World of Work Report 2010: ILO says long “labour market recession” worsens social outlook in many countries

GENEVA (ILO News) – A new report by the research arm of the International Labour Organization (ILO) says a long “labour market recession” is worsening the social outlook in many countries.

The new study entitled “World of Work Report 2010 – from one crisis to the next?” acknowledges that three years into the crisis, the global economy has resumed growing, with some countries witnessing encouraging signs of employment recovery – significantly in emerging economies in Asia and Latin America.

However, the report by the ILO’s International Institute for Labour Studies also warns that “despite these significant gains … new clouds have emerged on the employment horizon and the prospects have worsened significantly in many countries”.

The ILO study says that, if current policies persist, a recovery in employment to pre-crisis levels will be delayed until 2015 in advanced economies, instead of 2013 as it projected one year ago.

At the same time, the report says, while employment in the emerging and developing countries has resumed growing, over 8 million new jobs are still needed to return to pre-crisis levels in those countries.

“The longer the labour market recession, the greater the difficulties for jobseekers to obtain new employment,” the ILO report says. “In the 35 countries for which data exists, nearly 40 per cent of jobseekers have been without work for more than one year and therefore run significant risks of demoralisation, loss of self-esteem and mental health problems. Importantly, young people are disproportionately hit by unemployment.”

“Fairness must be the compass guiding us out of the crisis,” said ILO Director-General Juan Somavia. “People can understand and accept difficult choices, if they perceive that all share in the burden of pain. Governments should not have to choose between the demands of financial markets and the needs of their citizens. Financial and social stability must come together. Otherwise, not only the global economy but also social cohesion will be at risk.”

Among the key findings of the new ILO study based on data from some 150 countries:

* Cases of social unrest related to the financial and economic crisis have been reported in at least 25 countries – many of them in advanced economies. In some recovering emerging economies, social unrest over the level of wages and working conditions has been registered.
* Many countries that experienced positive employment growth at the end of 2009 are now seeing a weakening of the jobs recovery. At the same time, the report says that by the end of 2009, more than four million jobseekers had stopped looking for work in the countries for which information is available.
* In more than three-quarters of 82 countries with available information, peoples’ perceptions of their quality of life and standard of living declined in 2009 compared to similar data from 2006.
* Even among people with jobs, satisfaction at work has deteriorated significantly with a sense of unfairness growing in 46 of 83 countries.
* In 36 of 72 countries, people have less confidence in governments now than prior to the crisis.

The study provides new evidence to support the conclusions of a historic joint ILO and International Monetary Fund (IMF) conference held in Oslo on 13 September to discuss challenges of growth, employment and social cohesion. The study data underscore the urgency of implementing calls by the Conference for placing employment creation at the heart of the economic recovery, and making full employment a key macroeconomic objective alongside low inflation and sound fiscal policies.

Raymond Torres, Director of the International Institute and lead author of the report, said two main reasons explain the bleaker outlook facing many countries in the global economy: “The first is that fiscal stimulus measures that were critical in averting a deeper crisis and helped jump-start the economy are now being withdrawn in countries where recovery, if any, is still too weak,” he said. “The second, and more fundamental factor is that the root causes of the crisis have not been properly tackled”.

The report says “the coexistence of private-debt-led growth in certain developed countries with export-led growth in large emerging economies has proved to be the Achilles’ heel of the world economy”. Recovery will be fragile as long as labour incomes continue to grow less than justified by productivity developments and the financial system remains dysfunctional.

The ILO study provides a three-pronged approach for getting out of the crisis that would stimulate job creation in the short run and better-quality economic growth in the future. This approach would combine, first, the strengthening of job-centred policies in order to reduce the risk of growing long-term unemployment, higher structural informality and skills’ mismatch in the event of recovery. These measures include well-designed active labour market policies, targeted measures to support vulnerable groups, notably youth, training policies that serve the needs of recovery – in countries where this takes place – and employment-oriented social protection. The Report gives concrete examples of how such measures have been used successfully in different regions of the world and are not expensive to the public purse. They support labour market participation and quality jobs in the longer run, thereby reducing pressures on public spending and generating more revenues.

The second policy plank would be to promote a closer link between wages and productivity gains in surplus countries, as this would quickly boost sustainable job creation in both surplus and deficit countries. Such a measure, the study shows, would be more effective in supporting growth in all countries than exchange rate changes.

And a third would require that a true financial reform be carried out that allows savings to be channelled to more productive investment and the creation of more stable jobs.

The World of Work report is an annual study by the ILO International Institute of Labour Studies, which provides an assessment of the current state of labour markets. For more information, please visit the Institute website: http://www.ilo.org/public/english/bureau/inst/