Unemployment is viewed as a serious problem in many industrial nations, but the reasons for it are not well understood. Among MGI’s findings across seven industries is that Japan and the US have lower rates of unemploymen than European countries because they have created jobs in the market part of the economy. Differences in employment performance ultimately stem from differences in the rates at which industrial economies evolve.
In most of the countries studied, there were employment declines in three manufacturing industries. In market services, the general evidence points to increasing employment. The sizes of the increases in the service sector employment vary widely, with the US having the largest increase overall.
Objectives and Approach
There is no shortage of reports about employment but they all tend to focus on the issue from a macroeconomic perspective. MGI’s work is based on the premise that understanding the causes of employment behavior at the industry level would allow us to determine the relative importance of particular labor, product, and capital market factors.
Four main factors effect the evolution of economies: productivity growth rates, innovation, trade and foreign direct investment, and consumption and investment patterns. MGI’s fundamental hypothesis is that if there are barriers to the evolution of economies that prevent the transfer of resources into expanding firms and industries, then the result can be a slowing of overall job growth.
Intense competition in the 1980s increased cost pressures and triggered restructuring in automotive industries worldwide. Employment fared best in Japan where demand growth in the local market was combined with cost-driven improvements in trade performance.
Despite being more innovative, the US computer industry did not create as many jobs as Japan. Earlier structural changes in the American industry explain much of this paradox.
As in most mature manufacturing sectors, the long-term employment trend in the furniture industry has been and will be downward. Innovation helped to slow this trend in the US, Italy, and Germany.
Product, labor, and capital market barriers effected employment through changes in competitive intensity. The US, France, and Spain all experienced employment declines in traditional banking products as competitive intensity increased in the 1980s.
Retail is experiencing a structural shift as old formats disappear and new innovative ones offer more value to the customer and operate with greater efficiency. Rigidities in the product and labor markets retarded the emergence of high-value formats in France, Germany, and Japan, which in turn has led to lower overall employment.
In the high visibility film/TV/video sector, innovation is the driving force in both the creation and destruction of jobs. Slower employment growth in Europe can be explained by regulations that have inhibited the emergence of new segments.
The myriad rules and regulations governing the construction sector in Europe and Japan provide an excellent example of how product market restrictions stifle output. Faster output growth – together with slower gains in productivity – resulted in better employment performance for the US.
Policymakers have numerous opportunities to encourage job creation by deregulating, particularly in the product market, which is the area of greatest opportunity as it could lead to job creation across the wage spectrum.