The annual report of the International Institute for Labour Studies projects a grim future for employment prospects.
WITH the United States and much of Europe grappling with the slowdown in their economies and the resultant social unrest, the publication of the World of Work Report 2011: Making Markets Work for Jobs could not have come at a more opportune moment. Brought out by the International Institute for Labour Studies, which was established in 1960 by the International Labour Organisation, the report projects a grim future for employment prospects.
Quality employment growth remained weak throughout 2009-10, with temporary jobs dominating employment growth in advanced economies. The debt crisis in Greece fuelled by austerity measures and cutbacks and the we are the 99 per cent protests in the U.S., despite its national jobs plan, exemplify in a sense the nature of the current crisis. Jobs have to be put back on the global agenda and the responsibility for doing so lies with national governments, asserts the report.
The situation since the collapse of the investment bank Lehman Brothers in 2008 has taken a turn for the worse despite some initial signs of recovery. The difference is that in 2008-09, the early years of the recessionary phase, there was an attempt to coordinate policies, especially among the G20 nations. Countries are now increasingly acting in isolation, which leads to more restrictive policies and the pressure of greater competitiveness. The overall impact of this, coupled with restricted demand and reduced household consumption, has been to squeeze labour in every conceivable manner. And labour in turn has become pessimistic about employment and wage prospects. The report says that not enough attention has been paid to jobs as a key driver of recovery and more importance has been given to appeasing financial markets, to fiscal austerity and to finding ways to help banks without reforming the processes that led to the present crisis. More often than not, employment policies are examined through a fiscal lens, says the report.
It says that the world economy has now entered a new phase of economic weakening, with some European countries re-entering recession. Although the impact on the labour market may be felt only after six months, the slowdown is bound to have a much quicker and stronger impact on employment. The report estimates that employment in advanced economies will not return to pre-crisis levels until 2016. But, more importantly, it focusses on the growing social unrest and says that in 40 per cent of the 119 countries surveyed the risk of social unrest has grown considerably since 2010. Fifty-eight per cent of the countries show a growing percentage of people who report a worsening in their standard of living. Governments are seen unable to deal with these new situations, and confidence in the ability of governments to deal with them has also taken a beating.
Contrary to the general perception, the rise in the levels of social discontent had its epicentre in advanced economies. The same discontent had receded in Latin America and stabilised in sub-Saharan Africa, which until some years ago ranked very low in many social and economic indices. The spillover effect in developing and emerging economies is also visible in declining exports and job creation. The depressed demand in importing countries coupled with their unstable financial situations and low investment has begun to affect growth prospects in the emerging economies as well. One method of ensuring some job recovery is through making credit available to small firms. A survey of small firms in the European Union revealed that the lack of adequate finance was their most pressing problem. For developing countries, the report recommends greater and targeted public investment, including in agriculture.
The other casualty in this crisis has been wages. The report says that over the past two decades, the majority of countries have witnessed a decline in the share of income accruing to labour. Compared with gains in productivity, there has not been an accompanying increase in the real incomes of wage earners and self-employed workers. This wage moderation has not resulted in any added investment; presumably, all the gain went into profits that were not used for any employment generation. Wage moderation, says the report, contributes to exacerbating imbalances, which coupled with the inefficiencies of the financial system led to and is perpetuating the crisis. Had there been a balance, the shortfall in demand would have been addressed.
The onus is on governments to devise policies through social dialogue, well-designed minimum wage instruments and collective bargaining accompanied with renewed efforts to promote core labour standards. Interestingly, the dividend pay-out ratio in the emerging economies of Brazil, China and South Africa has remained constant. In Latin America, for example, in Peru, profit-sharing is compulsory; in Ecuador, it is supported by legislation. In France, too, there is some form of compulsory sharing of profits. The report says that studies show that highly skewed executive pay has a detrimental effect on corporate earnings and productivity and has a depressing effect on the morale of firms.
While the nature of employment growth remains largely temporary in character, in emerging economies the trend has worsened towards more informal forms of employment. What is of equal concern is that long-term unemployment rates have gone up globally owing to the prolonged labour market recession.
The report says that the global social climate has worsened. The unrest seen in West Asia, North Africa and also parts of South Asia, including regime change in a few countries, is not confined to those regions alone. The report says that there has been a significant increase in the number of street demonstrations and protests in advanced countries, and quoting a global survey of 150 countries, it says that socio-economic insecurity has heightened across the world.
Uniformly, it has found that a vast majority of people are dissatisfied with their jobs. Dissatisfaction over jobs is seen to be the highest in central and eastern Europe, the Commonwealth of Independent States (CIS) and sub-Saharan Africa and lower in the countries that went through the Jasmine revolution. This begs the question whether eastern Europe and the CIS benefited at all from the collapse of the Berlin wall and the new situation that was thrust on them as a consequence. Among the advanced economies, the problem is more acutely felt in Greece, Portugal, Italy, Slovakia, Slovenia and Spain, where more than 70 per cent express dissatisfaction over jobs. Unemployment and lack of disposable income are seen as the prime drivers behind the current social unrest.
The report errs partially in its understanding of the social unrest caused by rising food prices. It argues that it is the rapidly growing populations in developing economies that are increasing the pressure on limited food supplies and causing a rise in food prices and social unrest. The inequitable distribution of food consumption and expenditure on food and the decline in investment in agriculture also need to be looked at in this context. Considering the low disposable income of the poor, they are certainly not consuming more.
One of the more important features of the report is the section on the falling share of labour in income. For several decades, it says, labour's share of income has lost ground to capital. The wage share declined in almost three-quarters of the 69 countries for which data exist. The fall has been more pronounced in the emerging and developing economies, such as India, than in advanced ones, and more pronounced for unskilled workers. The decline in wages has not resulted in reducing unemployment. The report admits that financial globalisation has resulted in a decrease in the bargaining power of workers. It recommends that the decline in the wage share should be arrested in the interests of generating demand and employment.
There is no doubt that an income-generating strategy will lead to greater demand and employment without aggravating fiscal deficits. The wage share decline has been the sharpest in North Africa since 2000 and the lowest in Latin America, which somewhat explains the lack of social unrest there.
The report candidly says that the global economic outlook has only deteriorated since 2010. On current trends, it says, nearly 80 million jobs will need to be created to return to pre-crisis employment levels, and the present slowdown shows that only about half of the jobs needed are going to be created. While the share of profit in the gross domestic product (GDP) increased between 2000 and 2009 in 83 per cent of the countries analysed, the share of wages declined and so did productive investment. On the other hand, corporate profits have accumulated. The report debunks the adage that wage moderation leads to job creation. It instead calls for a comprehensive income-led recovery strategy, which, it says, will help stimulate investment and reduce excessive income inequalities.
However, this is not all. The income gaps between people within countries continue to be horrifically high. At one end of the spectrum, there is a vast majority subsisting and grappling with astronomical food prices while a minuscule minority is spending far more than its capacity and requirement.
What is needed is a long-term strategy and more government intervention. National governments can do far more on their own, provided they have the political will to do so. There cannot be a disproportionate focus on social measures and the labour market when it comes to reducing public debts and deficits. It is clear that there have been several developments that have contributed to the crisis. Social unrest is but the natural outcome of the crisis
