Labour's loss

The ILO examines the uneven recovery from the global economic crisis which has been incompatible with employment generation.

THE Global Employment Trends 2011 report of the International Labour Organisation (ILO) could not have come at a more appropriate juncture, given the political and economic turmoil in certain countries of northern Africa. The aftermath of the global economic crisis and the uneven economic recovery which has been incompatible with employment generation in many countries form the context of the report, released on January 24. Even though growth rates and private consumption have improved and gross fixed investment and trade in goods and services have gone up, these have not been matched by a corresponding growth in employment creation. It has in effect been a jobless recovery, says the report.

The report does not indicate that the economic crisis is in its death throes. The countries of northern Africa were already in bad shape when the global economic crisis began, especially those that were totally dependent on the United States' economy.

Rather prophetically, the report also cautions about the danger of food inflation, with special reference to South Asia. It does not seem to suggest that high growth rates in the region, especially India, has led to more employment or has been able to correct work deficits and vulnerable employment. A reliable social floor is virtually missing in developing economies. Globally, only a meagre 20 per cent of the world's population in the working age has had access to a comprehensive social security system.

The human cost of recession, the report says, is not confined to a single generation; it gets translated into reduced employability, erosion of skills, lower lifetime earnings, and mental stress. It affects children's schooling as well. Recession also results in low labour productivity and low real wages, which are matters of concern. Countries in the developed world have found it more difficult to emerge from the crisis than those in the developing world. This is not to say that the situation in developing economies has been any better; only that the sectors affected specifically by the recession were more a feature of developed economies and the export-driven economies of East Asia.

The report makes comparisons of employment and growth rates in the pre- and post-recession periods. The report calls the crisis a containable sub-prime mortgage-linked banking crisis in the United States that rapidly spiralled into a full-blown global economic crisis, with sharp contractions in output, trade and investment.

Clearly, the crisis affected different regions in different proportions and also had a differential impact on segments of the population within these regions. Global unemployment, without any doubt, soared to an all-time high in this period. But what the report seems to indicate is that the recovery appears to be much slower in developed economies than in developing economies, where already a large proportion of the people are engaged in the informal sector.

There was some employment growth throughout the crisis period, but it was at half the rate observed in the period preceding it. The contractions, as mentioned earlier, were sharper in developed economies, central and southeastern Europe (non-European Union countries) and countries of the Commonwealth of Independent States (CIS). The employment to population ratio (the share of people of working age in employment) declined from 61.7 per cent in 2007 to 61.2 per cent in 2009, and a further dip was observed in 2010.

Clearly, many developed economies are simply not generating sufficient employment opportunities to absorb growth in the working age population, which again reflects the ongoing lag between economic recovery and a recovery in employment in the region, says the report. In contrast, in developing economies, where already a large number of people were in the informal sector, employment trends were not characterised by formal wage employment but gravitated more towards self-employment, including subsistence farming, unpaid family work, and so on.

A total of 17 million more people have been rendered unemployed since 2007, taking the global total of the unemployed to 118.4 million. Men were hit more badly than women in developed economies, where layoffs occurred in industries dominated by male employment, namely construction and the financial sector. The report coins a new term discouraged workers to describe those workers who do not even enter the labour market; that is, they are not among the employment seekers owing to a lack of perceived employment opportunities. This trend was noticed in developed economies, in the E.U., Latin America and the Caribbean region. The report argues that this aspect needs more study, especially as unemployment rates understate the extent to which the crisis impacted young people. It essentially says that the rate of unemployment was not a sufficient-enough indicator to give a complete picture of the decent work gap that grew so substantially during the crisis.

The impact of the crisis was also felt differently in sectors that employed a large number of people. While employment in agriculture as a proportion of total employment has declined over the years, employment in services saw a phenomenal increase globally. The latter surpassed the former sector in 2001, and the gap between them has grown since then. The share of people employed in agriculture has been going down in developed economies, but in all other regions, such as sub-Saharan Africa and South Asia, it has been rising.

While the global crisis affected industrial employment the most, the hardest hit in this category were developed economies and the E.U. A shift from industry to agricultural employment was seen in the developing regions and, interestingly, in central and southeastern Europe (non-E.U.) and the CIS. This meant that those who lost their jobs in the formal sectors were absorbed in agriculture. The impact of the crisis, says the report, in these regions could have been much worse if it were not for this. A similar absorption in agriculture did not take place elsewhere in Europe or in developed economies.

The shift to services does not necessarily mean better working conditions or better pay. As illustrations from South-East Asia show, sectoral shifts can result in a movement from relatively high value added and hence higher paid manufacturing jobs to relatively low value added and hence lower paid activities in the services sector. In this region, growth was supported by robust stimulus packages, and as a result, private consumption and investment picked up.

