ECONOMICS Bloomberg Businessweek January 27, 202030
○ A sweepingprivatizationeffortaimstoraiseat
least$7.5billionandreinvigoratetheeconomyASugarRush
InEthiopia
Fordecades,IrbaJanahasscrapedouta modest
livingfromsugarcane,sellinghisharvesttomills
runbyEthiopia’sstate-ownedsugarmonopoly.
Butlately,a lackofupkeepandinvestmenthave
forcedtheclosureofnearbyprocessingfacilities,
sohe’shadtosupplementhisincomebywork-
ingasa securityguard.“Sugarcanejustisn’tprof-
itableanymore,”saysIrba,a grizzled50-year-old
fatherofeight.“Itmaybetimetostartfarming
somethingelse.”
Recently, though, he got news that could augur a
return to better times: The government is planning
to privatize assets of Ethiopian Sugar Corp., includ-
ing a complex near Irba’s home on a high plateau
a two-hour drive southeast of Addis Ababa. And a
local investor aims to let farmers buy shares in the
mills, with promises of investment in additional
projects such as candy and ethanol factories.
The sale is part of a sweeping liberalization
backed by Abiy Ahmed, the 43-year-old prime minis-
ter who in October won the Nobel Peace Prize for his
work to end a two-decade conflict with neighboringFed raise interest rates to record levels to quell
double-digit inflation. The key lesson they took
away from the experience was that it’s imperative to
act early to keep price pressures from spiraling out
of control. That mindset was in evidence in 2018,
when the Fed’s rate-setting committee voted to
hike four times over the course of the year as unem-
ployment dipped below its members’ estimates of
the natural rate—even though inflation continued
mostly to track below their 2% target. Economic
models such as the Phillips curve implied that with-
out tightening credit conditions to restrain hiring, it
would only be a matter of time before rising wages
began stoking inflation to undesirable levels. Yet by
the time of the final hike in December 2018, finan-
cial markets were signaling that the slowing global
economy couldn’t handle the tightening.
Part of what led the Fed astray, according to
Sahm, who’s now director for macroeconomic
policy at the Center for Equitable Growth, a
Washington, D.C., think tank, was too much focus
on the unemployment rate, which only counts job-
less individuals actively looking for work and not
persons who would like a job but have been dis-
couraged from searching for one for various rea-
sons, including poor job prospects.
Even incorporating the discouraged jobless into
the calculation may not give an accurate reading of
the labor market. Since 2015 the biggest employ-
ment gains among Americans age 25 to 54 has come
not from those counted as unemployed or as dis-
couraged but those who say they aren’t looking for
work. While that number has been coming down
rapidly, the proportion of prime-working age indi-
viduals who say they don’t want a job still stands
at 15.9%. That’s well above the 1995-2007 average
of 14.7%, which suggests there is still more slack in
the labor market.
Despite the endless stream of news about
the hot job market, such as Taco Bell’s recent
announcement that it was raising salaries for man-
agers to $100,000 at some of its locations, there’s
evidence that inflationary risk from the low unem-
ployment rate may be in fact diminishing. Wage
growth—which arrived late in the economic expan-
sion and hasn’t exactly been gangbusters—is show-
ing signs of flagging. Average hourly earnings grew
2.9% last year, according to the U.S. Department of
Labor, well below the 3.3% pace in 2018.
At his regular press conference following the
Fed’s most recent policy meeting on Dec. 11, Powell
conceded that the data weren’t consistent with the
hallmarks of a fully employed economy. “I’d like to
say the labor market is strong. I don’t really want
to say that it’s tight,” he told reporters. “I don’tTHE BOTTOM LINE “Full employment” has long been a politically
charged term in the U.S., where even economists don’t agree on
how low unemployment can fall without triggering inflation.know that it’s tight, because you’re not seeing wage
increases.” (This is part of the reason the Fed has
signaled it will probably leave rates unchanged at
least through the end of 2020.)
Yet people like Sam Bell, who runs Employ
America—a Washington, D.C.-based organization lob-
bying for low interest rates—are wondering whether
the change of heart on unemployment will stick in
the event that the global economy begins picking up
steam, lifting U.S. growth. “I think [Powell] wants
to tell this labor market story, but it’s also a conve-
nient confluence of events that allows him to really
lean into it,” says Bell, whose own conception of full
employment is closer to Beveridge’s ideal. “What
we say on our website is more employment, higher
wages, better-quality jobs. We’re far from better
quality and higher wages.” —Matthew Boesler“The private
sector is not
playing its
natural role”