Are the elites unaware that there is a problem? 05 September 201-83 An increasingly widespread theory is that the "elites" do not see the problems the population in OECD countries are facing: stagnation in purchasing power, growing inequalities, unemployment among the least skilled, exclusion, etc. This accusation is not very accurate: the "elites" (and at least the economists) understand that a very dangerous development is at work: labour market polarisation, with concentration of jobs at the two extremes (skilled high-income, unskilled low-income); this comes on top of a decline in productivity gains. The problem is therefore not that negative developments are being ignored, but the lack of solutions: contemporary economies spontaneously generate labour markets polarisation and no longer generate strong productivity gains; this is not a choice, but the economies spontaneous dynamics that are difficult to change. Patrick Artus Tel. (33 1) 01 58 55 15 00 patrick.artus@natixis.com www.research.natixis.com CORPORATE & INVESTMENT BANKING INVESTMENT SOLUTIONS & INSURANCE SPECIALIZED FINANCIAL SERVICES Distribution of this report in the United States. See important disclosures at the end of this report.
Are the "elites" blind? A widespread theory nowadays is that the "elites" (politicians, corporate leaders, senior civil servants, intellectuals, economists, etc.) cannot see the problems the population in OECD countries are facing, and therefore, since they are blind and fail to understand the rise of populism and the rejection of the current economic system. The population in OECD countries is actually facing: - Low growth in purchasing power (Chart 1) in Japan, the euro zone and the United States; - A rise of inequalities: the middle class and the lower middle class have stagnant or falling real incomes (Table 1 shows the example of the United States), the richest take a growing fraction of the overall income (Chart 2) in the United States, the United Kingdom, Germany, Japan and Italy; - Exclusion: Table 2 shows the proportion of NEETS (young people not in employment, or training) increasing everywhere except in Japan and Germany; - High unskilled unemployment (Table 3) in France, Spain and Italy. Chart 1 Real per capita wage (deflated by consumer prices, 1998:1 = ) Chart 2 Share of national income held by the 1% of individuals with the highest income United States (excl. benefits) United Kingdom Euro zone Japan 20 18 United States United Kingdom Germany France Spain Italy Japan 20 18 1 14 1 14 Sources: Datastream, national sources, Natixis 12 12 10 10 8 8 Sources: Datastream, Piketty & Saez, PSE, Natixis 919293949599798900102030405007091011121314 Table 1: United States: Average real household income received by each (in constant 2014 dollars) Lowest Second Third Fourth Fifth The 5% of households with the highest income 19 12,594 31,87 52,338 78,912 153,138 243,85 1991 12,254 30,778 51,123 77,932 149,443 233,217 1992 12,000 30,08 50,58 77,75 150, 239,157 1993 11,877 30,109 50,471 78,434 13,415 2,474 1994 12,195 30,391 51,198 79,70 17,489 289,37 1995 12,883 31,488 52,50,935 18,0 291,497 199 12,919 31,709 53,33 82,549 173,20 302,439 1997 13,004 32,511 54,9 84,71 1,14 31,957 1998 13,388 33,5 5,54 87,481 185, 322,3 1999 14,092 34,03 57,920,145 192,235 334,123 2000 13,93 34,83 58,058,254 195,578 34,975 2001 13,553 34,055 57,002 89,375 195,188 348,287 2002 13,14 33,424 5,324 88,597 189,15 330,311 2003 12,87 33,052 5,10 88,9 189,318 325,97 2004 12,839 32,852 55,1 87,7 189,2 330,750 2
