Elusive jobs

Published : Feb 24, 2012 00:00 IST

ACTIVISTS OF THE Occupy Wall Street movement at a rally demanding jobs, in New York on January 16.-EDUARDO MUNOZ/REUTERS

ACTIVISTS OF THE Occupy Wall Street movement at a rally demanding jobs, in New York on January 16.-EDUARDO MUNOZ/REUTERS

It is getting harder for jobseekers to return to gainful employment and for new entrants to find adequate jobs, says the ILO.

THERE is little in the International Labour Organisation's (ILO) annual projection of job growth to cheer about. The year 2012 has been described as a year of stark reality. A third of the global workforce is currently unemployed or poor; that is, 200 million members of the 3.3-billion-strong global labour force are unemployed and a further 900 million live on less than $2 a day. And there is little reason to be hopeful, says the report Global Employment Trends 2012. The recovery that began in 2009, since the global downturn began, was short-lived, it says. The risk is that unemployment in the developed economies is becoming entrenched, and with long-term unemployment rates on the rise it is harder for jobseekers to return to gainful employment and for new entrants to quickly find adequate jobs, the report says.

Crisis conditions, it warns ominously, are spreading out again from advanced economies. There are visible signs of these in the form of rising discontent globally, which was characterised most recently by the Occupy Wall Street movement. Significantly, the report says that not much change can be expected in the global unemployment rate between now and 2016. The youth, especially, are going to be hit hard everywhere. Among the ranks of the employed too, many would find themselves in part-time jobs or on temporary contracts.

The only redeeming feature in the report is the assessment that there is some room for optimism in East Asia. The fact that East Asia seems to have got out of situations of extreme poverty is one reason why extreme poverty rates seem to have declined globally too. It seems the decline has been most pronounced in China.

Three-stage crisis

Workforce participation has fallen globally, and especially in the European Union and developed economies. Since 1991, the report says, this has been the greatest fall in the employment-population ratio. The report says there is evidence of a three-stage crisis. The initial response to the crisis was all about fiscal and monetary stimulus, but these were insufficient to bring about sustainable recovery in jobs, especially in advanced economies.

The second stage defined a period of increased austerity measures and higher public deficits. Growth dipped and so did employment in developed economies. However, economic conditions remained somewhat resilient in East Asia and the Latin American countries, leaving what the report calls more policy space. The shift in growth had begun in the emerging economies, which were now contributing to world demand. Growing trade between the emerging economies themselves led to what is called decoupling and to the emergence of new growth centres that had the potential to stabilise global growth. These economies, says the report, reached pre-crisis investment rates and were expected to exceed these rates over the medium term.

The third stage of the crisis is the diminishing policy space. It is an outcome of tightened policies and persistently high levels of unemployment. Much of the effort, in some cases 90 per cent of the additional public spending, went into bailing out banks. Credit conditions were tightened and high levels of sovereign debt in advanced economies limited the capacity to implement further stimulus programmes.

The report recommends a firm coordination of global policies but does not fundamentally question the trajectory of capitalist development or accumulation that led to the current situation. It says that deficit-financed public spending and monetary easing implemented by both developing and developed economies is no longer a feasible option. It calls for more regulation and substantial repair of the financial system in order to restore credibility and confidence. Stimulus measures, the report says, must target employment.

Of particular concern, as evinced by the report, is that large stimulus packages have been unable to roll back the increase in unemployment (27 million) since the initial impact of the crisis. The report falls short of recommending a key role for the state in employment generation. While emerging economies may not have been similarly affected by the crisis, the report acknowledges there might be a problem here as well. East Asian economies continue to rely heavily on demand conditions in more advanced economies despite the overwhelming evidence of growing trade between the emerging economies. These economies, which continue to rely on export-oriented growth, are particularly vulnerable. But clearly, demand conditions have worsened overall as private households and firms continue to choose to save rather than spend.

Paradox of thrift

Accumulation by the non-financial sector without reinvesting in the economy is another reason for the slump in income-generation avenues and aggregate demand. The report says that there is evidence of many companies holding large amounts of excess cash reserves relative to historical patterns, rather than investing towards productive ends. This has resulted in a paradox of thrift where over-saving by large numbers of companies leads to low levels of investment, which, in turn, reduces prospects for economic growth and job creation and makes a further downturn more likely.

