Expert group meeting on the challenge of building employment for a sustainable recovery 23-24 June 2011, Geneva The role of labour market policy in tackling the jobs crisis Stefano Scarpetta Deputy Director Directorate for Employment, Labour and Social Affairs OECD
The global economy is just emerging from a severe Jobs Crisis • While underway, the pace of the recovery varies significantly across countries – The recovery has been so far rather modest in advanced countries… – …while more vigorous in many emerging economies • Only m odest progress in reducing high unem ploym ent and under-em ploym ent in m ost countries – Important to consider wide cross-country differences in labour market adjustment during the recession and early phase of the recovery • Adjustment on the extensive margin ( em ploym ent) but also on the intensive margin ( hours ) • Risk of unem ploym ent becom ing entrenched – The share of long-term (LT) unemployment is increasing rapidly, and some of the LT unemployed are at risk of dropping out of the labour market • Long spells of joblessness have negative effects on human capital, job search activity and overall employability, potentially reducing the effective labour supply • Difficult policy choices – How to tackle budget deficits while, at the same time, provide adequate support to the many unemployed and under-employed?
Different patterns of LM adjustment in the downturn and early phase of the recovery Percentage change between the real GDP peak and between trough and the real GDP trough to the latest available quarter 2008 ‐ 09 recession Early recovery Countries ordered from left to right in terms of drops in GDP during the recession
Different margins of adj. in the labour market: Okun’s coefficient Peak ‐ to ‐ trough ratio of the increase in the unemployment rate to the decrease in GDP *: Historical average not available.
Large hike in unemployment rates, 2007 Q4 to 2011 Q1* Percentage of total labour force * 2011 Q1, except 2010 Q3 for Brazil and Indonesia and 2010 Q4 for Turkey and the United Kingdom. ** Selected urban areas. Countries ordered from left to right in terms of lowest to highest UNR in 2011 ‐ Q1
Job losses among different groups in selected G-20 countries Percentage change in employment, 2008 Q1 to 2011 Q1* n.a.: Not available. * 2007 Q4 ‐ 2010 Q4 for the European Union and South Africa.
Growing incidence of long-term unemployment Persons unemployed 12 months and over as percentage of total unemployment, 2007 Q4-2010 Q4* • 2007 Q3 ‐ 2010 Q3 for Mexico and 2008 Q4 ‐ 2010 Q4 for South Africa. ** Selected urban areas. Countries ordered from left to right in terms of lowest to highest incidence of LTU in 2010-Q4
Youth have been hit especially hard Youth (age group 15/16-24) unemployment rates Percentage of the youth labour force, 2007 Q4 -2011 Q1* * 2007 Q4 ‐ 2010 Q3 for Indonesia; 2008 Q1 ‐ 2011 Q1 for South Africa; 2007 Q4 ‐ 2009 Q4 for the Russian Federation ; and 2007 ‐ 2009 for Argentina, China, India and Saudi Arabia. ** Selected urban areas. Countries ordered from left to right in terms of lowest to highest YUR in 2011 ‐ Q1
The number of youth disconnected from education and the labour market is on the rise Youth neither in employment nor education or training as a percentage of all youth aged 15-24 * Data for 2010 are not available for Canada, Japan, Mexico and Turkey. Source: Off to a Good Start? Jobs for Youth, OECD, 2010. Countries ordered from left to right in terms of lowest to highest NEET rate in 2008
How many jobs to restore pre-crisis employment rates? Jobs gap in percentage of actual and projected employment Percentage of actual employment *Selected urban areas. ** 2010 Q4 refers to 2010 Q3 for Indonesia. The jobs gap at a particular date is defined as the percentage increase in employment required to restore the ratio of total employment to the working ‐ age population to its value in 2007 Q4.
