The next bubble is in employment – the effects can be devastating
Marla Guthrie
Oct. 1, 2007

First it was the dot com. Then came the bubble in tech sector. Then came the real estate and mortgage. Finally the mega bubble that is unfolding right now is in mergers and acquisitions. All these bubbles formed and did burst over time creating havoc in many lives.

But a new bubble has formed in employment. Conservative Republicans sometimes say employment is the biggest welfare. They may be right. The businesses are filled with employees that they do not need especially when economy is barely above water. The stagnation in the economy will create a massive level of unemployment.

It may sound strange. That what you thought when I wrote in India Daily in 2005 that the real estate and mortgage bubbles are real and will burst creating massive distortion in the financial systems all over the world.

It is easy to watch a bubble form in a free economy. Whenever you see that something is happening without any reasoning or people are acting just crazy without looking at the fundamentals, you can detect a bubble. Eventually bubbles burst and create a vacuum in that sector. It takes decades to correct the euphoria.

The businesses have hired lower waged employees for the last two decades. They have also employed lower waged workers through outsourcing. The craze is real. But are so many employees really needed by the businesses?

Smart businesses have automated their processes. Banks are proving businesses scanners to scan their depositing checks and issuing instant credit to save cost of hiring real tellers in the windows. The help desk support has gone to automation over phone, web and eventually to Bangalore, India.

The businesses now face a very difficult time. Commodity inflation is rampant. But the depressed, wages, consumer and business confidence is creating deflationary effect in the retail sectors. Higher gas prices, lower home values and difficulty in obtaining home refinance cash are making people avoid spending. There will be no recession right now but there is definitely the smell of stagnation. The businesses will cut cost by eliminating jobs like never before. Local Governments will also eliminate positions, as they cannot raise property taxes any more.

The bubble in employment – the low wage underemployment is about to burst. The unemployment rate will rise rapidly especially among those who are employed by healthcare industry, financial institutions and service sectors.

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