Keynote Speech by Angel Gurría, OECD Secretary-General, delivered at the Employment Policy Conference
6 September 2012
Ladies and Gentlemen:
Let me first thank Commissioner Andor for inviting me to present the OECD’s assessment of the employment challenges facing Europe and discuss the policy responses that are urgently needed to put the continent back on a path of jobs-rich growth.
Employment prospects have deteriorated further
The OECD has just released this morning its interim assessment of the short-term economic outlook, as we do twice a year. Unfortunately, the outlook is still grim. In fact, we had to revise downward the short-term economic growth prospects for almost all countries of the Euro area, the United Kingdom and the United States. Some of the downside risks previously highlighted have indeed materialised. With a 0.3% drop in GDP in the second quarter in the three largest Euro countries, the recession is taking hold in the euro area, as weakness in the area’s periphery is spilling over to the core.
This further deterioration of the economic outlook is already translating into weaker jobs prospects. Our current assessment is that unemployment will remain at over 10% in the EU as a whole and at 11.3% in the Euro area. This is very disturbing! We are running a serious risk of locking in unemployment rates that are already unacceptably high in most European countries.
What is the scale of Europe’s employment challenge?
Let me give you three key figures that can help us perceive the dimension if this challenge.
First, the EU today suffers from a jobs gap of over 4 million. This is the number of jobs that need to be created to bring the employment rate back to its level prior to the crisis in 2007. This is so without mentioning the 17 million jobs that need to be created to reach Europe 2020’s target of 75% of labour market participation for women and men aged 20 to 64.
Second, there are 7.8 million young people aged 15 to 24 in the EU who are not in employment or in education and training. This is the size of the potential “lost generation” that risks having its job and earnings prospects permanently scarred. Helping this group find jobs or access training to improve their employability must also be a priority for policy.
Third, more than 10 million Europeans have been unemployed for one year or more and among them almost 6 million for two years or more. In Spain, more than 40 per cent of the almost 5.8 million unemployed have been out of work for more than a year. By the way, this is no longer just a European phenomenon: long-term unemployment has tripled in the US too, affecting one in three unemployed.
Long-term unemployment carries with it a higher risk of marginalisation in the labour market, poverty and worsening of physical and mental health. Previous recessions have also shown that, through long-term unemployment, cyclical increases in unemployment translate themselves into persistently high unemployment rates.
What should be done to tackle these daunting challenges?
The first response is to restore confidence and growth so as to stimulate job creation. It is imperative that those countries that can do so coordinate and implement additional fiscal and monetary measures to support demand and boost job creation. This was, by the way, explicitly agreed by G20 Leaders in Los Cabos, should conditions deteriorate significantly further. Unfortunately, this is precisely what has occurred.
Second, we fully share the main thrust of the new measures presented by the Commission as part of the Employment Package, which sees achieving a job-rich recovery as the essential priority for the European Union. Even in countries facing severe fiscal constraints, government can be smarter in designing labour market policies and allocating labour market support to maximise the resulting benefits. For example, hiring subsidies should be targeted at helping the most disadvantaged groups back into jobs, while avoiding subsidising jobs that would have been created anyway. Supporting job creation should also be a priority for the European Social Funds, using them, for example, for publically subsidised work-experience programmes.
Third, it is urgent to improve the employment prospects for youth. This requires actions on different fronts, such as targeted labour market programmes, including effective counselling, job-search assistance and temporary hiring subsidies for low-skilled youth. These can make a difference in facilitating the transition to productive and rewarding jobs. We need these measures urgently. As Wolf Richter says in a recent article, this is “a bitter irony: it’s the best educated generation ever, and the most pessimistic”.
As set out in the OECD Skills Strategy, released in May, we also need comprehensive approaches to make sure that youth acquire the skills that are needed in the labour market. And we must in particular facilitate the transition from school to work to give all youth a better start in the labour market. “Study and work” programmes can be particularly effective in this regard.
Fourth, more must be done to tackle long-term unemployment. A well-designed policy package can minimise the long-term costs of unemployment and lay the foundations required to put people back to work. We must provide effective re-employment services and ensure that the unemployed stay connected to the labour market. Assisting those unemployed that are “job ready” should remain the first line of support. Targeted job subsidies for new hires and publically subsidised work-experience programmes can help.
All these measures, of course, require adequate funding. Many European countries have increased spending on active labour market programmes more than in previous recessions. This is a positive development, but it is not enough. Indeed, with rising unemployment, the average resources spent per unemployed person in the OECD countries have declined by around 21% between 2007 and 2010. Governments should consider whether these programmes could automatically expand and contract in line with the business cycle, as they already do in Denmark and Switzerland.
Governments must continue to pursue labour market reforms
This is critical. Such reforms include the ones that reduce the gap in employment protection between permanent and temporary workers. They will boost job creation and improve the ability of the labour market to weather adverse economic shocks.
The good news is that several European countries, notably Greece, Italy, Portugal and Spain, have passed ambitious labour market reforms recently. In this context, I am particulalry glad to share this session with Elsa Fornero, who has championed an impressive reform in Italy. Having followed closely the complex process that led to the approval of the reform by the Italian Parliament, I know how much this important milestone owes to the determination and drive of Minister Fornero.
These labour market reforms, if fully and swiftly implemented, will encourage the creation of more and better jobs and improve the hiring chances of youth and other new entrants to the labour market. But their impact could be boosted further by competition-enhancing product market reforms in service sectors, such as retail trade and professional services.
Let me conclude by highlighting two areas specifically targeted in the Commission’s Employment Package, and on which the OECD has been actively focusing its attention.
First, promoting women’s employment and gender equality. This is a crucial issue. We have just produced a report on gender equality in education, employment and entrepreneurship. It recommends measures governments can take to give men and women the opportunity to contribute both at home and at work.
This can be done, inter alia, by providing good-quality and affordable childcare and removing disencentives to paid work created by taxes and benefit systems. Such measures would boost growth and well-being and create a fairer society for all. I encourage you to get inspiration from it to frame the EU policies in this regard.
Second, the famous green jobs. Here again, we just produced, with the Commisison’s financial support, a report on “The Jobs Potential of a Shift Towards a Low-Carbon Economy”, released in Brussels in June by my Deputy Yves Leterme, together with you, Commissioner Andor. Our study shows that the impact of a transition towards a greener economy will extend far beyond the creation of new green jobs, such as those related to renewable energy. The challenge is thus to maximise the benefits for workers and help ensure a fair sharing of adjustment costs, for example by minimising skill bottlenecks. Here again, we should continue working together.
Ladies and Gentlemen:
Europe’s employment crisis is breeding pessimism. We cannot afford this. A recent poll by Gallup revealed that 80% of the people in the EU are pessimistic about their local job outlook. This perception reflects hopelessness. We must put an end to this situation.
It is time for bold action! Above all, it is absolutely imperative to guide the euro area out of the sovereign debt and banking crises and put the economy firmly on the road to recovery. But Governments must also push ahead with a broad package of bold structural reforms. In this way, millions of people can be put back to work.
The Commission’s Employment Package is a welcome initiative that should help to create more and better jobs. The OECD stands ready to offer whatever support it can in the design, promotion and implemention of better employment policies for better lives.
Thank you very much.