Lowest Second Third Fourth Fifth The 5% of households with the highest income 2005 12,91 33,14 5,129 88,284 193,457 340,83 200 13,329 33,791 5,23 89,2 197,4 349,215 2007 13,189 33,17 57,055,331 191,793 327,922 2008 12,817 32,45 55,124 87,703 188,092 324,059 2009 12,747 32,283 54,57 8,833 188,513 325,939 2010 11,938 30,982 53,389 85,49 183,935 311,859 2011 11,831 30,742 52,47 84,298 187,395 327,84 2012 11,848 30,20 52,772 84,54 187,58 327,953 2013 11,784 31,317 54,20 87,888 19,51 339,938 2014 11,7 31,087 54,041 87,834 194,053 332,347 Sources: US Census Bureau, Natixis Table 2: Trend in the percentage of young people aged 15 to 29 not attending school and without employment (as % of the population of the same age group) Country 1998 1999 2000 2001 2002 2003 2004 2005 200 2007 2008 2009 2010 2011 2012 2014 United States 12.2 12. 12.2 13.3 13.4 NA 13.9 13.1 12.8 13.1 14. 1.9 1.1 15.9 15.2 15.0 United Kingdom NA NA. 13.3 13.1 13.3 13. 13.5 14.2 15.1 14.9 14.8 15.7 15.9 15.5 1.3 14.4 Germany NA 13.2 13.3 13.1 12. 12.9 13.5 14.7 13. 12. 11. 11. 12.0 11.0 9.9 9.2 France 17.0 17.1 15.0 14.5 14.7 14.1 14. 14.5 15.2 14.5 14.0 15. 1. 1.4 1. 1.3 Spain 19.4 17.8 15.3 14.2 14. 14. 14. 17.2 15.9 15.7 1.8 22.7 23.7 24.4 25.8 25.8 Italy 25.7 25.3 23.3 22.2 20.7 18. 20.5 21.1 20.1 20.0 19.2 21.2 23.0 23.2 24. 27. Japan* 7. 9.0 8.8 8.4 9.5 9.8 9.2 8.8 9.1 7. 7.4 8.5 9.9 10.1 9.4. (*) Aged 15 to 24 Sources: OECD, Natixis Table 3: Unemployment rate by level of (as %) Year secondary Germany secondary France 1998 NA NA 5.35 14.8 9..5 1999 15.5 8.8 5 15.1 9.2.1 2000 13.8 8 4.3 13.8 8 5.1 2001 12.9 8.2 4.2 11.5. 4. 2002 15.0 8.7 4.3 11.3.5 5.0 2003 17.7 10.0 5.0 10.2.7 5.2 2004 20.0 11.0 5.4 10..9 5.9 2005 20.1 11.0 5.5 10.5.3 5.1 200 19.8 9.9 4.8 10.4.2 4.8 2007 18.0 8.3 3.8 9. 5. 4.7 2008 1.5 7.2 3.3 9.1 5.3 3.8 2009 1.7 7.5 3.4 10.9. 4.8 2010 15.7.9 3.0 12.1.8 4.7 2011 13.8 5.7 2.4 12.1 7.0 4.7 2012 12.7 5.3 2.3 12.9 7.8 4.8 2013 12.3 5.1 2.4 13.9 8.5 5.3 2014 12.0 4. 2.5 14.8 9.0 5.8 2015 11.4 4.3 2.3 15. 9.1 5.7 3
Year secondary Spain secondary Italy 1998 17.5 15.2 12.7 10.4 8.3.9 1999 14. 13 10.7 10.2 8.1.9 2000 13.8 11.1 9.1 9.8 7.4 5.9 2001 10.3 8.1. 9.2. 5.3 2002 11.0 9.3 7.5 9.0.4 5.3 2003 11.3 9.8 7.3 8.9 5.8 5.5 2004 11.3 9.2 7.3 7.9 5.2 4.7 2005 9.3 7.3.0 7.8 5.2 5.7 200 9.0.7 5.4.9 4. 4.8 2007 9.0.9 4.8.3 4.1 4.2 2008 13.2 9.2 5.8 7.4 4. 4.2 2009 21.8 15.0 8.9 8.4 5. 5.1 2010 24.5 17.2 10.4 9.0.0 5.5 2011 2.2 19.0 11.5 9.3 5.9 5.1 2012 31.1 21.5 13.9 12.2 7.7.3 2013 32.7 23.2 14.9 14.4 8.9.9 2014 31.4 21. 13.8 15.2 9.1 7. 2015 28.9 19.2 12.4 14.2 8.9.8 Year secondary United States secondary United Kingdom 1998 8.5 4.5 2.1 NA NA NA 1999 7.7 3.7 2.1 7.4 4.4 2.8 2000 7.9 3. 1.8.7 4 2.2 2001 8.1 3.8 2.1 5.8 3.2 2 2002 10.2 5.7 3.0.1 3.4 2.4 2003 9.9.1 3.4 5.2 3.2 2.3 2004 10.5 5. 3.3 5.2 3.5 2.2 2005 9.0 5.1 2. 5.0 3.2 2.1 200 8.3 4. 2.5.0 3.8 2.2 2007 8.5 4.5 2.1.0 3.7 2.1 2008 10.1 5.3 2.4. 4.1 2.3 2009 15.8 9.8 4.9 9.4 5.9 3.2 2010 1.8 11.2 5.3 10.3.2 3.4 2011 1.2 10.2 4.9 10.5.1 3.7 2012 14.3 9.1 4. 10.3.0 3.7 2013 12.7 8.2 4.1 10. 5.8 3.2 2014 10. 7.2 3.7 8.4 4.9 2.7 2015 NA NA NA 7.3 4.2 2.5 4
