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TWN Info Service on Finance and Development (Jan08/03)

28 January 2008


ECONOMIC TURBULENCE COULD CREATE 5 MILLION MORE UNEMPLOYED

Economic turbulence, mainly stemming from the credit crisis in industrialized countries and rising oil prices, could spur an increase in global unemployment by an estimated 5 million persons in 2008, the International Labour Office (ILO) has warned.

In its annual Global Employment Trends report, the ILO said that the new projection for 2008 is in contrast to 2007, a watershed year in which sound global GDP growth - of more than 5% - led to a “stabilization” of global labour markets with more people in work - a net increase of 45 million new jobs and only a slight increase in the number of people unemployed, to a total of 189.9 million persons worldwide.

Below is a report on the ILO’s projections. It was published in SUNS # 6400, Friday 25 January 2008. This article is reproduced here with the permission of the SUNS.  Reproduction or recirculation requires permission of SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN


Economic Turbulence Could Create 5 Million More Unemployed
By Kanaga Raja, Geneva, 24 January 2008

Economic turbulence, mainly stemming from the credit crisis in industrialized countries and rising oil prices, could spur an increase in global unemployment by an estimated 5 million persons in 2008, the International Labour Office (ILO) has warned on Thursday.

In its annual Global Employment Trends report, the ILO said that the new projection for 2008 is in contrast to 2007, a watershed year in which sound global GDP growth - of more than 5% - led to a “stabilization” of global labour markets with more people in work - a net increase of 45 million new jobs and only a slight increase in the number of people unemployed, to a total of 189.9 million persons worldwide.

“This year’s global jobs picture is one of contrasts and uncertainty,” said ILO Director-General Juan Somavia.

“While global growth is annually producing millions of new jobs, unemployment remains unacceptably high and may go to levels not seen before this year. What’s more, though more people are in work than ever before, this doesn’t mean that these jobs are decent jobs. Too many people, if not unemployed, remain among the ranks of the working poor, the vulnerable or the discouraged,” he added.

The ILO report noted that the reduction in the growth in developed economies attributed to credit market turmoil and higher oil prices so far had been “compensated for in the rest of the world,” especially in Asia, where economic and job growth remained strong.

But an expected slowdown in growth during 2008 could increase the global unemployment rate to 6.1%, resulting in an absolute increase of at least 5 million unemployed worldwide.

At a media briefing Tuesday, Jose Salazar-Xirinachs, Executive Director of the ILO Employment Sector, said that after several years of sustained global growth, the world is facing turbulence and the prospect of slower growth. Significantly, turbulence in the US and Europe has so far not impacted labour markets in other regions, but this is a very important issue and a very strong possibility, he added.

Risks for the global economy in 2008 should be watched carefully, Salazar-Xirinachs said, adding that the important question for the ILO is how labour markets worldwide will react to slower growth or growing uncertainty.

On the outlook for 2008, he said that the basic question is whether the turbulence stemming from the crisis in the US housing sector, rising oil prices and consumer uncertainty will slow GDP growth and put labour markets worldwide at risk.

In response to a question, Salazar-Xirinachs said that the estimates in the ILO report are based on the review done by the IMF in September. It looks like what happened from September to today is obviously not good news.

It is very likely that there will be revisions of rates of growth downward for developed economies. If this happens, then the ILO’s estimates of impact in labour markets will have to be revised, he added.

Dorothea Schmidt, author of the report, said that “we have already seen many signs of problems in the US and there has been no impact on growth in any of the other regions. That is unique and gives rise to hope. So far, Asia has been strong enough to take away some of the impact of what happens in the US and the developed economies.”

“We don’t know what is going to happen in 2008,” she said, adding however that the signs are not all negative. It could be that Asia will continue to grow. “Even if we talk about a reduction in growth in Asia, we still talk about growth rates of far beyond 5%... With 5% growth, we still see that employment is created.”

“That of course doesn’t help any of the people who lose their jobs in the developed economies and that is really the people that we have to worry about,” she added.

The ILO report noted that the IMF reduced the GDP growth estimate for 2008 from 4.9% (April estimate) to 4.8% for the world. This global downward revision is the result of a downward adjustment for the developed economies and the European Union region where the earlier expected growth rate of 2.6% was reduced to 2.2%.

However, with increasing globalization and the participation of more and more countries, probably for the first time, a slowdown in this important region has so far not had a negative impact on the economic and labour market performance of the rest of the world.

According to the IMF, even in 2008, the risk of a slowdown in the world economy exists, but there is also a chance that other regions are strong and independent enough to offset this slowdown in the industrialized economies. As a result, other regions’ GDP saw an upward adjustment in comparison with the April estimates.

If it turns out that worldwide growth no longer only depends on the performance of the industrialized world, the fact that, in the Developed Economies and European Union, 240,000 fewer jobs will be created as a result of slower growth - which motivated the IMF’s downward revision - will be more than compensated for by job creation in the rest of the world, said the ILO.

According to the ILO report, global economy growth of 5.2% created an estimated 45 million new jobs in 2007, but failed to have any significant impact on the growth of unemployment.

Overall, 61.7% of the global population of working age - or an estimated 3 billion people - were employed in 2007. Although the global unemployment rate remained virtually constant at 6%, that meant an estimated 189.9 million people, compared to 187 million in 2006, were unemployed worldwide in 2007.

The ILO said that not only is there a rather low impact of growth on job creation, but there is also another concern: the ongoing (but, already slightly decreasing) growth does not have as substantial an impact as necessary to reduce the levels of working poverty, especially in the poor regions of the world.

