The role of labour market and social policy in promoting a job-rich recovery
Remarks by Angel Gurría, OECD Secretary-General, at the meeting of the G20 Employment and Labour Ministers
Washington D.C, 20 April 2010
Secretary Solis, Ministers, Ladies and Gentlemen, Greetings from the ash refugees!
It is a privilege to speak at this opening session, even if on video. I still hope to reach Washington for at least part of the Ministerial.
I am particularly gratified that this meeting so effectively takes forward the policy agenda that was discussed some months ago at the OECD, building on the Pittsburgh Summit. At that time, Employment and Labour Ministers from 38 countries ─ including large emerging economies like Brazil, India, South Africa and the Russian Federation ─ reached important conclusions to promote a collective response to the job crisis.
Watch the video of the OECD's Secretary-General addressing the G20 employment ministers' meeting in Washington.
We stressed, for example, the importance of ensuring access to adequate and effective safety-nets to minimise the risk of poverty; supporting the participation of under-represented groups, especially youth; promoting activation strategies and adapting them to the needs of the crisis; driving a shift to green jobs and low carbon economies; enhancing skills and lifelong learning systems.
Our countries have different labour markets, contrasting unemployment rates, diverse policies to boost employment, but we all share a common worry: a jobless recovery in any or some of our countries will inevitably affect all of them, one way or another. Thus, we need to act together.
Let me briefly share with you our perspective on the main challenges that labour markets are facing in OECD countries, as well as some of our policy recommendations to foster a job-rich recovery.
1) The need to reduce unemployment…and fiscal deficits
Most OECD economies are exiting from the recession straight into the major policy challenge of balancing two apparently contradictory needs: to tackle unacceptably high unemployment and simultaneously reduce unsustainably high fiscal deficits.
The recovery is underway but it will not be strong enough to bring the millions of new unemployed back to work. We expect 1.9% average GDP growth in the OECD area for 2010 and 2.5% for 2011. Much of the recovery is still policy-driven; but this can’t go on for long.
The rate of deterioration of public finances in OECD countries during the past two years is triggering alarm bells.
The OECD average fiscal deficit is close to 10% of GDP, while public debt is expected to reach 100% of GDP by 2011 (30 percentage points higher than before the onset of the crisis). Even if consolidation were sufficient to bring public budgets back to balance by 2017, debt-to-GDP ratios would still exceed pre crisis levels in most countries.
As if this were not bad enough, our estimates also suggest that OECD countries may have lost over 4% of their output potential as a result of the crisis; half of it because of higher unemployment. So, in this highly challenging context, how is the recovery looking from the OECD jobs perspective?
2) Persistently high unemployment is a major risk
A recent study by our Economics Department suggests that, even in countries with employment-friendly policies and institutions, it can take about 5 years for unemployment to revert back from its recessionary peak to the pre-crisis levels. In other countries, high unemployment may persist for much longer.
But even in those countries that managed to contain job losses by widespread cuts in working hours, the short-term labour market outlook is not rosy. They face a serious risk of a “jobless recovery”. Firms have ample margin to respond to the increase of demand by raising working hours before they start hiring new workers in large numbers again.
Thus, ensuring that high unemployment does not persist for too long is a key objective. But how do we achieve it?
There is no silver bullet. However, we have identified some key policy measures that, adapted to the specific circumstances of each country, could help us advance in that direction.
3) New labour policies: in support of a job-rich recovery
Let me share with you a few signposts.
1. First, support for labour demand needs to evolve from preserving jobs to jumpstarting job creation. For example, it appears timely to begin phasing out short-time working schemes in countries where they expanded significantly during the downturn; just as it would be propitious to scale up hiring subsidies, especially for employers recruiting the long-term unemployed or other vulnerable groups.
The currently high level of labour market slack also means that it may be an appropriate moment for governments to implement green growth initiatives that have the potential to generate jobs quickly, such as programmes to retrofit existing buildings for greater energy efficiency.
2. Second, effective re-employment services, combined with adequate safety nets, have a key role to play in promoting a quick reintegration of jobseekers into jobs, while fighting poverty.
Effective activation strategies helped many OECD countries achieve low unemployment before the crisis and they must play a major role now. But activation policy has to be modulated to the different phases of the downturn and the early recovery to ensure effective support to a large and growing pool of unemployed.
At the same time, the build-up in long-term unemployment creates particularly acute needs for income support. In those countries where the duration of benefits is short, there is a strong case for extending their duration throughout the recession and into the recovery, until the pool of long-term unemployed begins to drop significantly.
But income support should be combined with effective re-employment services. Most countries have maintained or even expanded core job-search assistance and have also sought to provide more targeted re-employment services, including training opportunities, for the most hard-to-place unemployed.
A shift towards greater investment in training, especially linked to local labour market needs, is warranted in the present circumstances. Thus, the relevance of the Training Strategy which the Leaders have requested. The OECD is ready to join the ILO in putting it together.
3. Third, policies to prevent a “lost youth generation” are a must.
Youth unemployment is around 19% in the OECD area. One in four youth are jobless in France, Italy and in the US, while youth unemployment is above 40% in Spain. Our Jobs for Youth reviews of 16 countries have highlighted a wealth of good practices to curb school dropouts and help other youth to get a first foothold on the career ladder.
Ministers, Ladies and Gentlemen: Fostering a job-rich recovery must be the top priority for our governments. The question is HOW? Our presence here today is part of the answer to that question. It is by learning from each other, by exchanging experiences, by coordinating our policies and by putting our minds together to devise innovative policy solutions that we are going to win this battle. The OECD stands ready to join you in such an endeavour.