Current surplus and unemployment

[Eigo Murakami <murakami@xxxxxxxxxxxxxx>]

<Question>
 I have a question about the correlation between current balance and unemployment rate.
 The MITI white paper of 1994 says
 "There is an argument that the current surplus in one country takes employment away from another country. But this is not true. Because there is no correlation between current balance and unemployment. Unemployment is not the result of the current deficit,but of the country's macro economic performance,especially of the low investment...

<Evidence>
 To insist this,MITI shows some statistical evidence.

1)Cross country analysis of the relation between the current balance per GDP and the unemployment rate,using 1980's average data from ILO"YEAR BOOK OF LABOR STATISTICS",IMF"IFS",World Bank"World Tables" includes Canada,US,Japan,France,Germany,Italy,Belgium,Nrtherland,UK,Spain,Australia,South Korea,China,Egypt,Norway,Sweden,Thailand.
 This data seems to show no correlation between them.

2)Trend of thecurrent balance per GDP and unemployment rate in the U.S.
 There is reverse correlation between these two factors,and other countries show similar movement.

<My view>
 In spite of such "evidence",I can't agree with this MITI view. I think it is evident that the low unemployment of Japan after oil shock  have been able to be achieved by export-oriented growth. And some American industries (ex:car industry ?) are attacked by Japanese low price-high quality (?) products,and this must have raised the unemployment rate US to some degree.
 If so,how can you measure the impact of current balance(trade balance) on the unemployment rate? Is there really no correlation between them?

<Further consideration>
 The impacts of trade on unemployment or economic performance are various with the type of trade or the type of economic structure. Below are some example of the reason why the correlation between current balance and unemployment can not be seen clearly through statistical data.

1)Current balance and business cycle
 The reverse correlation is seen between current balance and unemployment rate.This is because in the time of economic expansion(unemployment rate must be relatively low) an import of the country increases,and the reverse is true.

 This relation is so close that the correlation between the current balance and the unemployment rate can not be measured by the time trend data of one coutry.

2)The type of employment structure
 Difference of income elasticity of employment causes various impacts of trade on unemployment.
 And this difference is made bytechnology level,bargening structure e.t.c.

3)Type of international division of labor
 If the main factor fo the current deficit is import of natural resources or some special intermediate goods which are needed for production,the current deficit may lower the unemployment rate of the importing country.
 By contrast,when some countries compete each other in the same market,one country's current surplus means another country's loss of share and reduction of the production level. THen,if the capital can't move fast to another competitive field,unemployment may rise.
 (If so,this must be tuned by exchange rate depreciation e.t.c.)

 These 2),3) are the reason why correlation between current deficit and unemployment rate can not be measured by cross country analysis.

<Conclusion?>
 Obviously,MITI's analysis is narrow-minded. But I don't have any statistical data to beat it (Calmly,calmly).
 Please help me,anyone who have a clever brain or strong arm.




P.S.
 Japanese economic strategy,for which many Japanese don't want to live,is obviously not good for the world and for many Japanese. So,we have to take alternative course.
 MITI's short term "alternative" is reducing trade deficit  by increasing import. But is it really the course we should take? Isn't this basically the same strategy and dosen't result in the simillar conclusion?

 I think that Japan should not work for export,though surplus should be used for developping countries,but work for ourselves.
 I think ,not the same as liberalist,we should make a rule to tune the balance calmly. Because market is not so perfect and tuning process is sometime very severe for weak (like me?).


Murakami Eigo
The Faculty of Economics
Yokohama National Unv.