Ques No. 32 GLOBAL EMPLOYMENT TRENDS

GLOBAL EMPLOYMENT TRENDS

The challenge of a jobs recovery

“Urgent action is required now to boost economic recovery and job creation” Juan Somavia

A central theme of this Global Employment Trends 2011 report is that while global economic growth is rebounding on a better than expected trajectory, the global labour market is, in many respects, behaving as anticipated in the middle of the crisis and highlighted in the Global Employment Trends 2010 report: stubbornly elevated unemployment and slow employment generation in developed economies coupled with widespread decent work deficits in even the fastest-growing developing economies. In the context of a robust, though uncertain and unbalanced economic recovery, these labour market challenges represent a serious threat. Without a sound and sustainable recovery in labour markets – one that helps to address the global imbalances that contributed to the crisis – the broader macroeconomic recovery will find itself resting on an uncertain and weakening foundation.

Unemployment remains elevated

• The number of unemployed stood at 205 million in 2010, essentially unchanged from the year earlier and 27.6 million higher than in 2007, with little hope for this figure to revert to precise levels in the near term. The global unemployment rate stood at 6.2 per cent in 2010, versus 6.3 per cent in 2009, but still well above the rate of 5.6 per cent in 2007.

• The elevated level of global unemployment stands in stark contrast to the recovery that has been seen in several key macroeconomic indicators: real global GDP, private consumption, gross fixed investment and world trade had all recovered by 2010, surpassing pre-crisis levels.

• There has been an uneven recovery in labor markets, with a continued rise in joblessness in the Developed Economies and European Union region, a steady to slightly improving unemployment picture in most developing regions.

A recovery in growth that has not brought about a comparable recovery in employment

• At the global level, the employment-to-population ratio, which indicates whether the employment generating capacity of a country or region is rising or falling, declined from 61.7 in 2007 to 61.2 in 2009 and is estimated at 61.1 per cent in 2010. Many economies are simply not generating sufficient employment opportunities to absorb growth in the working-age population.

• In 64 countries for which quarterly data are available, as of the second quarter in 2010, the number of countries with falling employment-to-population ratios was still twice the number that had rising ratios. It is clear that the ongoing economic recovery is not yet leading to a sufficient expansion in employment opportunities in many countries.

Industrial employment hardest hit

• Total global employment in industry declined slightly in 2009, which is a major divergence from the historical annual growth rate of 3.4 per cent over the period from 2002 to 2007. Employment in agriculture grew in 2009, which also represented a divergence versus historical trends.

Labor markets in the global economic crisis

Prior to the global economic crisis, from 2001 to 2006, global GDP was growing at an average annual rate of more than 4 per cent, with employment growing at a slightly slower pace than labor productivity (1.9 per cent growth per year versus 2.2 per cent). However, these relatively favorable global trends mask imbalances in the global economy that grew significantly in the period leading up to the global economic crisis, including over reliance on exports and limited domestic consumption in many developing countries and over reliance on credit and consumption and unsustainable low savings rates in many developed economies. In addition, while growth rates and financial markets raced ahead in the lead-up to the economic crisis, growing inflation in food and fuel prices threatened to put millions more in poverty.. The ILO estimates that the stimulus packages enacted in the G20 countries saved or created some 21 million jobs. Estimates of some of the larger stimulus packages enacted in non-G20 countries show that another 5 million jobs were created or saved. Yet, despite the massive policy response to the crisis, this report has demonstrated that the impact of the crisis on the global labor market has been severe. Employment growth at the global level fell to 0.7 per cent in 2009 and the global unemployment rate increased to 6.3 per cent, from 5.6 per cent in 2007. The number of unemployed around the world surged from 177.3 million in 2007 to 205.2 million in 2009, an increase of 27.9 million. Overall, the number of workers in vulnerable employment is estimated at 1.53 billion workers globally in 2009, more than half of all workers in the world. The crisis halted a steady decline in the share of workers living in poverty. One out of every five workers in the world is estimated to have been living with their family in extreme poverty of less than US$ 1.25 per person per day in 2009. The estimated rate for 2009 is 1.6 percentage points higher than the rate projected on the basis of the pre-crisis trend, resulting in around 40 million more working poor at the extreme US$ 1.25 level in 2009 than would have been expected on the basis of pre-crisis trends. The share of workers living with their families below the US$ 2 a day poverty line is estimated at around 39 per cent, or a total of nearly 1.2 billion workers worldwide.