Added to this thrifty behaviour by private companies are austerity measures by governments. The report details the various austerity measures currently undertaken in the advanced as well as some of the emerging economies. These measures are not short-term ones. In some countries like Lithuania, for instance, they have been on since 2009. In others, like the United States, these measures will last longer, until 2021.

This also throws light on why some of these countries have witnessed prolonged and violent protests as a result of the withdrawal of state benefits and welfare measures. For instance, the issues are additional taxes, elimination of tax exemptions and reduction in social sector spending in Greece; freeze on public sector hiring, and cuts in public sector wages and in health care spending in Italy; cuts in public pensions, and raising the age of retirement from 60 to 62 in France; additional taxes, cuts in spending on social security and labour market policies in Germany; and the introduction of a flat 16 per cent income tax for the next two years, reduction of wages in the public sector and elimination of certain benefits in Hungary.

Cuts in public sector wages and social welfare benefits constitute the austerity measures in Ireland, whereas it is reduction in social benefits like health and pensions in Estonia; cuts in salaries of politicians, scrapping of the indexation of minimum wages, revision of maternity leave allowances and rationalisation of public expenses in Lithuania; tighter eligibility criteria for child care allowance, disability and unemployment benefits in the Netherlands; reduction in public sector salaries and hiring (a 15 per cent reduction of Central government services and managerial positions as compared to 2010), freezing of pensions except the lowest pensions in Portugal; a 25 per cent reduction in public sector wages and a 15 per cent reduction in pension and unemployment benefits in Romania; an increase in non-energy tax revenues in Russia; and cut in public sector jobs (13,000 jobs) and pay, scrapping of new-born benefits, cuts in public pension, sale of public sector assets with one-third of public enterprises being either put up for sale or getting closed, in Spain. In Turkey it is the introduction of the fiscal rule bill including cuts in social security; in the United Kingdom it is the abolition of the Child Trust Fund and the cutting of employment programmes. The Budget Control Act of the U.S. is expected to result in an aggregate reduction in government spending to the tune of $1.88 trillion during 2012-2021. Not to forget are the cuts in social sector spending in India.

While elsewhere the employment to population ratio fell, including among women, it went up in Latin America and the Caribbean by five percentage points between 2002 and 2011. But it is the long periods of unemployment that have contributed to social unrest and remain a larger cause of concern.

Currently, some 35 per cent of all jobseekers in the developed economies and the European Union region have been unemployed for 12 months or longer. Many of those long-term jobseekers have actually given up looking for employment altogether, further worsening the labour market picture, says the report.

According to the report, there is an increase in the overall vulnerable employment comprising unpaid family labour and own-account work. Post-2007, this category of workers has been rising steadily.

The report recommends that policy measures need to target the labour market with features like extension of unemployment benefits and work-sharing programmes, re-evaluation of minimum wages and wage subsidies while enhancing public employment services and entrepreneurship incentives. It also recommends that countries should spend less on less employment-rich investments.

But the significant fact is that the role of the state largely remains undefined in the report. When jobs have declined all over, what is needed is employment-intensive industry. The story of high growth, including in India, leaves much to be desired in terms of qualitative outcomes.

Half the jobs lost globally were in the advanced economies; five million were lost in East Asia, three million in Latin America and the Caribbean and one million in South Asia. These figures have only added to the number of millions already unemployed in some of these regions. But the rate of global unemployment has been the severest in the advanced economies.

The private sector, the report suggests, can restart the main engine of global job creation. It seems to be almost unquestioningly accepted that the state cannot deliver. This is disquieting to a large extent.

The picture painted is dismal, but the prescription is not wholesome. It is not merely enough to note that large stimulus packages did not roll back the increasing rate of unemployment. Neither is it enough to prescribe measures that talk broadly about the repair and regulation of the financial sector. Instead of making the private sector the main engine of growth, governments should play a central role in combating unemployment. It is not only growth that is important, but the equal distribution of benefits too. Without this, poverty levels will remain high. It is here that political will is required.

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