The global number of people engaged in vulnerable employment characterised by low pay, difficult working conditions, and undermining of fundamental rights of workers went up by 146 million since 1999; the increases in such employment were noticed most in Latin America and the Caribbean, northern Africa and sub-Saharan Africa. The highest shares, of course, were seen in South Asia, where those vulnerably employed comprise nearly 78.5 per cent of the total employment in 2009, the report estimates. Except in developed economies, the E.U., central and southeastern Europe (non-E.U.) and the CIS, the rest of the world saw more women than men engaged in conditions of vulnerable employment.

Danger of inflation

The report correctly forecasts that while economic recovery may be faster in the Indian subcontinent as compared to developed economies, developing economies face the danger of inflation which, in turn, can lead to higher food and commodity prices with devastating consequences for the world's poor. This is of concern and more immediate relevance in the context of the subcontinent. The report cautions that the large-scale monetary interventions in developed economies could well have an impact on macroeconomic outcomes in developing countries. In this context, the report says that continued global tensions over exchange rates and monetary policy raise the risk of increased protectionism, which could adversely impact investment and trade and have detrimental effects on the region's labour market.

Reflecting on global food prices and poverty, the report says that volatile food prices the reasons for which range from changing consumption patterns to biofuel mandates in developed economies to an increased demand in agricultural staples have already had a negative impact on the world's poor. As households spend more of their incomes on food, not out of choice but out of necessity, other human development indicators get stalled, with less of the income being diverted to health or education. Expanded social safety nets will be necessary to mitigate the labour market effects of further food spikes, says the report.

One interesting feature brought out by the report is the impact of the crisis on different ethnic communities in the U.S., the place where it all began. It says that African Americans faced the highest rates of unemployment before the onset of the crisis, followed by Hispanics, Latinos, whites and Asians. The gaps have grown wider between African Americans and Hispanics on the one hand and between Asians and whites on the other. The fact remains that labour market policies need to be devised across the board and across groups in every country considering the variation in the way the crisis has affected different sections of people.

Clearly, South Asia's experience is different since it relies less on exports unlike East and South-East Asia regions which are export-driven and export-dependent . But this is not to say that all is well in the region. South Asia continues to have the dubious distinction of having the largest number of vulnerably employed people in the world. That could be because of the demography of the region, but income imbalances are stark too.

Low public expenditure

The Indian government's flagship social security scheme, the National Rural Employment Guarantee Scheme, is mentioned in the report. But there is not much information about the far-from-satisfactory functioning of the scheme. This basically underscores the fact that a social security scheme by itself does not guarantee its implementation; it has to be just in character and coverage. The report makes a scathing comment on the low levels of public expenditure in the region: while Bangladesh and Pakistan devoted only 2.7 per cent of their national incomes to education, India invested around 3.3 per cent which is less than the median among countries in sub-Saharan Africa. The report cautions policymakers to be wary of inflation in 2011 saying that the prices of food and basic commodities were going to be a major challenge and urges them to expand social protection accordingly.

In fact, the report throws up interesting information about the situation in northern Africa, which is going through intense political and economic unrest. The region is supposed to be the third fastest growing region in terms of population, and its working age population grew by 27.8 per cent between 2000 and 2010. Most people here aspire for government jobs which are scarce. There is a mismatch between the skills people have and those in demand in the job market. The report says that private sector jobs are considered too demanding, while self-employment is seen as a non-option.

The increase in gross domestic product (GDP) in countries such as Tunisia, Egypt and Morocco in the period was a result of oil exports and tourism revenues. However, pre-crisis labour market challenges persisted in the post-crisis period as well. The unemployment rate in the region soon became the highest in the world. This was mainly because of the high unemployment rate among the youth, with most of the existing jobs being of low quality, underpaid, insecure and without respect for basic labour standards or representation of workers. This accounted for a high share of the informal sector in these countries. Apparently, in Tunisia, which had a small informal sector, the economic crisis could not be cushioned sufficiently by this sector. The report argues that the larger the informal sector, the greater the absorptive capacity during the shock.

What the report essentially says is that globally there is no room for complacency and that growth rates are not an indicator of robust employment. Internationally, what was being witnessed during the period covered was a jobless recovery, and the mismatch between employment and growth needed to be addressed with more public expenditure. So far, private investment in developed economies and in the E.U. has shown no signs of a significant improvement. Labour market recovery too is very slow.

Therefore, a narrow focus on reducing deficits without addressing the challenge of job creation will threaten recovery and harm employment prospects as well, cautions the report. It will be unfair to expect people to remain at working poverty levels (at $2, or Rs.90, a day) all their lives.