Prospects for an economic and jobs recovery

GDP growth estimates for 2010 have seen successive upward revisions by the IMF, with the most recent estimate of growth at 4.8 per cent. However, downside risks continue to predominate, with growth for 2011 projected to slow to 4.2 per cent. There is clearly a great deal of uncertainty as to the strength and likely trajectory of the ongoing recovery. As highlighted in the OECD Economic Outlook and the UN World Economic Situation and Prospects 2011 report, key risks going forward that could substantially reduce global growth include persistent unemployment, further deterioration in real estate markets, adverse effects of high levels of sovereign debt, exchange rate volatility and failure to coordinate policies at the international level. In addition, the global economic recovery has been highly uneven, renewing concerns about the need to rebalanced global growth. Growth remains subdued in many economies in the Developed Economies and European Union and Central and South-Eastern Europe (non-EU) and CIS regions, while many economies in Asia and Latin America have recovered strongly and are converging towards pre-crisis trend rates. This report has shown that the recovery in the labor market is occurring with a substantial lag, both slower and more modest than the recovery in GDP. The global unemployment rate is estimated to have changed little in 2010 and, at 6.2 per cent, remains elevated well above the precrisis norm. The increase in some countries’ debt that has come about from higher levels of government spending and reduced government revenues has raised the cost of borrowing, evidenced by rising bond yields. This has resulted in pressure for near-term fiscal consolidation, precisely in those countries hardest hit by the crisis, especially in the Developed Economies and European Union region.

Policy considerations

This pattern of slow recovery in the labour market, along with heightened pressures for fiscal austerity, raises two broad macro-policy options: continued stimulus versus fiscal consolidation. The argument for fiscal consolidation is clear. If bond yields remain elevated or rise further in some countries, the cost of borrowing will remain unsustainably high, making increases in investment, GDP growth and employment generation more onerous. However, the arguments for maintaining stimulus are also multiple. It is clear that the ongoing labour market recovery is very weak, especially in the Developed Economies and European Union region. Investment growth in this region continues to be weak, and private investment has not yet shown signs of increasing significantly. If public expenditures are reduced, aggregate demand will fall, putting further downward pressure on GDP and employment. Many economies have begun a careful tightrope walk from stimulus to fiscal consolidation. The timing and sequence in the reduction of expenditures will be critical to navigating a smooth recovery. At the same time, where fiscally feasible, it is crucial to maintain or enhance measures that can help boost employment generation and jump-start a sustainable jobs recovery. This is an end goal in its own right; however, improved labour market outcomes would also provide support for the broader macroeconomic recovery and could help offset the adverse effects of fiscal consolidation. As it is clear that the global imbalances that helped bring about the crisis have persisted into the recovery, it is essential for (primarily developed) deficit countries to boost net exports, which, in turn, would lead to increased demand and more space for fiscal consolidation. Developing countries that have been reliant on exports for growth need to strengthen domestic sources of demand. As developing economies have typically benefited from a faster rebound in growth, underpinned by comparatively greater fiscal space and solid macroeconomic fundamentals, there is a sound basis for a reorientation of growth toward domestic consumption. At the same time, major shifts in sources of global growth may lead to unforeseen instabilities, and countries must recognize that domestic policies can have major effects abroad. Strengthening mechanisms for international cooperation, including through the G20, is essential to ensuring a sustainable, balanced recovery. As the ILO Director-General noted in his statement to world leaders at the 2010 G20 Summit in Seoul, “Rebalancing the global economy so that growth is both strong and sustainable requires more than adjustments to currencies and financial regimes. Investing in social protection and quality jobs will encourage entrepreneurship and investment in the real economy and get sustainable growth moving.” The ILO’s Decent Work Agenda and Global Jobs Pact are important instruments in this regard, and are increasingly entering the mainstream of national and international efforts to achieve balanced growth and development.

Regards

Submitted by -: Roshni Rai ( MBA I C )