Labor Market Summary

Steven Roach of Morgan Stanley has this summary of the labor market.

We hear repeatedly that the disconnect is all about lags or productivity. I don’t buy it. Instead, I believe that a new force has come into play that is now altering the fundamental relationship between domestic demand and domestic employment in the United States. I call it the global labor arbitrage — the IT-enabled efficiency tactics that allow US companies to substitute high-wage domestic workers with like-quality low-wage foreign workers in goods producing and services-providing functions, alike. The lack of pricing leverage in today’s climate makes this arbitrage an increasingly urgent competitive imperative. In my view, the global labor arbitrage is likely to be an enduring feature of the macro climate — raising the distinct possibility that subpar job creation in the US could well be here to stay for the foreseeable future.