Key policy challenges Short-term labour m arket challenges vary a lot across countries: • Overarching issue: provide adequate support to the unemployed and those at risk of poverty when pressure to cut large budget deficits is high and growing • Provide an adequate safety net to the unemployed, including the many LTU • Adapt active labour m arket program m es • Job-search support; • Training for the low skilled; • Special programmes for disadvantaged youth; • Labour demand support: from job preservation to job creation. • Maintain an effective labour supply • Support groups at the margin of the labour market, including people with disability, low-skilled youth and older unemployed. 11
Spending on labour market programmes was relatively low in 2007 in most countries where unemployment subsequently rose sharply Harmonised unemployment rates and labour market programme spending as a percentage of GDP, 2007 a) Countries are shown in ascending order of the seasonally ‐ adjusted quarterly unemployment rate of the latest data (usually 2011 Q1). b) Data for Greece exclude spending on Public Employment Services (PES). Source: OECD calculations based on OECD Main Economic Indicators Database for the unemployment rate and OECD Labour Market Programmes Database. 12
Anticipated and realised changes in the resources devoted to labour market policy, 2009 to 2011 Percentage of responses Reduction No change Increase Anticipated change in20 10 relative to 20 0 9 Anticipated change in 20 11 relative to 20 10 Job subsidies Public Sector job creation Short ‐ time work Job search assistance Training programmes Work experience Job ‐ finding and business start ‐ up incentives Training programmes for existing workers Support for apprentices Unemployment benefits Social assistance benefits 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Providing adequate safety nets while minimising benefit dependency • Due to the decline in vacancies the average duration unemployment spells increases • May provide rationale for tem porarily extending the m axim um duration of UBs in countries where this is short – To respond to the change in needs and strengthen automatic stabilisers – However, this could also encourage recipients to lengthen their job search if not accompanied with investments in activation • Should the maximum benefit duration respond autom atically to changing labour market conditions? – This is the case in Canada, Chile and the United States – Can be used to increase duration in bad times when durations are short and to reduce durations in good times when duration are long – Automatic adjustments provide more timely response and are less vulnerable to political capture, but also involve element of rigidity
Change in UI recipients compared with the change in unemployment All unemployment benefit programmes* (Including extended benefits and unemployment assistance) Number of years since the on-set of the crisis First 12 months More than 2 years 1 ‐ 2 years 180 160 140 120 100 80 60 40 20 0 *Unemployment benefit recipients is the sum of recipients of unemployment insurance, extended unemployment benefits and unemployment assistance (UA), but excludes social assistance or workers in receipt of partial unemployment benefits for reduced working time.
How to adjust activation during the jobs crisis? • The jobs crisis presents important threats to activation strategy ― Risk for reduced intensity of interventions in the unemployment spell ― Vacancy flows decline, resulting in a lower number of direct referrals • To prevent job losers from becoming disconnected from the labour market m ore resources are needed ― Important to maintain core elements of activation regimes (e.g. JSA) and mutual obligation principle ― For those at risk of LTU, re-employment services need to be adapted to specific conditions of slack LM • How can activation be scaled up quickly and effectively? – Raises similar issues as UB extensions on the use of automatic rules (DNK, CHE, AUS) – But also question about administrative capacity to scale up LM programmes much more (private providers).
Ensuring that S-T measures to support labour demand are well targeted and temporary • Many countries have introduced m easures to support labour dem and: – Subsidies for the reduction in working time (e.g., 22 OECD countries); – Reductions in non-wage labour costs (e.g., 16 OECD countries); – Hiring subsidies and work experience, generally targeted at disadvantaged groups (e.g. 15 OECD countries). • When and how to scale down labour dem and support m easures? – By protecting job matches, STWs have reduced socially and economically inefficient job losses … – …but risk increasing dualism (U highly concentrated on already disadvantaged groups and new entrants)... – ….and slow-down efficiency-enhancing labour reallocation – Hiring subsidies may help promoting employment for disadvantaged groups, but have to be well targeted and with strict conditions for employers. 17
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