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TWN Info Service on WTO and Trade Issues (Dec10/01)
1 December 2010
Third World Network

ILO projects volatile and uneven recovery this year
Published in SUNS #7041 dated 16 November 2010

Geneva, 15 Nov (Kanaga Raja) -- Employment is recovering across economies and sectors in the first half of this year and will continue to do so over the remainder of the year, albeit at an uneven and moderate pace.

This is the projection of the International Labour Organization (ILO) based on new data from 13 sectors in 51 developed and developing countries.

The data has been highlighted in an ILO Working Paper titled "Jobs Recovery: Sectoral Coverage - An overview of employment trends and working conditions by economic activity: First Semester 2010", authored by Erick J. Zeballos and Stefanie Garry.

Among the key findings of the working paper are that employment expanded slowly in the first semester of 2010 across sectors. Globally, manufacturing and construction continued to lose, on aggregate, the largest number of jobs in the first half of 2010, albeit at a slower pace.

Nearly 3.0 and 2.2 million jobs were lost in these sectors, respectively, in the first quarter of 2010 (year-on-year) whereas in the second quarter of 2010 (year-on-year), the fall was greater in construction (1.4 million) than in manufacturing (1.1 million). Manufacturing labour markets remain troubled particularly in Europe.

On the other hand, employment levels in education, health and public administration remained positive in the first semester of 2010, in spite of announced austerity measures in a number of developed economies.

The health sector has by far been the most active in adding jobs during the economic slowdown. Almost 2.8 million jobs were added in the first quarter of 2010 compared to the same period in 2008. This trend remained in the first semester of 2010.

"In 2010, the global economy seems to have entered into a new stage where divergence and volatility, in a number of labour markets, have significantly increased and uncertainty over the stability of the recovery remains high," said Elizabeth Tinoco, Director of the ILO's Sectoral Activities Department.

"These trends are also observed across sectors and vary from country to country. We see this not only in developed countries, but also in strong emerging economies like China, South Africa and Brazil," she added.

According to the ILO working paper, in the first half of 2010, concerns have increased over the weak private consumption in developed economies and the uncertainty of the impact of fiscal consolidation plans in determining the length of the recovery in the short term.

Similarly, the paper notes, there are early signs of a job-less recovery in certain sectors where the economic slowdown may have resulted in a more permanent reduction of employment. This seems to be the case of manufacturing.

The shape and strength of the recovery is likely to depend on how this trend will evolve in the long-term, it adds.

The paper finds that despite stronger activity reported through May 2010, the pace of the economic recovery appears to have slowed globally in recent months.

GDP growth estimates for the second quarter of 2010 (compared to the previous quarter) were moderate in a number of advanced economies, notably in the US (1.6 per cent), the Republic of Korea (1.4 per cent), Canada (0.5 per cent) and Japan (0.1 per cent). Even vigorous emerging economies such as China (10.3 per cent), Brazil (1.2 per cent) and South Africa (3.2 per cent) pointed to a moderation of economic growth over the same period.

Recent concerns over fiscal sustainability may also restrain the stronger-than-anticipated GDP growth projections for the second quarter of 2010 (1.4-1.8 per cent) in the Euro area, says the paper.

The recovery in Europe, with the exception of Germany, is still lagging behind other regions and growth in Organization for Economic Cooperation and Development (OECD) countries remains fragile.

In contrast, emerging and export-oriented economies continue to lead the recovery in the first half of 2010 supported by domestic demand, improvements in inventory cycles, trade and commodity prices.

Real GDP growth projections (year-on-year) remain robust for 2010 in Asia (7.5 per cent), Africa (4.5 per cent) and Latin America (4 per cent).

"The role of these economies for the recovery has increased substantially as they contribute nearly half of global growth," says the working paper.

Employment expanded slowly in the first semester of 2010 across sectors. Globally, manufacturing and construction continued to lose, on aggregate, the largest number of jobs in the first half of 2010, albeit at a slower pace. Nearly 3.0 and 2.2 million jobs were lost in these sectors, respectively, in the first quarter of 2010 (year-on-year) whereas in the second quarter of 2010 (year-on-year), the fall was greater in construction (1.4 million) than in manufacturing (1.1 million).

The pace of job losses also declined in wholesale and retail trade (-0.8 per cent) and in transportation, storage and communications (-0.6 per cent) in the second quarter of 2010 (year-on-year), signalling that the recovery is slowly progressing in these sectors and that they remain highly dependent on the volatility observed both in domestic and export markets in the first half of the year.