Year secondary Japan 1998 4.3 3.3 2. 1999 5. 4.4 3.3 2000.0 4.7 3.5 2001 5.9 4.8 3.1 2002. 5. 3.8 2003.7 5.7 3.7 2004 NA 5.1 3.3 2005 4.9 4.9 3.1 200 4.5 4.5 3.0 2007 4.0 4.1 2.9 2008 4.7 4.4 3.1 2009 5.8 5.9 3. 2010 5.7 5.8 3.8 2011 5.3 5.3 3.4 2012 5.1 5.1 3.2 2013 4.1 4.8 3.2 2014 4.1 4.1 3.0 2015 NA NA NA Sources: OECD Education at a Glance, Eurostat, Natixis These developments to a large extent explain the increase in social unrest, the rejection of the economic model, and the rise of populist parties. But the elites are not blind; rather, they do not know how to react. The economies spontaneous, endogenous dynamics Spontaneously in OECD countries since the late 19s There is a polarisation of labour markets: - Intermediate jobs in industry and industry-related services are gradually disappearing (Chart 3); - Jobs are concentrating at the two extremities of the labour market: skilled jobs in new technologies (Table 4), sophisticated business services and financial services (Chart 4); the number of these skilled jobs is limited, especially as new technologies are becoming a mature business; and unskilled jobs in unsophisticated domestic services (Chart 5); - This development explains the frustration of the middle class and the increase in inequalities caused by the low level of wages in domestic services (Chart ). Even though jobs are being created in unsophisticated domestic services, the number of these jobs is insufficient to reduce unskilled unemployment in many countries. Moreover, persons with intermediate training levels are forced to switch to unskilled service jobs and thereby squeeze out less skilled persons. 5
Chart 3 Employment in the manufacturing sector (1998:1 = ) United States Euro zone United Kingdom Japan 10 150 Chart 4 Employment in business and financial services (1998:1 = ) United States United Kingdom Euro zone Japan 10 150 70 0 Sources: Datastream, national sources, Natixis 50 70 0 50 Sources: Datastream, Eurostat, Natixis Chart 5 Employment in domestic services* (1998:1 = ) Chart OECD*: Level of per capita wage*** (in thousands of USD per year) 125 115 105 United States United Kingdom Euro zone Japan (*) Retailing + restaurants + hotels + leisure + transport + other consumer services Sources: Datastream, BLS, Eurostat, MIAC, Natixis 95 125 115 105 95 50 45 40 35 30 Manufacturing sector Business and financial services sectors Domestic services sector** (*) United States + United Kingdom + euro zone + Japan (**) Retailing + restaurants + hotels + leisure + transport + other consumer services 25 (***) Payroll excl. social contributions/employment 20 Sources: Datastream, BEA, BLS, Eurostat, CAO, Natixis 15 50 45 40 35 30 25 20 15 Table 4: Employment in the information and communications technology sector (ICT, as % of total employment) United States United Kingdom Euro zone Japan 1998 NA 3.44 NA 2.43 1999 NA 3.45 NA 2.4 2000 4.02 3.53 2.45 2.47 2001 4.09 3.57 2.48 2.55 2002 3.2 3.4 2.45 2.59 2003 3.48 3.38 2.41 2.2 2004 3.25 3.29 2.38 2.70 2005 3.1 3.30 2.38 2.8 200 3.20 3.30 2.40 2.8 2007 3.2 3.34 2.40 3.01 2008 3.35 3.28 2.4 3.00 2009 3.2 3.20 2.4 3.05 2010 3.2 3.11 2.47 3.09 2011 3.28 3.28 2.51 3.01 2012 3.22 3.20 2.55 2.99 2013 3.33 3.32 2.58 2.89 2014 3.3 3.3 NA 3.03 2015 NA 3.42 NA NA Sources: OECD, OECD Digital Economy Outlook 2015, Natixis
