Labour

Markets in the Global Economic Crisis

IPD/Growth Dialogue Roundtable on Growth, Jobs and Distribution New York, 12 November 2012

Steven Kapsos Employment Trends Unit International Labour Organization Geneva, Switzerland

Macroeconomic context
Broad global economic slowdown underway Uncertainty hindering growth and hiring
European recession US fiscal cliff Global trade/China hard landing risk Increased geopolitical tensions

Incoherence between monetary & fiscal policies

International coordination?

Labour markets and macroeconomy are caught in a vicious and worsening circle

Trends in aggregate demand components

World
5.0 4.1 4.0 3.5 3.0 2.7 2.0 1.0 0.0 -2.0 -1.0 -3.0 -2.0 -3.0 -4.0 2005 2006 2007 2008 2009 2010 2011 2012 2013p -2.2 -4.0 -4.4 -5.0 -6.0 2005 2006 2007 2008 2009 2010 2011 2012 2013p 1.3 2.3 2.6 1.0 0.0 -1.0 0.3 -0.5 0.1 4.0 4.0 3.0 2.0 1.8 4.0 3.4 3.0 1.9 1.5

Euro Area

Source: EIU Country Data, October 2012

Trends in aggregate demand components

United States
4.0 3.0 2.0 1.9 1.0 0.0 -0.3 -1.0 -2.0 -3.0 -4.0 -5.0 2005 2006 2007 2008 2009 2010 2011 2012 2013p -3.1 4.0 2.0 0.0 -2.0 -4.0 2005 2006 2007 2008 2009 2010 2011 2012 2013p 3.1 2.7 2.4 1.8 2.1 14.0 12.0 2.1 10.0 8.0 6.0 10.1 8.2 7.4 11.4 12.7 10.3 8.5 7.2 7.8

China and Taiwan

Source: EIU Country Data, October 2012

Investment and employment trends US vs. Euro area

120
108

110
Employment index (2005Q1 = 100)

106

Investment index, 2005=100

104

100

102

90

100

80

98

70

96

60 2005 2006 2007 2008 2009 2010 2011 2012 Euro Area US

94 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2005 2006 2007 2008 2009 US 2010 2011 2012

Euro Area

Source: EIU Country Data, October 2012; National statistical office data

Uncertainty, growth & labour markets

IMF October WEO:
+1 st. dev. in uncertainty associated with decline in output growth of 0.41.25 pp. Biggest impact on investment, followed by output and consumption. Increase in policy uncertainty over 20062011 of about 5 standard deviations (~2.5 pp of growth)

SF Fed: Increased uncertainty has lifted the unemployment rate in the United States by at least one percentage point since early 2008.
IMF, World Economic Outlook, October 2012; Leduc, Sylvain, and Zheng Liu (2012). Uncertainty shocks are aggregate demand shocks. Federal Reserve Bank of San Francisco Working Paper 2012-10.

Policy incoherence
Monetary stimulus combined with fiscal austerity
Change in government spending (2012 vs. 2009) (in percentage points) -10 -5 0 5
ARG Monetary contraction with fiscal stimulus IDN BRA ZAF IND MEX FRA ITA AUS GBR KOR CAN USA RUS Monetary contraction with fiscal contraction SAU Monetary stimulus with fiscal contraction Monetary stimulus with fiscal stimulus

JPN CHE

TUR DEU

-20

0 20 40 Change in money supply (2012 vs. 2007) (in percentage points)

60

Source: ILO calculations

Global unemployment
Worsening global employment outlook in 2012 and 2013
220,000 6.6

6.4 200,000 6.2 180,000 6.0

160,000

5.8

5.6 140,000 5.4 120,000 5.2

100,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012p 2013p 2014p 2015p 2016p 2017p Unemployed ('000s) Unemployment rate (%)

5.0

Source: ILO, Trends Econometric Models, July 2012

Regional unemployment trends

Divergence between developed and developing economies
12.0

10.0

8.0

6.0

4.0

2.0

0.0 Developed Central & SouthEconomies & Eastern Europe European Union (non-EU) & CIS East Asia South-East Asia & the Pacific 2008 2009 2010 South Asia Latin America & the Caribbean Middle East North Africa

