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Cheaper factory workers may not mean lower jobless rates

These are stories Report on Business is following  Monday, May 13, 2013.

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Labour costs and jobless levels
A new report by the U.S. government paints an interesting picture of the relationship between factory labour costs and jobless levels, when viewed alongside unemployment rates.

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As in, if you think high wages and benefits drive up unemployment, think again.

And if you think low wages and benefits hold unemployment down, think again.

There are several things to keep in mind in the data from the U.S. Labor Department and the World Bank.

Many factors weigh on corporate employment and investment decisions, including infrastructure, energy costs, taxes and the like.

The latest numbers from the department's Bureau of Labor Statistics, alongside the World Bank's jobless data, don't take into account these and other issues when looking at hour labour costs in manufacturing, which are often benchmarks.

But they tell us something important, nonetheless, particularly amid such a fierce debate over so-called right-to-work legislation in the United States, and similar discussions in some parts of Canada.

Such laws, which generally weaken organized labour by allowing workers to opt out of paying union dues, are seen as attractive in terms of drawing jobs to a region.

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But consider what the BLS report shows for 2011 in terms of average hourly compensation costs in manufacturing, in U.S. dollars, including wages, benefits and the cost to employers of social insurance. Then add in 2011 jobless rates as published by the World Bank. While not all are manufacturing powerhouses, some are, and the numbers tell an interesting tale.

Here's what you get:

The top 16

  • Norway, total average hourly labour cost of $64.15 in 2011 (Unemployment at 3.3 per cent in 2011)
  • Switzerland $60.40 (4.1 per cent)
  • Belgium $54.77 (7.1 per cent)
  • Denmark $51.67 (7.6 per cent)
  • Sweden $49.12 (7.5 per cent)
  • Germany $47.38 (5.9 per cent)
  • Australia $46.29 (5.1 per cent)
  • Finland $44.14 (7.7 per cent)
  • Austria $43.16 (4.1 per cent)
  • Netherlands $42.26 (4.4 per cent)
  • France $42.12 (9.3 per cent)
  • Ireland $39.83 (14.4 per cent)
  • Canada $36.56 (7.4 per cent)
  • Italy $36.17 (8.4 per cent)
  • Japan $35.71 (4.5 per cent)
  • U.S. $35.53 (8.9 per cent)

The bottom 10

  • Philippines $2.01 (7 per cent)
  • Mexico $6.48 (5.3 per cent)
  • Poland $8.83 (9.6 per cent)
  • Hungary $9.17 (10.9 per cent)
  • Taiwan $9.34 (5.2 per cent, from other sources)
  • Estonia $10.39 (12.5 per cent)
  • Brazil $11.65 (6 per cent, from other sources)
  • Slovakia $11.77 (13.5 per cent)
  • Portugal $12.91 (12.7 per cent)
  • Czech Republic $13.13 (6.7 per cent)

One must remember, of course that this covers the immediate post-crisis era, with unnaturally high unemployment that remains a blight, and, in the case of Europe, a raging debt crisis.

As well, the financial crisis and Great Recession affected countries differently in terms of jobs lost. Canada, for example, experienced a milder recession than did the United States or the crippled parts of Europe, but also must juggle the ups and downs of its currency.

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The numbers also don't take into account regional differences within countries. But an examination of jobless levels in the United States for 2011 shows no discernible pattern. Some right-to-work states boasted unemployment below the national average, and some suffered far higher levels.

In Canada, unemployment was running at 7.8 per cent in Ontario and Quebec in 2011, well above that of the resource-rich Prairie provinces and well below that of Atlantic Canada, though not much higher than the jobless level of British Columbia.

What this all shows is that there is no pattern, which is food for thought when the issue next arises.

(For the BLS report, see the accompanying infographic or click here.)

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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