Preventing the job crisis from casting a shadow

NOT SO NICE

The 2009 OECD Employment Outlook comes at an important time. The financial and economic crisis has quickly developed into a job crisis. From a 25-year low at 5.6 per cent in 2007, the OECD unemployment rate had risen to a post-war high of 8.5 per cent in July 2009, corresponding to an increase of more than 15 million unemployed.
As in previous severe economic downturns, vulnerable groups — youth, immigrants and workers in temporary or part-time jobs — are bearing most of the brunt of the job losses.

A recovery is in sight, but it is likely to be modest for some time to come. As we have learned from previous downturns, the jobs recovery will lag behind output growth.

The OECD unemployment rate is likely to continue rising into 2010: it could even approach 10 per cent (or 57 million unemployed) if the recovery fails to gain momentum.

Rapid recovery of employment is a global concern and rightly so. The Outlook is meant to help. It is based on material that has been used to support the discussion at the G8/G14 Social Summit in Rome in March.

And will serve as the basis of a background report for the upcoming Pittsburgh G20 Summit, written in co-operation with the ILO.

The Outlook is also the main reference for the OECD Employment and Labour Ministerial meeting to be held in Paris on 28 to 29 September.

Given the importance of the topic, the Employment Outlook contains a number of new features.

Detailed study

It presents for the first time our detailed assessment of the employment and social impact of the financial and economic crisis.

And it sets out a blueprint for governments to help workers and their families weather the storm and benefit from the economic recovery when it arrives.

The main message of the Outlook is that we need bold measures to tackle high and persistent unemployment because of its major social and economic costs.

On average in the OECD area, 37 per cent of individuals living in jobless households are poor — five times higher than for individuals living in working households.

Improving job market conditions will encourage households to reduce their precautionary savings, increase their consumption and thus sustain a strong recovery. But how can we achieve this? A first priority is to limit the number of lay-offs. The good news is that governments have already acted with large fiscal stimulus packages to boost aggregate demand.  We estimate that the fiscal stimulus packages may save between 3.2 and 5.5 million jobs in 2010 in the 19 OECD countries included in our analysis. Most OECD countries have introduced targeted measures to support labour demand. These include temporary cuts in employers’ social security contributions and short-term working subsidies to compensate workers for working fewer hours and encourage firms to hire.

In the short-term, these subsidies are playing a positive role, but they have to be temporary and well-targeted.

Otherwise, these schemes risk becoming an obstacle to the recovery, by putting a break on the effective reallocation of workers from declining to expanding firms.

Reinforcing safety nets

For those who have lost their jobs, the first line of defence is to secure adequate social safety nets. Where coverage of such benefits was weak, efforts have been made to extend it — as for example in Finland, France and Japan.

In some cases, like in Portugal and the United States, countries have opted for a rise in the maximum duration of benefits. Providing an adequate income support to job losers is, however, a daunting challenge in those OECD and the many non-OECD countries with a sizeable informal sector.

As we document in the Outlook, even in a deep recession many jobs are created by firms that are able to exploit new market opportunities. Employment services can play a decisive role in helping fill these vacancies quickly. So, it is essential to maintain core job search assistance to help job-seekers find work through the downturn.

Helping people find a job

Resources for active labour market policies (ALMP) — such as job counselling, training and employment incentives  have increased in many countries. But the increase is rather modest when compared with the magnitude and pace of the job losses. This looks like a missed opportunity.

Naturally, now that public budgets are under severe strains, additional spending should be cost effective. And here the good news is that the Outlook presents evidence of policies that work.

The Outlook identifies as a key priority the provision of effective re-employment services to a rapidly rising pool of jobseekers so that the most vulnerable do not get locked into long-term unemployment and drift into inactivity.

Invest in skills

Re-employment services need to be adapted to the specific conditions of a slack labour market. In particular, increased training opportunities for those at high risk of long-term unemployment are likely to be particularly important at present, since the global economic crisis is accelerating structural changes in OECD countries, including significant shifts towards a low carbon economy and the associated green technologies.

Further investment in human capital, skill formation and lifelong learning is another key action to guide young job seekers towards new growth areas, including green jobs.

“Ride out the storm”

Reducing high youth unemployment should be a centrepiece of our policies. Youth un employment has increased disproportionately in many countries and we cannot allow this crisis to result in a lost generation.

Job-search assistance, training opportunities and programmes to prevent dropping out of school, subsidies for apprenticeship contracts for unskilled youth, and second-chance schools, are even more critical in downturn. The unprecedented measures taken in the past year helped us avoid a longer and more severe global recession. The world economy is recovering. But now we have to focus on moving from a policy-induced recovery to a self-sustained one. And this in the context of very stretched national budgets. Employment is the bottom line of the current crisis.  What happens in labour markets in the months to come is key to our success.

Key for us to achieve a sustainable recovery and call this crisis over. We cannot rest until we solve the problem of high and persistent unemployment. And we should not just assume that this will be done by growth alone. OECD ministers recognise fully what is at stake.

At the Employment and Labour Ministerial meeting later this month, they will compare their experiences in responding to the jobs crisis and discuss how best to intervene in the months to come to prevent unemployment from casting a long shadow on our economies.

They will also discuss how to co-ordinate their approaches to the jobs crisis. The OECD is ready to support a global response to this challenge, by also taking into account the plight of those in the developing world that often can’t benefit from well developed social protection systems. They should not be forgotten.These are difficult tasks. We hope the Outlook will help accomplish them.

The writer is OECD Secretary-General. He delivered the above speech at the launch of the OECD Employment Outlook 2009 recently in Paris.