Jobless rates to elevate in big economies, says OECD

A job centre in London last month. British unemployment was 7.9 per cent by the end of July. In such an event, disaffected workers, particularly in the white-collar sector and among the young, will find themselves excluded from the market, damaging economic dynamism, experts and unions warned.

“History says that jobs lag the recovery and the deeper and faster the jobs were lost, the more it lags,” OECD Secretary general Angel Gurria said.

OECD forecast that unemployment among its 30 member countries would rise to nearly 10 per cent by the end of 2010, from 5.6 per cent in 2007, and above its previous post-1970 peak of 7.5 per cent in 1993.

Its estimates are based on the group’s economic forecasts in June, which have since been nudged up. Individual country projections for next year vary from a high of about 20 per cent in Spain to 10 per cent in the US and six per cent in Japan.

“My feeling is that, yes, unemployment will probably rise for quite some time,” Paul De Grauwe, a professor at the Catholic University of Leuven in Belgium said, adding that it all depends whether you see a V-shaped recovery or an L-shaped recovery. He said he suspected that the economy would enter the latter, or a ‘double dip’ recovery, with very moderate growth for some time, keeping the jobless rate elevated for months, even years.

During the recessions of the 1970s through the 1990s, rates climbed in most countries and then took time to fall. In Sweden, for example, OECD data show the jobless rate surged to 11 per cent in 1993 from two per cent in 1990. It then remained above 10 percent until 1998 before edging down to about six per cent last year. In July, it was back above nine per cent, according to European Union data. Economies like France, Germany and Spain, traditionally seen as having rigid labor markets, had in recent years also been able to bring persistently high jobless rates down. The worry for them now is that those efforts may be undone. As expected, some of the fastest increases in joblessness this time have been seen in countries with more flexible labor markets, like the United States and Britain, where it is easier to hire and fire. Conversely, if and when a durable upturn takes hold, they might be expected to create more jobs over a shorter period.

Yet in Britain, the recovery is still not creating employment. The Office for National Statistics said Wednesday that unemployment hit its highest level in more than a decade, rising 0.7 percentage points to 7.9 per cent in the three months ended July 31. The number of 16- to 24-year-olds out of work rose to almost a million, the highest number since records began.

This is agitating labour unions, in particular, who worry about the social effects of long-term unemployment like poorer health, lower living standards and increased crime. “What is also urgent now is for governments and central banks to make sure banks use the support they have been given to support jobs and investment,” said European Trade Union Confederation general secretary, John Monks. His group says new graduates are experiencing “a huge fall in available opportunities and temporary short-time working schemes are nearing the end of their life.” Many of them had assumed that they could easily enter the work force and repay debt incurred during their studies. “I do think people are very worried this time,” said Janet Davies, founder of newlifenetwork.co.uk. She said the recession was being felt acutely in the white-collar sector, where younger job seekers were bewildered at the lack of openings, while many of those who had lived through previous recessions were being stigmatised if they were out of work for more than six months.

The report said that government spending programmes on the labour market — retraining programmes, for example — could be better focused.

While programmes to put workers on reduced hours have sustained the incomes of many jobless people, “coverage of such benefits is weak in some OECD countries,” it said. When compared with the overall resources available in the fiscal stimuli enacted by major economies, the increase in spending on labor market policies, like unemployment benefits and retraining, has been “rather modest in many countries.” The report also said that such spending should be varied with the economic cycle to maximise its effectiveness. Resources can be shifted from a “work-first” approach, putting a high priority on rapid job creation, to a “train-first” approach, emphasising new skills for the long-term unemployed.

The report will provide a basis for discussions by OECD. employment ministers at a meeting in Paris at the end of September. Its finding will be presented by Mr. Gurría to leaders from the Group of 20 industrial and emerging countries at a meeting next week in Pittsburgh.