Volatility also persists in financial intermediation, says the paper, noting that after early signs of recovery in the first half of 2009, employment levels fell unexpectedly in the third quarter of that year and have been rising and falling quarter-to-quarter since then, confirming that the industry is still undergoing some restructuring, particularly in the UK and the US.

Agriculture remained resilient across regions in the first semester of 2010 compared to 2009 with some volatility observed globally, in the first quarter of 2010 (-1.1 per cent) (year-on-year).

The effects of the El Nino phenomenon in a number of Asian economies seem to be driving these trends, the paper observes, adding that employment levels in this region declined 5.9 per cent in the first quarter of 2010 (year-on-year).

According to the paper, the recovery seems to be continuing in hotels and restaurants and in real estate, renting and business services. Employment levels in these sectors rose 1.5 and 1.1 per cent respectively in the second quarter of 2010 compared to 2009. In fact, in the former, jobs declined only in the first quarter of 2009 (-0.5 per cent) (year-on-year) and, in the latter, no job losses were reported (year-on-year) since the onset of the crisis.

Similarly, employment levels in education, health and public administration remained positive in the first semester of 2010, in spite of announced austerity measures in a number of developed economies.

"Nevertheless, some job cuts are expected in public services over the remainder of
2010 and in 2011 as countries implement fiscal consolidation plans," the paper stresses.

Labour markets continued to adjust across sectors in the first semester of 2010 not only through changes in employment levels, but also in hours of work. After falling consecutively throughout 2009, hours of work began to resume in the first and second quarters of 2010 (year-on-year) in almost all the sectors where information is available with the exception of agriculture, forestry and fishing.

While job sharing and reduced working hours have been critical to mitigate further employment losses, the paper cautions that there are some emerging concerns over the role this strategy may play in delaying the jobs recovery in the near term.

"If employers prefer to increase hours of existing employees over hiring new workers, then the risks of a jobless recovery may be higher."

The paper further warns that fiscal stabilization measures in Europe and a gradual withdrawal of fiscal support in emerging Asia and Latin America may hold back private and government consumption expenditure and slow down the pace of the recovery in the near-term.

Previous fiscal consolidation experiences across OECD countries suggest that fiscal adjustments of 1 per cent of GDP reduced domestic demand by about 1 per cent and raised unemployment rates by 0.3 percentage points over a two-year period.

Looking at the second half of 2010, the paper says that the labour market outlook remains uncertain across all sectors.

It notes that both firms and households appear to be more cautious about their finances, as the initial factors that temporarily boosted the economic recovery, such as fiscal stimuli and the inventory cycle, begin to lose some steam, and uncertainty about labour markets remains high.

Consumer spending, particularly in advanced economies, is rising more slowly than initially estimated.

Private consumption expenditure in Europe remained fragile, in spite of a minor 0.5 per cent improvement in the second quarter of 2010 compared with a 0.1 per cent growth seen in the first quarter of the same year (quarter-on-quarter).

The consumption growth rate declined, over the same period, notably in Greece (-6.2 per cent), Ireland (-0.2 per cent) and some emerging European countries. Consumption growth has also been sluggish (quarter-on-quarter) in major OECD countries such as Japan, France, Germany, the UK and the US.

The paper also finds that households have reacted to unexpected changes in income by adjusting their spending on durable goods. Evidence from developed economies suggests that consumption of durable goods has declined more rapidly than non-durables.

In the US, durable goods spending fell 2.3 per cent towards the end of 2008 compared to a 5.5 per cent fall in non-durables. A similar trend was observed in the Euro area where spending on durables fell 4 per cent compared to 2 per cent on non-durables, over the same period.

The paper further finds that firms also responded to changes in private consumption by contracting investment and rebuilding inventories.

Available data suggests that improvements in business spending over the first semester of 2010 were mainly driven by replacements of equipment that were postponed due to the economic downturn instead of expanding business investments.

These trends seem to be consistent with the overall changes observed in the production and trade of durable manufacturing products since the onset of the economic downturn, and partly explain some of the employment developments observed in the manufacturing sector, the paper says.

"One of the uncertainties we face is what will happen to private consumption in developed countries: will it remain weak or will it pick up? The same goes for fiscal consolidation plans: what impact will they have in the short run on the economy? The shape and scope of the recovery will depend on how these trends evolve," stressed Ms Tinoco of the ILO's Sectoral Activities Department. +

 


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