equity had moved it into the right hands in preceding years), being the sole driver (flogger?) of growth.

 Rest here:

https://aadivaahan.wordpress.com/2012/01/17/1460-days-ago-ensign-princip...

Wed, 05/20/2015 - 14:49 | 6114496 MonetaryApostate
MonetaryApostate's picture

The Abatement before the excessment...

Wed, 05/20/2015 - 15:27 | 6114497 MonetaryApostate
MonetaryApostate's picture

Dupidity...

Wed, 05/20/2015 - 13:29 | 6114065 0b1knob
0b1knob's picture

Time to break some windows....

Wed, 05/20/2015 - 13:46 | 6114120 ParkAveFlasher
ParkAveFlasher's picture

This just means that central planning is understating its planned obsolescence targets.  That's what Krugman's cat told me.

Wed, 05/20/2015 - 14:05 | 6114209 0b1knob
0b1knob's picture

At least people are still getting paid for participating in staged riots in Ferguson and Baltimore.   Oh wait...

https://ricochet.com/staging-riots/

Stiffed by Soros.   Who could have possibly seen that coming?

Wed, 05/20/2015 - 13:32 | 6114075 Niall Of The Ni...
Niall Of The Nine Hostages's picture

"Lost" my ass. Stolen by banksters, you mean.

Wed, 05/20/2015 - 13:32 | 6114077 MFL8240
MFL8240's picture

The tribe at its best!

Wed, 05/20/2015 - 13:39 | 6114099 Chuck Knoblauch
Chuck Knoblauch's picture

Their fat asses are showing from behind the curtain.

Wed, 05/20/2015 - 13:37 | 6114087 Caveman93
Caveman93's picture

the virtuous circle of increased wages            err deflation…

Wed, 05/20/2015 - 13:38 | 6114094 MFL8240
MFL8240's picture

No wage deflation at the banks and brokerage house though!  And certainy none with the 1% criminal element in tight with this goverment!

Wed, 05/20/2015 - 13:35 | 6114088 KnuckleDragger-X
KnuckleDragger-X's picture

The economists need to drag out their Keynesian computer models to tell us it's actually shiny, we're just looking at things wrong....

Wed, 05/20/2015 - 13:36 | 6114090 Raoul_Luke
Raoul_Luke's picture

Isn't this really a measure of excess capacity thanks to decades of misguided CB policies?  Demand is what it is - there's no "lack of demand" but rather unneeded capacity which must be closed, marked down or re-committed to some other purpose that is in demand.

Wed, 05/20/2015 - 14:20 | 6114312 Totentänzerlied
Totentänzerlied's picture

NO! What are you some kind of pinko finite-planet Luddite* primitivist!

Lack of growth bad. Lack of continuous growth bad. Lack of continuous exponential growth bad. No such thing as too much growth, concept incoherent. Ditto overcapacity. Ditto debt. Ditto swapping cotton paper for plastic toys and calling it an advanced economy.

When a single-digit drop in annual growth is scorned as unacceptable and prompts this level of handwringing outrage, you are definitely living in a Ponzi scheme surreality.

*Luddites in actuality were just proto-socialists
Wed, 05/20/2015 - 13:37 | 6114092 Chuck Knoblauch
Chuck Knoblauch's picture

Stop being so racist!

You're hurting my feelings.

Wed, 05/20/2015 - 13:37 | 6114093 wcvarones
wcvarones's picture

We need broken windows. Or a war or something.

Wed, 05/20/2015 - 14:30 | 6114377 crisrose
crisrose's picture

61 million of us need to be 'removed' from the equation.  War it will be.

Wed, 05/20/2015 - 13:38 | 6114095 rsnoble
rsnoble's picture

QE 4-infinity will solve all of this. LOL.

Wed, 05/20/2015 - 13:38 | 6114097 FreeShitter
FreeShitter's picture

Right into the pockets of the rothchilds.

Wed, 05/20/2015 - 13:49 | 6114128 Miffed Microbio...
Miffed Microbiologist's picture

They win either way. When it crashes, they pick it up for cheap. We just collect our measly $200 as we traverse the board and pray we can hop over Boardwalk and Park Place with 4 hotels on each.

Miffed

Wed, 05/20/2015 - 13:46 | 6114119 Monetas
Monetas's picture

"On Demand Dearth".... congratulations .... you just nailed Socialism !

Wed, 05/20/2015 - 13:50 | 6114132 Bell's 2 hearted
Bell's 2 hearted's picture

"we would encourage you to consult with a few of these 61 million jobless individuals"

 

i tried ... had a meeting scheduled in a Twin Peaks parking lot ... uh, er, something came up ... 

