Unacceptably high unemployment in G20, say ILO/OECD

Unemployment in many of the world’s major economies is unacceptably and persistently high, according to the International Labour Office and the Organization for Economic Cooperation and Development, which are calling for a combination of supportive macroeconomic policies and employment, labour market and social protection policies to improve the jobs outlook.

by Kanaga Raja

GENEVA: “In the absence of widespread and sustained economic growth, unemployment remains at an unacceptably high level in many G20 countries,” the International Labour Office (ILO) and the Organization for Economic Cooperation and Development (OECD) have said.

In a joint statistical update for the meeting of labour and employment ministers from the G20 grouping of major economies held in Moscow on 18-19 July, the ILO and OECD warned that persistently high and mainly cyclical unemployment in several G20 countries is heightening the risks of labour market exclusion and structural unemployment.

In over half of countries, the share of long-term unemployment in total unemployment remains above its pre-crisis level, both organizations said.

“The situation calls for strong and well-designed employment, labour and social protection policies applied in conjunction with supportive macroeconomic policy mixes to address the underlying demand and supply conditions of each economy,” the two added.

Call for cooperation

In a separate joint statement for the G20 meeting in Moscow, ILO Director-General Guy Ryder and OECD Secretary-General Angel Gurria called upon the ministers of labour and employment of the G20 countries to “reinforce their cooperation with a view to enhancing the design and scale of their employment, labour market and social protection policies in order to achieve higher levels of productive and rewarding employment and to contribute to a strengthening of the world economy”.

They noted that even though six years have elapsed since the start of the global financial crisis, the rate of employment growth remains weak in most G20 countries, preventing a significant decline in high levels of unemployment and underemployment.

“Over the last 12 months, unemployment has dropped marginally in half of the G20 countries while it has risen in the other half. Unemployment is above 25% in South Africa and Spain; 11% or above in France and Italy and for the EU as a whole; above 7% in Canada, Turkey, United Kingdom and United States; and below 6% in Australia, Brazil, China, Germany, India, Indonesia, Japan, Republic of Korea, Mexico, Russian Federation and Saudi Arabia,” they said.

Across all G20 countries, they added, the total number of unemployed reached 93 million in early 2013, some 30% of which on average have been unemployed for over one year.

“The employment to working age population ratio remains below its pre-crisis value in 13 countries. Some 67 million jobs would have to be generated to restore the previous employment to population ratio in all countries.”

In spite of differences in their characteristics, all G20 countries face significant short-term and medium-term employment challenges. A combination of supportive macroeconomic policies and well-designed employment, labour market and social protection policies are required to address these challenges, the heads of the ILO and OECD stressed.

“It is of utmost importance to restore stronger, sustainable economic growth, increase investment and enhance the conditions for renewed bank lending by restoring health to the financial system.”

Both Ryder and Gurria called on the G20 ministers to give youth employment their full attention.

“The situation of young people entering the labour market remains fraught with obstacles. Youth unemployment was above 16% in the first quarter of 2013 in 10 countries, including 5 countries with youth unemployment at 20% or more (France, Indonesia, Italy, United Kingdom, Saudi Arabia, and the European Union) and 2 countries with a rate above 50% (Spain and South Africa).”

Countries that have achieved low youth unemployment rates have combined a supportive economy with rising employment levels, high levels of completion of primary education, strong vocational education, including through dual learning and apprenticeships, as well as strong orientation and guidance for young people, they noted.

“The G20 will be assessed by public opinion around the world on its capacity to deliver on the growth and jobs agenda. This calls for a combination of policies to lift aggregate demand in those countries where it is weak and to enhance business investment and entrepreneurship development more generally.”

Of particular importance, they said, are measures to raise investment, particularly in infrastructure, improved and continued access of small enterprises to bank credit, expand the coverage of social protection, sustain the income of low-paid workers through appropriately-set minimum wages and in-work benefits, promote the role of collective bargaining in setting wages in line with productivity growth, and lift the employment prospects of young women and men.

“The experience of a number of countries suggests that high employment levels and inclusive growth can be achieved through a well-designed combination of supportive macroeconomic policies and employment, labour market and social protection policies,” they said, noting, however, that “this requires a careful balancing between providing adequate income support for those out of work and with low incomes and activation measures which help them to find rewarding and productive jobs”.

