Jobs go missing

The World of Work 2012 report presents a bleak picture of the global job situation.

FOUR years after the global crisis erupted in 2008, organisations such as the International Labour Organisation (ILO) believe that labour markets still have not fully recovered. The world economy is not expected to grow at a sufficient pace over the next couple of years to overcome the crisis. These organisations present some depressing facts: those who have been out of employment for a long time will find it difficult to get back to work and for those with jobs, the nature of employment is precarious and unstable.

The International Institute for Labour Studies' (IILS), established by the ILO in 1960 as an autonomous centre for advanced studies in the social and labour fields, in its report World of Work 2012: Better jobs for a better economy, paints a dismal picture of global employment prospects. It reiterates its position that there is no link between labour market reforms and employment levels.

Labour market reforms have to be accompanied by social protection measures. The report seems to suggest that there are surplus economies but there is no wage growth commensurate with productivity.

The IILS Director, Raymond Torres, is of the opinion that it is not a normal employment slowdown and that the labour market imbalances have become more structural. Policy strategies continue to shift away from job creation and improvement and have concentrated on cutting fiscal deficits at all costs. Employment regulations have been relaxed in most parts of the globe and the situation in southern Europe, where austerity and deregulation have reached very high levels, economic and employment growth has only worsened. Torres calls it an austerity trap. Fiscal austerity, he says, has resulted in weaker economic growth, increased volatility and a worsening of banks' balance sheets, leading to a further contraction of credit, lower investment and, consequently, more job losses.

Deregulation policies, glimpses of which are seen in India, too, the report says, will fail to boost growth and employment in the short term, which is the key time horizon in a crisis situation. Less stringent regulation in a period of recession may lead to redundancies, says the report. At the same time, the weakening of collective bargaining will result in wages going down. The report offers a three-pronged strategy: strengthening of labour market institutions, a coordinated increase in the minimum wage, and implementing core labour standards, especially in developing and emerging economies, which include India.

The alternative

The World of Work report stresses that it is important to restore a favourable business environment for small enterprises. It is optimistic that it is possible to create employment even with tightening expenditures. While in advanced economies the priority, recommends the report, should be on ensuring that unemployed youth receive adequate support and new jobs, in the emerging economies the stress should be on social protection, stimulation of aggregate demand, and public investment, all of which have been only notionally on the priority list of the Indian government.

The report questions the premise that is currently in vogue that growth follows austerity and that, in turn, jobs will follow such growth. This approach is fallacious and has proved counterproductive, says the report. The voice of the real economy is as important as that of the financial sector, and the report seems to hint that it is the latter that is being heard more. It calls for the creation of employment and social observatories as well as consultative national forums where economic and social policies are discussed by governments and social partners.

Job quality, social unrest

The report says there are marked cross-country differences in recent employment trends and employment rates have recovered much faster in emerging and developing economies. It does not say much about the quality of employment in these economies, though. But the situation, according to the report, is far graver in the advanced economies where unemployment among the youth is as high as 80 per cent. Even where employment has been provided, much of it has been on a short-term basis with involuntary part-time work, and temporary employment has been on the increase. The share of informal employment has been on the rise, at more than 40 per cent in two-thirds of emerging and developing economies.

Interestingly, countries such as Austria, Belgium, Brazil, Chile, Germany, Peru, Thailand, Indonesia, Poland and Uruguay have increased their employment rates without compromising on job quality. But shockingly, the report says that poverty rates have gone up in half of the advanced economies and one-third of the developing economies. Inequalities have widened in terms of access to education, food, land and credit. It also says that the levels of social unrest increased in a larger number of countries in 2011 vis-a-vis 2010 and it appears to be concentrated in Africa, and West Asia. It also says that in parts of Asia and Latin America, discontent is on the wane owing to job recovery and improved employment quality. This assessment may not be entirely correct if the current inflation rate of essential food items in India is any indication.

Wage factor

One yardstick that determines the quality of employment and the subsequent standard of living is wages. The wages paid to workers in non-standard employment are low, says the report. In European countries, the wages paid to fixed-term contract workers is much lower than what is paid to permanent employees. In an analysis of the temporary contracts in advanced and developing countries, the report finds that temporary workers are paid 40 per cent lower than permanent workers in a number of countries. Even more interesting and worrisome is the fact that the new jobs that were created between 2007 and 2010 in some 20 countries studied were unstable in nature apart from being low paid.

Even though global poverty levels may have come down when compared with the 1990s, the report states, increases in fuel and food prices in the subsequent decades ensured that the positive trends were reversed. The poverty threshold itself is different for advanced and developing economies. While in developing economies it is an absolute measure calculated as the percentage of the population living on incomes below the national poverty rates, in advanced economies the poverty threshold is defined as that part of the population that lives on an income less than 60 per cent of the median income. The report says that now an increasing number of those who are working are poor though historically poverty was associated with joblessness.

The issue of low pay and the working poor, says the report, is crucial for implementing the policies that aim to address poverty. The labour market situation needs a shift in policy approach. Ill-conceived labour market reforms and fiscal austerity that seem to be the buzzwords in developing economies like India have to be abandoned. The report stresses job quality. However, the trend across nations seems to be to move away from job quality to a loosening of employment regulations. Between 2008 and March 2012, the report says, 40 out of 131 countries altered their employment protection regulations for permanent employees, mainly modifying their severance payments and notice periods. In the same period, 25 out of 131 countries changed their laws on collective dismissals on economic grounds; in 60 per cent, they facilitated the process or even reduced the requirements for collective dismissals. Simply put, this meant, hire and fire was made easy.

In fact, collective bargaining is regarded as an impediment to the correct functioning of the economy and social partnership is viewed as an obstacle to implementing austerity and anti-crisis measures. Critical of this shift, the report says any policy debate should focus on an efficient design of regulations and institutions, rather than on less regulation versus more regulation.