Wed, 05/20/2015 - 13:57 | 6114146 SillyWabbits
SillyWabbits's picture

When demand is “pulled forward”, that is a very good thing.

When you “pull forward” a board, it leaves an empty space behind it, equal to the amount of forward pull.

That should only happen with solid objects …… not theories.

In theory, when you “pull forward”, something else fall in place.

Oh, like a recession!

Problem solved.

Wed, 05/20/2015 - 14:03 | 6114198 WTFUD
WTFUD's picture

If everyone bought an iWatch on tick that would help. Drowning in a sea of piss MF's.

Wed, 05/20/2015 - 14:07 | 6114229 Condor96
Wed, 05/20/2015 - 14:08 | 6114240 Bastiat
Bastiat's picture

Total employment is not meaningful.  Only "unemployment," which means what they want it to, means anything. 

The solution here is to key the cars and break the windows of those who can afford repairs (or have insurance) and thus increase demand.  Alternatively they could be compelled to buy new igadgets and even bigger 3D, cruved screen TVs and home appliances at least once or twice a year.  How to compel them?  Central planning imposed planned obsolescense!  All toys and appliance must be built to expire or fail in a shortened time frame.  Problem solved!  How'd I do Dr. Krugman?

 

Wed, 05/20/2015 - 14:23 | 6114329 appocean
appocean's picture

the more the government takes or requires... tke less aggregate demand exists in the economy... i would like to see the negative money multiplier effect of this.

Somebody go win a Nobel...lol.

Wed, 05/20/2015 - 15:36 | 6114677 scatha
scatha's picture

Well. Tell me something I don’t know. Missing income that came from missing jobs.

What so-called economists are trying hard to overlook is severe “real” inflation of commodities required for basic human subsistence such as food, transportation, education, healthcare, home rent or lease, etc., not as much due to nominal prices increase but due to massive aggregated income collapse of working people all over the world.

The so-called economists also trying hard to overlook severe deflation and depreciation of assets own by majority of working people, such as labor power, skills and education, conservative retirement assets, savings, value of work benefits, value of social programs, consumer services, land lease value, furniture, electronics, used cars mobile, phones and gadgets, computers and software, used clothes, memorabilia, low brow art and antics, etc. not as much due to loss of value of these assets but because of massive aggregated “real” income collapse due to “real” inflation and over-leverage affecting working people all over the world. In other words money circulation in second tier economy of 99% almost came to standstill. Almost all income was distributed up to 1% or rather 0.1%.

This is double whammy of “real” income and asset deflation and hence working people “net worth” spiraled down, accelerating toward collapse. The process of pauperization of western societies not only affected middle class but working class people when it initiated in US over three decades ago.

Very few emphasize enough that core of the issue is utter collapse of demand (due to collapse of income and value of assets) for anything throughout the world due to massive over-leveraging of business of all sizes and households often in US dollars/Euro/Yen not in domestic currencies leaving CBs helpless.

People simply paying off their loans and obligations and have nothing left for consumption or investment. This catastrophic collapse of world demand (pointed out by Russia and China) for most goods including food and oil causes, continuing for almost a decade now, dramatic flight of capital resulting in recalling massive amounts of speculative capital back to US. Japan and Europe refused to accept returning yen and euro assets desperately seeking shelter in panic. They are trying to accomplish it via QEs and NegIRP. They are trying to erect barrier to capital inflows in order to avoid surging of their currencies and killing their economies, meaning reminder of industries capable to export since domestic income and demand is dead.

This leaves, commodity driven, emerging markets in conundrum. Their currency is weak vs. dollar but they do not trade that much with US to take any significant advantage (US is a significant exporter of commodities itself), but if currency of a country to which they sell is weaker than their currency vs. dollar, their sales collapse. And that’s really the case throughout the world. So they fight a currency war indirectly among themselves, through FX dollar, by collapsing their CB interest rates while facing collapse of their own currencies vs. dollar due to capital flight. All that against common wisdom, which would suggest rate hikes instead.

That’s why while 75% of world currencies lost to dollar, 75% of all worlds CBs lowered interest rate within in last 12 months and they keep lowering to out-export each other giving up on domestic demand and growth or even preventing any significant growth in first place to avoid their currency surge. Even China accepts much lower growth, to talk yuan down, and Russia lowered the interest rates twice while was under FX attack and massive capital outflows, and was happy with rubel about half of its value 12 months ago. And with Rubel gains this year so far, there is talk of further easing to keep it correlated with price of oil at 60 Rb level.