These developments are exacerbated by the decline in productivity gains The labour market is suffering from the polarisation of jobs, but also from the across-the-board decline in productivity gains (Charts 7A, B, C and D), which is leading to sluggish growth in real wages (Chart 1 above). 10 150 Chart 7A United States: Per capita productivity* 1998:1 = (LH scale) Y/Y as % (RH scale) (*) Non-farm business 5 125 Chart 7B United Kingdom: Per capita productivity 1998:1 = (LH scale) Y/Y as % (RH scale) 10 8 4 115 3 4 2 105 2 1 0 0 95-2 Sources: Datastream, BEA, Natixis -1-2 Sources: Datastream, ONS, Natixis 85-4 - Chart 7C Euro zone: Per capita productivity Chart 7D Japan: Per capita productivity 112 108 104 1998:1 = (LH scale) Y/Y as % (RH scale) 4 2 115 105 1998:1 = (LH scale) Y/Y as % (RH scale) 10.0 7.5 5.0 2.5 0 0.0 9 92 Sources: Datastream, Eurostat, Natixis 88-2 -4-95 85 Sources: Datastream, CAO, Natixis -2.5-5.0-7.5-10.0 There are several likely causes for the low productivity gains: the distortion of the economy towards services (Chart 8) where productivity gains are lower, the stagnation of the size of the new-technology sector (Table 4 above), and the lack of positive effects from digital technology on labour productivity for the time being. Chart 8 OECD*: Real GDP growth and manufacturing production (1998:1 = ) Real GDP Manufacturing production (*) United States + United Kingdom + euro zone + Japan Sources: Datastream, Natixis 17 7
The unpleasant developments in the labour markets (inequalities, contraction in the middle class, small increases in the standard of living) are therefore due to the economy s spontaneous dynamics: creation of very skilled or unskilled jobs, low productivity gains. Persons who have intermediate training levels can no longer find intermediate jobs - and the number of these jobs is declining - and must take unskilled jobs, which ultimately increases the unskilled unemployment rate. Conclusion: It is not that the "elites" are short-sighted; the problem is that they do not know what to do The "elites" in OECD countries understand that there are problems of inequality, unskilled unemployment, purchasing power, etc. The problem of the "elites" is not near-sightedness, but helplessness: - What can be done if the distortion of demand towards services leads to the disappearance of industry and industry-related services and leads to creation of unskilled jobs in domestic services? - What can be done if the economy s sectoral structure and weak technological progress lead to a slowdown in productivity gains and therefore in real wages? There is no obvious economic policy that can prevent the destruction of intermediate jobs or the slowdown in labour productivity. 8
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