Digging Into World Bank’s “Job Crisis”: Consumer Spending Under Threat

Digging Into World Bank’s “Job Crisis”: Consumer Spending Under Threat

Despite the gradually growing economy, unemployment and especially underemployment remain high. This has led many to wonder if there are deeper issues within the labor market. Now, the World Bank has affirmed these lingering fears by publishing a report warning of an on-going job crisis that will constrain economic growth.

Simply put, there are enough job opportunities out there to meet demand. At the same time, with demand for employment opportunities outstripping the number of available jobs, wages will remain suppressed except for those with the highest and most in-demand skills.

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Emerging Markets Fairing Better

The World Bank has concluded that emerging markets are fairing better than their Western counter parts. In a world defined by globalization, and to a lesser extent outsourcing, it should come as no surprise that emerging markets are performing better, but the World Bank warns that everything might not be so rosy for developing markets either.

Emerging markets Consumer spending

The World Bank argues that at least 600 million jobs will need to be created just to maintain current employment levels. Yet where and how these 600 million jobs will be created remains unknown. Perhaps most tellingly, the World Bank offers no solutions to the looming job crisis, merely noting that it is a serious situation.

Consumer spending: Drive To Cut Costs Creating Downward Spiral?

As companies look to cut costs while competing within highly competitive markets, outsourcing has been among the chief methods to outsource labor. Simply put, it’s cheaper to pay people living and working overseas.

Economic growth

Problem is, high paying jobs aren’t being created rapidly enough in developed markets. Many of those jobs that are being created are low-wage and part-time. In the long-run this could constrain consumer spending simply because people won’t have as much money to spend.

And what makes up the vast majority of economic activity in countries like the United States? Consumer spending, of course. In fact consumer spending contributes around 70 percent of the economy for most advanced countries.

This consumer spending drives demand for a wide range of products and services. From consumer goods imported from China and other emerging markets, to food orders at local restaurants, consumer spending is the gasoline in the economic engine. And what happens when an engine runs out of gasoline? The engine itself stalls.

If the World Bank’s analysis is correct, the world may be slowly gravitating towards a stalled economic engine. Further, as fewer people are gainfully employed, the risk of social unrest increases.


Social Unrest Could Destabilize Markets

As unemployment increases, so to does the risk of social unrest. The Great Recession saw the emergence of both the Tea Party movement, and also the Occupy Wall Street movement. OWS has largely faded away, but for a time it caused considerable disruptions. Meanwhile, the Tea Party continues to make itself felt in American politics.

These social movements, however, are minor in comparison to the Arab Spring movements in 2010 and 2011, which saw several governments challenged and a few toppled. High unemployment, especially among the youth, was among the biggest contributors and made conditions ripe for unrest.

Simply put, when people don’t have a job to go to, they have a lot of time on their hand. And when they have dim future prospects, they have plenty of incentives to push for change. If unemployment remains high over the long term, and especially if conditions worsen, the risk of social instability will increase.

This could drag down markets, cause political upheaval, and could otherwise destabilize society. If the World Bank’s report is correct, we could be in for some turbulent times ahead.

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