Remarks by Angel Gurría,
9 July 2015
OECD, Paris, France
(As prepared for delivery)
Ladies and Gentlemen,
It is my pleasure to launch this timely report: the OECD Employment Outlook 2015. It sounds the alarm that time is running out to prevent millions of workers from becoming trapped at the bottom of the economic ladder.
The labour market may be starting to heal and unemployment may be falling, but in May around 42 million people were still without work in OECD countries, 10 million more than just before the crisis. Despite a further decline, the OECD unemployment rate is projected to remain significantly above its pre-crisis level even by the end of 2016 (at 6.5%).
Long-term unemployment is declining even more slowly. About 9.6 million people have been out of work for two years or longer. There is a serious risk that this group will disengage from the labour market completely.
Young people in the OECD are twice as likely to be unemployed as prime-age workers. More than 40 million 15-29 year-olds (or 1 in 6 youth) across OECD countries are neither employed nor in education or training, the so-called NEETs. More than half of all NEETs – 27 million young people – have dropped off the radar completely. They have literally disappeared from their country’s education, social, and labour market systems.
The scarring effects of the crisis are compounded by longer-run trends that are making it more difficult for low-skilled workers to move out of precarious, low-paid jobs into jobs that offer opportunities for career advancement.
One of the striking findings in the 2015 Outlook is that long-term career prospects are largely determined in the first ten years of working life. For this reason many young people who finished their schooling during the crisis and have been struggling to enter the labour market may be approaching the “make or break” point in terms of climbing up the career ladder.
On top of this, many experienced workers who lost their jobs during the crisis are finding it difficult to get their careers back on track. For example, some of those who lost jobs in manufacturing or construction will need to adapt their skills in order to move into growing service industries.
If the missing rungs are not put back into the jobs ladder, the legacy of the crisis is likely to include a further, permanent, increase in economic inequality above the already record high levels reached in many countries before the crisis. This is the challenge, so what can we do about it?
Fostering economic growth and reducing uncertainty for investment remain key elements for job creation. But more is needed to improve the labour market prospects and well-being of those who are currently stuck at the bottom of the economic ladder.
To address this, policy-makers need to focus on three key areas: First, effective activation measures to connect jobseekers with suitable jobs. Second, action to reduce skill deficits in the workforce. And third, direct measures, such as a minimum wage, to raise living standards at the bottom of the earnings ladder.
As more jobs are being created in many countries, efforts to assist jobseekers and in particular the long-term unemployed, need to be stepped up through effective and adequately resourced labour market activation measures. In some cases, re-employment and retraining programmes have borne too large a share of fiscal consolidation and more resources are required. Real expenditure on active labour market programmes per unemployed person fell sharply between 2007 and 2013 in many countries, including by more than 50% in Ireland, Italy, Spain and the United Kingdom, and by over 40% in Australia.
But it is not just about money, we also need to use these resources effectively. As highlighted in the 2015 Employment Outlook, this means strengthening the motivation and employability of jobseekers while improving their job opportunities. These elements need to be managed by strong public and private employment services, which are the keystone of any successful activation strategy.
Another essential ingredient in the policy mix is skills promotion. A new finding of the 2015 Outlook is that a substantial part of the cross-country differences in wage inequality and the risk of low pay are related to differences in skills. Differences in skills also play an important role in explaining wage gaps, including 22% of the gender pay gap and over 70% of the wage gap between native and foreign-born workers.
Countries can achieve the twin goal of upward mobility and lower inequality through policies that raise the skills of workers at the lower end of the distribution. Better recognising what skills workers have and matching them to the right jobs also increases efficiency. Mobility; equality; and efficiency: the case for investing in skills is what they call a “no brainer”.
But skills policies should be tailored to address country-specific challenges. It’s not just about what skills you have, it’s also about how you use them. For example: Japan excels in bringing almost all adults to a high level of cognitive skills, but many workers – especially women – do not make good use of their skills at work. By contrast, the biggest challenge for the United States is that many adults have weak cognitive skills, whereas available skills are productively used in the economy.
Promoting a better and more effective use of skills is not just an OECD preoccupation, but has also been the focus of intense discussions among G20 economies under the Turkish G20 Presidency. I very much hope that these discussions will result in the adoption of a G20 Skills Strategy, developed in cooperation with the OECD, which will help the G20 achieve its collective goal of promoting stronger and more inclusive growth.
Last, but not least, the minimum wage is our third weapon in the policy arsenal. The crisis and the rise in inequality have stimulated renewed interest in the statutory minimum wage as a tool to ensure that wages are fair; to raise wages at the bottom of the wage distribution; and to protect workers and their families from falling into poverty.
The 2015 Outlook shows that, when set at an appropriate level, the adverse effects on employment can be minimised. Sensible minimum-wage design includes: i) taking account of regional differences in economic conditions – as applied largely in federal countries; ii) setting lower minima for very young, inexperienced workers; and iii) ensuring that the level of the minimum wage is adjusted regularly and informed by objective assessments of its potential impact on low‑skilled employment and living conditions.
The Employment Outlook also highlights the importance of coordinating minimum wages with the tax and benefit system. For example, in France, employer social security contributions are reduced for minimum wage workers so as to limit negative effects on employment.
The tax/benefit system also affects the extent to which increases in the minimum wage translate into increased disposable income for the working poor. For example, while more than 95% of a small increase in the minimum wage shows up as higher disposable family income in Spain, less than 5% of the increase will end up in workers’ pockets in Ireland.
Ladies and Gentlemen:
Unemployment is finally coming down in most countries. But we need to step up our efforts to make sure that millions of workers hit hard by the crisis are not left behind by the recovery.
Theodore Roosevelt once said that “Far and away the best prize that life offers is the chance to work hard at work worth doing”. At the OECD we are committed to policies such as these that promote the creation of quality jobs, filled by upwardly-mobile, skilled workers.
I hope this edition of the Outlook will inspire our policy-makers and provide them with the best policy tools to design better labour market policies for better jobs and better lives.