Geneva – It is unlikely that the world economy will grow at a sufficient pace over the next couple of years to both close the existing jobs deficit, estimated in 50 million posts, and provide employment for the over 80 million people expected to enter the labour market during this period, says a new report.
Over the past year, labour markets have been affected by the slowdown in global growth, according to the World of Work Report 2012, of the International Labour Organization (ILO).
The trends are especially worrying in Europe, “where the unemployment rate has increased in nearly two-thirds of these countries since 2010;” but labour market recovery has also stalled in other advanced economies, such as Japan and the United States.
Elsewhere, employment gains have weakened in terms of the needs of a growing, better educated working-age population, as in China. And jobs deficits remain acute in much of the Arab region and Africa, adds the report.
“This is not a normal employment slowdown. Four years into the global crisis, labour market imbalances are becoming more structural, and therefore more difficult to eradicate.”
Risk of Exclusion, Instability
“Certain groups, such as the long-term unemployed, are at risk of exclusion from the labour market. This means that they would be unable to obtain new employment even if there were a strong recovery.”
In addition, for a growing proportion of workers who do have a job, employment has become more unstable or precarious, it alerts.
In advanced economies, involuntary part-time employment and temporary employment have increased in two-thirds and more than half of these economies, respectively.
The share of informal employment remains high, standing at more than 40 per cent in two-thirds of emerging and developing countries for which data are available.
Women and Youth Disproportionately Affected
The report warns that women and youth are disproportionately affected by unemployment and job precariousness. In particular, youth unemployment rates have increased in about 80 per cent of advanced economies and in two-thirds of developing economies.
“Job instability is, above all, a human tragedy for workers and their families; but it also entails a waste of productive capacity, as skills tend to be lost as a result of excessive rotation between jobs and long periods of unemployment or inactivity.”
More job instability therefore means weaker productivity gains in the future and less room for prospering and moving up the career ladder.
Social Unrest High in Europe, Middle East, North Africa and sub-Saharan Africa
The jobs deficit is going hand-in-hand with a prolonged investment deficit – another sign that the crisis has entered a new phase.
On average, Latin America – where there has been a degree of employment recovery and, in a few cases, improvements in job quality – has experienced a decline in the risk of social unrest, according to ILO.
“The worsening situation reflects the austerity trap in advanced economies, primarily in Europe.”
The Austerity Trap
ILO report warns that austerity has, in fact, 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.
“Ironically, this has adversely affected government budgets, thus increasing the demands for further austerity. It is a fact that there has been little improvement in fiscal deficits in countries actively pursuing austerity policies.”
With regard to deregulation policies, the report finds that they “will fail to boost growth and employment in the short term – the key time horizon in a crisis situation. Indeed, the employment effects of labour market reforms depend heavily on the business cycle.”
In the face of a recession, it adds, less stringent regulation may lead to more redundancies without supporting job creation. Likewise, the weakening of collective bargaining is likely to provoke a downward spiral of wages, thereby delaying recovery further.
No Clear Link Between Labour Market Reforms and Employment Levels
In general, the report confirms findings from earlier studies that show there is no clear link between labour market reforms and employment levels. Interestingly, within the range in which the majority of countries lie, adequate employment regulations tend to be positively associated with employment.
Beyond that, badly designed regulations may adversely affect labour market performance. In these cases, there are grounds for considering reforms as part of social dialogue and in conjunction with social protection measures. This policy has been successfully pursued in the recent past in countries such as Austria and Brazil.
… But Spreading to Other Countries
Many emerging and developing countries pursued a strategy of boosting domestic demand in order to compensate for weaker prospects for exporting to advanced economies, according to ILO.
There are signs that in some of these countries, such as India, Latin America, South Africa and, more recently, China, wages have grown to catch up with productivity. Public investment and social protection have also been reinforced and regional
integration has proved helpful.
“Nevertheless, even in these countries, labour markets and real investment are not immune to the global economic weakening. Volatile capital flows has also aggravated the instability of the real economy and the possibility for creating better jobs.”
It is therefore crucial to pursue further the present approach of boosting domestic demand, complementing it with better enforcement of core labour standards and measures to avoid destabilising capital flows.
Read full Report.