Unemployment scenario

The joint ILO-OECD report, titled “Short-term labour market outlook and key challenges in G20 countries”, said that in the last 12 months, somewhat stronger economic growth than in 2011 was recorded in Japan and the United States while the eurozone fell back into recession and growth slowed in many of the G20 emerging economies.

It noted that the unemployment rate exceeds 7% in eight countries and is above 25% in Spain and South Africa. In contrast, it is below 5% in only four countries (China, India, Japan and the Republic of Korea).

Over the year to the first quarter of 2013, the unemployment rate rose further in a number of countries where it was already high, notably in the European Union overall, and in France, Italy and Spain in particular. However, significant declines of at least half a percentage point in the unemployment rate occurred in the Russian Federation, the United Kingdom and the United States.

More generally, said the joint report, labour force participation rates have dropped in nine countries and increased in 11 others. The median labour force participation rate stands at 60%, ranging from a low of 49.4% in Italy to a high of 69.8% in China.

In a number of countries, the impact of the crisis on the labour market has been long-lasting. In 13 G20 countries, employment to working-age population ratios are below their corresponding pre-crisis levels – by more than 4 percentage points in the United States and 10 percentage points in Spain.

“Weak or negative employment growth has meant that the unemployment rate remains above its pre-crisis levels in 13 countries. In early 2013, it was almost 18 percentage points higher in Spain, whereas it was lower by 3 percentage points or more in Brazil, Indonesia and Germany.”

In half of the G20 countries, unemployment rates are higher for women than for men and substantially so in Argentina, Brazil, India and Saudi Arabia.

With unemployment stuck at persistently high levels in some countries, the incidence of long-term unemployment has increased. Since the start of the crisis, particularly sharp increases have taken place in Italy, Spain, South Africa, the United Kingdom and the United States.

However, said the report, significant declines were recorded in Brazil and, from a high base, in Germany and the Russian Federation. The median share of long-term unemployed as a share of total unemployed has risen to 30.2% in the last quarter of 2012, up from 24.6% in end-2007.

Among advanced economies, negative real wage growth in 2012 was recorded in Japan, the United Kingdom and the United States. In France, Italy and Spain, real wage growth has slowed considerably or even turned negative in 2011 and 2012.

“In Germany, the increase was less than 1%, lower than in earlier years. In contrast, reasonably strong growth was recorded in Australia, Canada and the Republic of Korea. In emerging economies, the more recent data point to a decline in the pace of real wage growth except in South Africa. In Brazil and in Indonesia, real wage growth was negative.”

Even before 2008, said the report, G20 countries were grappling with a number of underlying challenges in the labour market which, in some cases, have been exacerbated by the crisis.

“This includes better integration of women, youth, and migrants into the labour market as well as improving labour market prospects for the low skilled. Encouraging and facilitating work at an older age has also been a key policy aim in order to cope with rapid population ageing.”

Job quality

According to the ILO and OECD, concerns around job quality range from rising wage inequality and low or negative real wage growth for some groups of workers to increases in temporary work, insufficient hours of work and persistence of high levels of informal employment.

They also found that the share of informal employment in non-agricultural employment remains substantial in several countries, reaching more than 70% in the case of Indonesia and India. This high share has declined recently in only few countries, notably Argentina and Brazil.

In many of the advanced G20 economies, a significant and often growing share of the workforce is employed on temporary contracts. In 10 countries, the incidence of temporary employment lies between 10% and 25%, with a high share of women and youth.

Youth unemployment rates remain at high levels in many G20 countries and, in all of them except Germany and Japan, are more than twice as high as the rates for adults, said the report. The absolute difference between the youth and adult unemployment rates is particularly large (over 25 percentage points) in Italy, South Africa, Spain and Saudi Arabia.

“Relative to their pre-crisis levels, youth unemployment rates have risen in 12 countries, most notably in Italy and Spain, and remained little changed elsewhere except for significant declines in Brazil, Germany and Indonesia. The youth unemployment rate has risen to 20% or more in six countries and reached more than 50% in South Africa and Spain.”

Of particular concern, the report noted, is the share of unemployed youth who have been unemployed for 12 months or more (i.e., the long-term unemployed). This reached 23.3% on average, with increases in 10 countries and a decline in four. (SUNS7630)                

Third World Economics, Issue No. 550, 1-15 Aug 2013, pp12-13