24 Jan, 2012

Western Economic Crisis Has Cost 27 Million Jobs, And It’s Not Over Yet

Imtiaz Muqbil

The global economic crisis increased the number of total unemployed by 27 million, raising to 1.1 billion people the number of people out of work, most of them young people, women and those already poor, according to a blistering report by the International Labour Organisation (ILO), a United Nations agency. Mincing no words, the report blames policies in the so-called “advanced countries” for the four-year crisis and warns that a more “dangerous third-stage” is likely, which could lead to more social unrest.

Entitled “Global Employment Trends 2012: Preventing a Deeper Jobs Crisis”, the annual report was released on January 23, just a few days before the gathering of the annual caucus in Davos, Switzerland, of the rich-man’s club known as the World Economic Forum. A continuing series of reports issued by the world’s top labour-watchdog body, it is a clear reminder to the so-called global leaders who gather in Davos every year of the “seeds of dystopia” they have planted, and which they now describe as “unintended consequences” of well-intentioned policies.

“After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, there is a backlog of global unemployment of 200 million,” says the ILO. Moreover, the report says more than 400 million new jobs will be needed over the next decade to absorb the estimated 40 million growth of the labour force each year. Indeed, the world faces the additional challenge of creating decent jobs for the estimated 900 million workers living with their families below the US$2 a day poverty line, mostly in developing countries.

Says the report, “The world faces a serious jobs challenge and widespread decent work deficits. As the world enters 2012, 1.1 billion people – one out of every three people in the labour force – are either unemployed or living in poverty. After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, global unemployment has increased by 27 million, and more than 400 million new jobs will be needed over the next decade merely to avoid a further increase in unemployment.”

Download the full report here.

Further reading, slide shows and summaries here.

According to the report, half of the jobs lost were in the advanced economies, 5 million in East Asia, 3 million in Latin America and the Caribbean and 1 million in South Asia. At the same time, the global unemployment rate rose from 5.5 per cent in 2007 to 6.2 per cent in 2009, with advanced economies the hardest hit as their unemployment rate rose from 5.8 per cent to 8.3 per cent over this period.

“In Central and South-Eastern Europe (non-EU) and CIS the unemployment rate rose from 8.4 per cent to 10.2 per cent, whereas in East Asia it rose from 3.8 per cent to 4.3 per cent, and in Latin America and the Caribbean from 7.0 per cent to 7.7 per cent. Also, discouragement has risen sharply, with 29 million fewer people in the labour force than expected. As a consequence, the employment-to-population ratio went down globally from 61.2 per cent to 60.3 per cent, and more dramatically for the advanced economies, where it dropped from 57.1 per cent to 55.5 per cent, implying that current global unemployment figures actually understate the extent of labour market distress.”

Three-stage Crisis

The report says that as the global economic turmoil enters its fourth year, “there is now evidence of a three-stage crisis. The initial shock of the crisis was met by coordinated fiscal and monetary stimulus, which led to recovery in growth but proved insufficient to bring about a sustainable jobs recovery, most notably in advanced economies. In fact, between 2009 and 2010 a further 2 million jobs were lost in advanced economies and, globally, job creation barely kept pace with labour force growth.

“In developing economies, the number of working poor – a better indicator for the state of the labour market in these countries than registered unemployment – had stopped its downward trend, with 50 million more working poor in 2011. Also, vulnerable employment, comprising unpaid family labour and own-account workers, whose increase in absolute numbers to 1.52 billion had arrested at 2007, began increasing again after the crisis, with 23 million added since 2009. Evidence cited in this report shows that the failure of growth to create more employment is related to the targeting of the stimulus towards a rescue of the financial sector, especially in the advanced economies. This may have been much needed, but prevented targeting the real economy and jobs.

“In the second stage, burdened public deficits and debt, combined with weak growth, led to calls for increased austerity measures to pacify capital markets and counter rising bond yields. As a consequence, fiscal stimuli started to wane, and support of economic activity in advanced economies concentrated on quantitative easing monetary policies. The combined impact appears to have been a weakening of both GDP growth and employment. GDP growth dropped globally, from 5 per cent in 2010 to 4 per cent over 2011, led by advanced economies, whose forecast for 2011 was revised downwards by the IMF in September 2011 to 1.4 per cent. In the meantime, this has also started affecting emerging economies, where growth remained strong throughout 2011, although the first signs of weakness were seen in the last quarter of 2011 with lower industrial orders. The deceleration of growth also meant that the unemployment rate remained elevated throughout 2011, further increasing the number of jobs required to return to pre-crisis unemployment rates.It adds, “The tightening of policies and the persistently high levels of unemployment have increased the potential for a dangerous third stage, characterized by a second dip in growth and employment in the advanced economies, exacerbating the severe labour market distress that has emerged since the onset of the crisis. In such a double-dip scenario, the global unemployment rate would raise again to 6.2 per cent in 2013, where it had been in 2009, after a moderate drop to 6 per cent in 2011.”

Key quotes from the report

A worsening youth employment crisis

Young people have suffered particularly heavily from the deterioration in labour market conditions. The rate of youth unemployment rose globally from 11.7 per cent in 2007 to 12.7 per cent in 2011, the advanced economies being particularly hard hit, where this rate jumped from 12.5 per cent to 17.9 per cent over this period. In addition to the 74.7 million unemployed youth around the world in 2011 – a growing number of whom are in long-term unemployment – an estimated 6.4 million young people have given up hope of finding a job and have dropped out of the labour market altogether. Young people who are employed are increasingly likely to find themselves in part-time employment and often on temporary contracts. In developing countries, youth are disproportionately among the working poor. The youth employment crisis will be the subject of the ILO’s International Labour Conference in June 2012.

Macro policy options to promote growth with jobs

The crucial policy question of the moment then is: Does revival of growth and jobs require a revival of stimulus measures? When considering this question, it needs to be borne in mind that at current levels of stress on international sovereign bond markets, nearly any country that undertakes uncoordinated stimulus is likely to face immediately high costs of borrowing, independently of the concrete policy action.

At the same time, it appears that targeting job growth with stimulus measures has a particularly strong impact on the long-term chances for recovery. Indeed, the evidence presented in this report shows that the recovery in emerging and developing economies has been strong not only thanks to their lower initial impact from the crisis, but also due to the fact that a greater proportion of fiscal stimulus in developing countries was spent on supporting the real economy, while advanced economies, in contrast, largely supported the financial sector. This underlines the efficacy of appropriately targeted stimulus measures in reviving both growth and jobs, and the policy option of a stimulus remains valid and important, albeit bounded by budgetary macro prudence in the medium term.”

Ominously, the report warns that “policy space has reduced substantially since the beginning of the crisis, particularly in advanced economies. With most of the available public money used up to safeguard the financial sector – with only limited success – public finances have been seriously depleted, leaving little room to initiate a second round of stimulus measures. More importantly, this transfer of debt from private to public hands has led to another build-up of crisis conditions as governments face serious challenges in paying back their debt without further harming the economy. The irony of the earlier public intervention is therefore that it perpetuated an environment of high uncertainty without paving the way for a more sustainable recovery, leaving the world now facing a jobs double dip with limited capacity to react.”