There are still 486.7 million workers in the world who do not earn enough to lift themselves and their families above the US$1 a day poverty line and 1.3 billion workers who do not earn enough to lift themselves and their family above the US$2 a day line. In other words, despite working, more than four out of ten workers are poor.

To make a long-term inroad into unemployment and working poverty, it is essential that periods of high growth are better used to generate more decent and productive jobs. Reducing unemployment and working poverty through creation of such jobs should be viewed as a precondition for sustained economic growth, said the ILO.

Looking at the share of employed people in the world’s working-age population (aged 15 years and older), known as the employment-to-population ratio, a decline was observed between 1997 and 2007. It stood at 61.7% in 2007, almost a percentage point lower than ten years earlier.

The report also noted that the gap between men and women continued, with 49.1% of women of working age employed in 2007 and 74.3% of men. The gender gap in labour force participation is another indication of women’s more limited chances to take part in the world of work. In 2007, 52.5% of all women of working age was either looking for work or working.

The report also underlined that the service sector continued to grow during 2007, further surpassing agriculture as the world’s most prevalent source of employment.

The service sector now provides 42.7% of the world’s jobs, compared to agriculture which provides 34.9%. The industrial sector, which had seen a slight downward trend between 1997 and 2003, has continued a rather slow upward trend in recent years, representing 22.4% of global jobs.

With respect to regional trends, the ILO observed that the Middle East and North Africa still had the highest unemployment rates at 11.8% and 10.9% respectively in 2007, followed by Latin America and the Caribbean, Central and South Eastern Europe (non EU) and the Commonwealth of Independent States (CIS) at 8.5%.

Sub-Saharan Africa continues to have high employment-to-population ratios (the second highest in the world) despite a slight decrease between 1997 and 2007. In 2007, there were 24.3% more unemployed people in the region than ten years ago. In 2007, 85.4% of those employed still live on less than US$2, and this share has remained almost unchanged from 1997.

The inability to reduce working poverty, as a result of slow productivity growth and slow changes in vulnerable employment (the sum of own-account workers and contributing family workers as a share of total employment) combined with the growing number of unemployed, has resulted in sub-Saharan Africa being considered as unable to reach the MDG of halving the share of extreme poor by 2015, said the report.

In North Africa, where productivity levels increased by more than 16% in the last 10 years, extreme working poverty is now almost eradicated at 1.6% of the employed population.

Latin America and the Caribbean was the only region where vulnerable employment has increased. Despite the small share of jobs in agriculture, and the relatively high levels of GDP per capita, vulnerable employment is still an issue in the region - and has even increased between 1997 when the share was 31.4% and 2007 when it was 33.2%. This finding is consistent with indications of an increase in the size of the informal economy in this region.

Working poverty shares at the US$1 a day level further decreased to a low level of 8% and also, at the US$2 a day level decreased by a considerable 8.2 percentage points to 25.4%.

The ILO said that South Asia was the leader in jobs growth during 2007, contributing 28% of the nearly 45 million jobs created during the year worldwide.

At the same time, the region has the highest share of vulnerable employment, much of it reflecting the poor quality of jobs created. More than seven out of 10 people are either own-account workers or contributing family workers, carrying a higher risk of being unprotected, without social security and without a voice at work.

In terms of vulnerable employment as a share of total employment, South Asia, with a rate of 77.2%, was followed by sub-Saharan Africa at 72.9%, South-East Asia and the Pacific at 59.4%, East Asia at 55.7%, Latin America and the Caribbean at 33.2%, the Middle East at 32.2% and North Africa at 30.7%.

The report noted that East Asia appeared to be on its way to becoming a middle income region, as sustained productivity growth had increased incomes and helped lift millions of people out of poverty. In 2007, East Asia registered a GDP growth rate of 10.4%, the strongest annual rate of growth in the last decade.

Total employment in 2007 increased by 7.5 million, 0.9% more compared to the previous year. This increase accounts for 16% of all jobs created in the world in 2007. The unemployment rate continues to remain at low levels. It decreased between 2006 and 2007 and was 3.3% in 2007, the lowest rate observed in any region and any year between 1997 and 2007.

The estimated share of East Asian workers living with their families below the US$2 per day poverty line dropped to 35.6% today from 59.1% 10 years ago, while the percent living below US$1 per day had decreased to 8.7% from 18.8% over the same period.

The Developed Economies and European Union (EU) region grew by 2.5%, less than the year before. The smooth performance of the region in recent years (the ten year annual growth rate was 2.6%) was slightly disturbed as a result of turbulence stemming from a crisis in the US housing sector.

Labour market indicators for the region did not confirm the positive trends of more recent years, but showed signs of some stagnation between 2006 and 2007. The number of unemployed increased by 600,000 and was 32.1 million in 2007.

The outlook for the coming years is not as positive, said the ILO. The IMF apparently saw the slowing down effect caused by oil prices and the turbulence in the US housing sector as so important that they reduced their forecast for growth in the region from 2.6% to 2.2% for 2008.

But, now that growth for GDP in the region is forecast to be only 2.2% instead of the original 2.6%, it is expected that 240,000 fewer jobs will be created in 2008 than would have been created with a GDP growth of 2.6%.

However, the ILO analysis also indicated that from a global perspective this downward tendency in the developed economies would be “offset by the rest of the world”, largely due to strong economic and jobs growth in Asia. +

 


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