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Bond markets will remain well behaved, as they begin to come to terms with an economic expansion associated with little in the way of labour market pressure and, hence, little in the way of pressure on prices. The cyclical upswing in profits and the bounce in economic activity will not lead to higher inflation. As a result, the Federal Reserve will shy away from raising interest rates. In this Brave New World, profit strength – and labour market strength in China and India – may be driven by exactly the same processes that are giving rise to labour market weakness in the US.So, no “Big One”. But with the collapse in communication charges around the world associated with the introduction of new communications technologies, this assumption is no longer safe. New technologies, forcing the pace of globalisation, have made it that much easier for companies to lower costs by shifting capital around the world to areas where labour is relatively cheap.Economics textbooks have, in the past, ignored this phenomenon, assuming for the most part that labour is mobile but capital is not.

I’ve argued before that one of the reasons behind the ongoing sluggishness of the US labour market is the impact of global outsourcing and offshoring. Companies may be hiring more workers but there is no reason why companies should specifically be hiring US workers.Ultimately, companies have to please their shareholders. Faced with a lack of pricing power and, in some cases, sluggish sales growth, they have no choice but to cut costs. If this is the case, the labour market is a lot weaker than the unemployment numbers suggest.To be honest with you, I cannot tell which of the above explanations is the more accurate So, at this stage, it’s worth keeping an open mind. Nevertheless, there are good economic reasons for thinking that the US labour market could remain weak for quite some time.

In effect, they have exited the labour force altogether, and count as neither employed nor as unemployed. Under these circumstances, it is entirely possible to have job losses without a rise in unemployment. The so-called participation rate – a measure of those people of working age who make themselves available for work – has fallen rapidly over the last couple of years, after rising rapidly in the late-1990s. During the late-1990s boom, people were sucked into the workforce who, in normal circumstances, would not have bothered: they decided to work because the demand for labour was so incredibly buoyant.As the labour market has weakened, and as wage growth has slowed, these people have become increasingly disillusioned. They will point out, quite reasonably, that limited progress on jobs growth sits uneasily with the recent steady decline in the unemployment rate (although this is an argument that doesn’t work as far as the February data are concerned, where the unemployment rate failed to budge below the level seen in January.) If the unemployment rate has been falling, can it really be possible that jobs growth is really so weak?The answer, unfortunately, is “yes”. There are plenty of optimists around who are very happy to claim that jobs growth is everywhere other than in the numbers themselves.One argument in favour of this claim is based on the idea of outsourcing. But to focus on this argument alone, and ignore other arguments that work in exactly the opposite direction seems, to me, like a case of “selective hearing”, rather than an objective statement of the risks involved in interpreting employment data.The optimists will argue that this is not just selective hearing.