Chief Economist and professor at ESEG - Faculdade do Grupo Etapa, Brasilprev, Brazil
Short and Long Term: Two Discussions about the Current Labor Market
The global inflationary process seen between 2021 and 2023 has different causes, which include both supply restrictions and upward demand pressures, in a context of unprecedented economic stimuli that followed the pandemic. During the period, the transmission of various supply shocks to prices was enhanced by the reduced degree of labor idleness. This point has been highlighted in the rhetoric of central banks across the planet. At the same time that there is conviction about the role of imbalances between labor supply and demand in the continuity of global disinflation, there are uncertainties about structural changes that could generate significant impacts on labor relations in the coming years. In this brief article, we will provide some reflections on these topics related to the job market.
In general, we have observed a relevant reduction in the unemployment rate in developed and emerging economies in the last three years. It is true that the most recent data points to signs of stabilization of the indicator and, in some cases, some moderate increase. However, we are still talking, in several regions, about unemployment rates below what is considered an equilibrium level or, in the more technical language of economists, as NAIRU (Non-Accelerating Inflation Rate of Unemployment). Although we can discuss how accurate the estimates for this equilibrium level are, we must recognize that the unemployment rate is very low by historical standards in several countries, with consequences for company costs.
Source: EIU
The evolution of the job market has not only generated cyclical discussions. Part of the discussion is associated with possible structural changes in the global economy that have occurred in recent years and are still ongoing. Many of these possible changes are not yet fully mapped. Themes previously existing in long-term discussions, such as the smaller contribution of demography to economic growth, are added to changes that have not yet been mapped regarding new work relationships, not necessarily formal, that emerged with the pandemic. More recent elements, such as the popularization of the use of Artificial Intelligence (AI), the energy transition and the increase in commercial and technological protectionism are also increasingly present in reflections on the future of the job market. We cannot rule out that lower levels of unemployment are associated, even if partially, with these structural changes and, in this sense, perhaps they should be interpreted differently by economic authorities.
From an economic policy point of view, ongoing changes in the labor market tend to generate increasingly greater challenges in the long term, increasing uncertainty about already consolidated economic relations. One of these relationships is between inflation and the labor market, in what is called the Phillips Curve. In short, for a given level of expectations, the hotter the job market is, the higher inflation tends to be and vice versa. Naturally, productivity gains, potentially derived from these ongoing transformations, do not tend to be neutral.
Important economic debate forums, such as the World Economic Forum (Davos) and the International Monetary Fund (IMF) meetings, have given increasing importance to these possible structural changes, in the economy as a whole and in the job market. Central bankers have increasingly incorporated these discussions into their communication with the general public. In the microeconomic environment of companies, we also observe increasingly present reflections.
Right now, there are more questions than answers. We cannot say, with a reasonable degree of conviction, what the future job market will be and what its impacts will be on the countries' economies. In any case, we can argue that the structural transformations underway may present adverse aspects, especially in nations with a higher level of social inequality and poorer educational quality. We may only have the answers in a few decades, even though many of the transformations are already beginning to become visible.
The author thanks Guilherme Renato Rossler Zanin for his comments.
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