More recently Central Bank of Vietnam and RBA were other CBs to devalue their currencies, the only remedy possible for tens of central banks in the world, which already drop their interest rates within last 12 months in order to prevent further collapse of their export driven economies. More to follow.

To defend themselves many countries, also in the west, abandon FX market monopoly and set up huge currency swap lines, or join newly created independent of Washington and dollar, international financial institutions to limit this spiral of death. Ironically swap lines actually boosts dollar since in addition to non-US$ denominated capital flight into US$ assets, there is shortage of FX dollar funding since nobody needs to sell dollars to buy other currencies if they have swap lines, with “fixed” exchange rate, open. In strange ways globalization makes de-dollarization inevitable one way or another. Dollar strength is in part result of dollar shortage at FX but not because everybody wants dollars but because nobody needs it any more as intermediary in FX exchange because it is overpriced to its value. It is classical FX market failure, similar to that of 2008 when FED open massive swap lines with worlds CBs to squash dramatic raise in dollar. 

 

See post and my comment at:

http://www.zerohedge.com/news/2015-03-08/global-dollar-funding-shortage-...

But why? What’s going on?

The general answer is that national economies and sovereign states (with few exception) are illusions. Their domestic markets are illusions, their economic and social policies are illusions maintained for domestic political audience. Global integration has been accomplished. Only global economy exists now. And unified global capital rules the world.

Production is distributed so much all over the world that no country controls production of nothing but some small subsystem, one of thousands parts from all over the world assembled in final product with no true ownership and no country of production. Just few multinationals are richer than GDP of at least bottom 120 countries in the world and have no national allegiance of any kind.

This serves purpose of practically eliminating any political leverage that country may have over world production. But now with ZIRP nobody has any leverage over global elites who print their profits. In other words countries (with few partial exceptions) cannot reestablish control over their economies and social policies by imposing tariffs, trade barriers, capital, labor controls, specific social, economic, military, foreign policies or whatever in any way that would not result in collapse of their “hollow” economies and painful political turmoil at least during transition.

Even countries at war cannot stop cooperating economically, close borders or limit civilian trade, thing unheard off 50 years ago. The unimpeded and even increasing cross border trade and people movement between Russia and Ukraine continues, Poroshenko candy factories in Russia are making profit while they are on war footing. US increased exports to Russia in last 12 months while spewing apocalyptic rhetoric of WWIII. Germany owned factories in Russia dramatically increased investment of their profits in Russia to avoid losses of manipulated currency play. And it paid off handsomely so far. These are examples of global integration paralyzing the social or international policies.

This has most corruptive influence of national politics. That’s why all politicians that promised economic growth, betrayed the people as soon as they got in power since they knew the only way to the growth in global economy is to export if not they have to cut expenses, collapsing governmental and private social programs and dismantling democratic institutions that still left, to pretend to pay un-payable debt.

The fallacy of debt based global economic system is only too apparent.

There is no way out of world pauperization and death spiral except to break through globalism in very painful ways. Unfortunately, people rather believe in illusion than face pain of reality and turn around to stop this genocidal system of alien class of global oligarchy directed towards human extermination, all other priorities rescinded.

For brief discussion of true inflation/deflation that affects us as well as so-called  “free” markets, benchmarks and indices I suggest fresh look at financial propaganda of deceit at:

https://contrarianopinion.wordpress.com/2015/01/29/invisible-hand-and-other-paranoid-delusions/

For those believing that economy is rational science and economic conditions are result of laws or rules of economy I suggest interesting read on wage economy at:

https://contrarianopinion.wordpress.com/2015/01/28/slaves-of-wage/ 

For some more interesting background on Japan political and economic situation in historical context:

https://contrarianopinion.wordpress.com/2015/02/20/japan-miracle-that-wasnt/

Wed, 05/20/2015 - 17:04 | 6114929 Youri Carma
Youri Carma's picture

Tyler Durden hits the nail on the head here:

"A  key factor explaining the slow recent growth performance is a shortage in global aggregate demand.

In particular, the growing disconnect between labour incomes and productivity has affected private consumption and global demand, thereby also reducing private investment.

A vicious circle is at work, with lower demand affecting output and employment, thereby further depressing demand."

Wed, 05/20/2015 - 18:16 | 6115212 fremannx
fremannx's picture

The Dow Jone Industrials are indicating a strong reversal of the stock markets to begin any day now. Supporting evidence is the Dow Theory of non-confirmation which is indicated by the divergece between the Dow Industrials and the transports. Collapse is imminent.

The Industrials...

http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...

 

Dow Theory Non-confirmation

http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...

Do NOT follow this link or you will be banned from the site!