2011

2012p

Source: ILO, Trends Econometric Models, July 2012

Youth suffering disproportionately

23 million fewer employed youth in 2012 than in 2007 Rising NEET rates in many countries MENA region: youth unemployment rates well in excess of 25%. Spain, Greece: youth unemployment rates in excess of 50%

Sharp rise in discouragement

Falling participation masks an even worse unemployment situation

29 million fewer people in the global labour force in 2011 than expected
54 million additional unemployed or discouraged workers around the world in 2011 than just 4 years earlier Unemployed or discouraged youth up by nearly 10 million

Longterm unemployment
Rising risk of skills erosion and employment weakness becoming structural
Ireland Latvia United States Spain Lithuania Iceland South Africa United Kingdom Denmark Japan Estonia Canada Italy Malta Sweden Australia New Zealand Norway Guyana Cyprus Croatia Hungary France Portugal Luxembourg Guadeloupe Korea, Republic of Finland Greece Mexico Austria Slovenia Belgium Switzerland Macedonia Bulgaria Martinique Turkey Israel Netherlands Slovakia Russian Federation Romania Germany Czech Republic Poland -15.0 -10.0 -5.0

Incidence of long-term unemployment Unemployment rate 0.0 5.0 10.0 15.0 Change 2007-11 (percentage point) 20.0 25.0 30.0

Source: Eurostat

Increased parttime employment

Uncertainty leads to less permanent employment

EU27: share of parttime workers rose by 1.7 pp between Q2 2007 and Q2 2012, increase of 0.4 pp in the last year alone. Parttime employment in US increased by 941 thousand between MarchSeptember 2012, equal to 87% of the net new jobs created. Parttime employment is less likely to support increased consumption and aggregate demand.

Slowing labour productivity growth

Slowdown in productive structural change in many developing regions

Global output per worker expected to grow by only 1.9 per cent in 2012. All regions excluding North Africa and SubSaharan Africa experiencing deceleration. Slowdown underpinned by weak investment Vicious circle of uncertainty, weak investment and diminished productivity growth is now contributing to slower wage growth and weakening consumption.

Vulnerable employment

Stagnating progress in reducing vulnerable employment

56% of workers in developing countries in vulnerable employment in 2012 The number of vulnerable workers grew in most developing regions Persistence of vulnerable employment in developing world may hold back consumption and limit growth in aggregate demand.

Poor, near poor and middle class workers in the developing world
2,700,000 2,400,000 Employment by economic class (thousands)

Above middle class: >US$13/day

2,100,000

1,800,000

Middle class: between US$4-US$13/day

1,500,000

Near poor: between US$2-US$4/day

1,200,000

900,000

Moderately poor: between US$1.25-US$2/(day

600,000

Extremely poor: <US$1.25/day

300,000

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Kapsos, S. and E. Bourmpoula , Employment and economic class in the developing world, (ILO forthcoming)

Some takeaways
Global decent work deficit: 1 in 3 workers either unemployed or living in poverty Shortterm outlook not good Many developed countries labour markets remain severely distressed Some scope for longerterm optimism:
20012011: growth of 570 million middle class & above workers in the developing world. Could emerge as a new driver of global growth and global rebalancing.

Policy directions
Reduce uncertainties; halt negative feedback loop between labour markets and the macroeconomy

1. Increase fiscal stimulus measures, specifically aimed at employment outcomes

Need to target the real economy to support job growth Explore New Dealtype policies (e.g. employment guarantee programmes in developed economies) Reevaluate tax policies raise revenues for programmes

2. Repair and regulate the financial system & encourage private sector to invest
Despite massive liquidity, credit remains tight Hiring credits, skills/training programmes, tax policy

3. Renewed global coordination & cooperation needed

Labour Markets in the Global Economic Crisis

IPD/Growth Dialogue Roundtable on Growth, Jobs and Distribution New York, 12 November 2012

Steven Kapsos Employment Trends Unit International Labour Organization kapsos@ilo.org