Ladies and Gentlemen,
It is my great pleasure to present the OECD Employment Outlook. As growth slows and unemployment rises, this Employment Outlook could be a more valuable source for innovative policy strategies than ever before. It provides important insights into the key labour market challenges facing OECD countries and offers effective policy responses to address them.
Employment prospects have deteriorated and urgent action is needed to support demand
The headline figures from this year’s Outlook are not good. There are still some 47 million people unemployed in the OECD area. The unemployment rate is likely to remain at 7.7% for the OECD area through the end of 2013, very close to the level recorded in May of this year. The situation is even more discouraging in the euro area, where the unemployment rate is rising again; it reached an all-time peak of 11.1% in May.
Quite simply, the fragile economic recovery has not generated sufficient employment opportunities. And recently we have seen clear signs of a further deterioration in global economic prospects. Indeed, the growth and employment projections reported in our Economic Outlook in May could prove overly optimistic. It is therefore imperative that those countries that can do so, coordinate and implement additional fiscal and monetary measures to support demand and boost job creation. Let me remind you that this was explicitly agreed by G20 Leaders in the Los Cabos Action Plan, should conditions deteriorate significantly further. Well, unfortunately they have.
High youth and long-term unemployment remain key concerns
The social costs of this crisis are already huge. In particular, it is becoming more and more difficult to help the large number of youth and long–term unemployed. In the OECD area, youth unemployment was just over 16% in April, little changed from one year earlier. This varies from a low of around 8% in Germany, to more than 50% in Greece and Spain. The statistics are no better for the long-term unemployed. Around 35% of all those unemployed had been out of work for a year or more in the last quarter of 2011. Even more worrying, the number of people out of work for two years or more in the OECD area has grown by 2.6 million since 2007 to reach 7.8 million in 2011.
The US, in particular, has recorded an unprecedented increase in the share of long-term unemployed, from around 10% in 2007, to around 30% in the first quarter of 2012. These worrying figures emphasise that a growing number of people, the young in particular, are becoming disconnected from labour markets. We need to avoid the risk of a lost generation by all means!
Labour market reforms and investment in skills are key
Of course, a boost to demand and quick resolution of the euro area crisis will be crucial for labour market recovery. But as this year’s Employment Outlook reflects, the right labour market policies will themselves weigh positively on the recovery. A well-designed package of policies can minimise the long-term costs of unemployment and lay the foundations required to put people back to work. We must not repeat past policy mistakes. We must not encourage early labour market exit.
On the contrary, we must provide effective re-employment services to the unemployed and ensure that they stay plugged in to labour markets. Assisting those unemployed that are ‘’job ready’’ should remain the first line of support. Training programmes, targeted job subsidies for new hires and publically subsidised work-experience programmes can help the unemployed connect with the labour markets. “Study and work” programmes, effectively linking the worlds of learning and work can be particularly effective for young people. This includes apprenticeships, and other dual vocational education and training programmes.
In fact, investing in education and skills more broadly is crucial. There are unemployed graduates on the streets, while employers search in vain for people with the skills they need. This demonstrates that skills do not automatically translate into better economic and social outcomes. A shift in mind set from “lifetime jobs” to “lifetime employability” is required. This means investing in skills throughout the life cycle; from early childhood, through compulsory education, to the transition into the workforce and beyond. The OECD Skills Strategy provides an important roadmap for countries to develop and implement effective skills policies.
All of these measures, of course, require adequate funding. As the Employment Outlook reflects, OECD governments have increased spending on active labour market programmes more than in previous recessions. A positive development, but not enough.
Indeed, rising unemployment continues to outpace the rise in spending on active labour market measures. Consequently, in OECD countries there has been a decline of around 21% in the average resources spent per unemployed person between 2007 and 2010.
We recommend that governments consider whether these active labour market programmes could be re-designed to automatically expand and contract as a function of the business cycle. This is already the case in Canada, Denmark and Switzerland. The principle is simple: the most cost-effective programmes intensify when unemployment rises, and are scaled back once jobs recover.
Labour market reforms also have long-term benefits
Appropriate labour market reforms can also strengthen labour market resilience. Indeed, the 2012 Employment Outlook finds that a number of policies and institutions already identified in the OECD’s Reassessed Jobs Strategy of 2006 also improve the ability of the labour market to weather adverse economic shocks.
This is clearly demonstrated in the striking variation in labour market performance across OECD countries during the current crisis and subsequent recovery. While the unemployment rate rose substantially in most OECD countries, it declined significantly in Germany and remained in the 3½ - 5½% range in eight countries.
Labour market reforms must be implemented as a broad package
A broad package of labour and product market reforms is also more effective than piecemeal measures. For instance, several countries are tackling labour market duality by reducing the gap in employment protection between permanent and temporary workers (Greece, Italy, Portugal and Spain).
Such reforms will improve the hiring chances of youth and other new entrants to the labour market. However, the impact of these reforms on employment growth and labour productivity could be further enhanced. Competition-enhancing product market reforms in sectors such as retail trade or professional services would add a further boost.
Broader structural reforms are also needed
I often say that governments need to “Go Structural”, “Go Social”, and “Go Green”. Labour markets are no different. Additional reforms are also required to tackle structural challenges connected to labour markets, such as rising income inequality (“Go Social”), or the shift to greener economies (“Go Green”).
The Employment Outlook finds that the labour share of national income has fallen sharply in the large majority of OECD countries. This trend is closely related to the overall increase in income inequality, documented in the recent OECD report Divided We Stand: Why Inequality Keeps Rising.
The decline in the labour share is driven by information, communications and technological advancements and greater international economic integration. A decline in workers’ bargaining power may have also played a role, especially for low-paid workers. Enhanced investment in education and skills and better targeted tax and transfer programmes can help to ensure that the fruits of economic growth are shared more broadly.
The transition to greener economies, covered in Chapter 4 of the Outlook, will also require appropriate labour market and skill policies to ensure that the labour market adapts smoothly to environmentally sustainable production patterns. Avoiding skill bottlenecks and assisting workers to move from declining to growing firms and sectors are two key priorities.
Ladies and Gentlemen,
This year’s Employment Outlook draws attention to the unprecedented constellation of labour market challenges policy makers face. Among others, it is absolutely imperative to guide the euro area out of the crisis and put the global economy firmly on the road to recovery. But Governments must also respond by pushing ahead with a broad package of bold structural reforms, as well as investing in those active labour market policies that have proven their worth.
Thus governments can help put millions of people back to work. The OECD stands ready to help design, promote and implement better labour market policies for better lives.
Thank you very much.