30/03/2009 - “Governments need to take quick and decisive action to avoid the financial crisis becoming a fully-blown social crisis with scarring effects on vulnerable workers and low income households,” OECD Secretary-General Angel Gurría told G8 Labour and Employment Ministers in Rome today (read speech here).

Presenting new OECD analysis of the impact of the crisis on employment, he said the short-term labour market outlook is “gloomy”. OECD economic projections to be released tomorrow forecast unemployment rates approaching 10% in the OECD area by 2010, compared with the recent low of 5.6% in 2007.

This implies that the crisis could swell the numbers of unemployed in the OECD by about 25 million, by far the largest and most rapid increase in OECD unemployment in the post-war period. The jobs crisis is spreading rapidly around the world, pushing millions of workers and their families into poverty.

“Restoring global growth is an economic and political priority, but also an ethical, moral, social and human imperative. And employment and social policies are an essential component of a successful strategy to bring the OECD and non OECD countries back on a growth track,” he added. He said that most of the fiscal packages to support the economy that G8 and other countries have introduced, or are planning to introduce, include extra funds for labour market and social policy measures.

“The bad news is that these additional funds are rather limited,  accounting for about 8-10% of total expenditures in the United States and France and less in most of the other countries. This may turn into a missed opportunity,” he said.

Faced with soaring numbers of unemployment benefit applicants, longer unemployment spells and increasing numbers of jobseekers who do not qualify for unemployment benefits, the OECD recommends governments to consider:

• Promoting labour demand while avoiding excess layoffs by credit constrained firms. Short-time working subsidies or reduction in social security contributions will help preserve viable jobs, if they are well-targeted on firms facing a temporary fall in demand and workers who will find it difficult to get another job if made redundant.
  
  
• Providing adequate safety-nets to job losers and low-income families. In those OECD countries where the maximum duration of benefits is short, temporary extensions could be envisaged to avoid the long-term unemployed drifting into poverty. This should be accompanied by a close monitoring of eligibility conditions to avoid abuses and/or inducing dependence.
  
  
• Ensuring that social assistance benefits are adequate and accessible to those who lose their job and do not have access to unemployment insurance benefits.
  
  
• Expanding effective active labour market programmes. Public employment services should place emphasis on providing job search assistance to the most employable job losers. Greater reliance should also be placed on training, particularly if it is tied to labour market needs. For the most hard to place unemployed, it would also be advisable to make more use of targeted hiring and work-experience subsidies and public sector job-creation measures.
  
  
• Decisive actions targeted on at-risk young people have to be taken now. For example, subsidies for apprenticeship contracts for unskilled youth and promotion of second-chance schools could help reduce the risk that they will enter the labour market without qualifications. Consideration could also be given to raising the school-leaving age (to say 18). If complemented by measures to diversify educational choices and focused on the acquisition of qualifications that meet business needs, this reform could prove very effective in ensuring that youth leave education with a minimum skill level.
  
  
• Governments are likely to face strong political pressure to offer early retirement and easier access to disability benefits, especially for the older unemployed. In the past, virtually no workers offered these benefits returned to the labour force when the economy recovered. Such pressure should be resisted.

While developed countries mostly have welfare systems that can soften the social impact of rising unemployment, this is not the case in many developing countries, Mr. Gurría noted. “Only about one quarter of vulnerable developing countries have the ability to finance job creation or safety-net programs,” he said. In this context, he stressed,  there is an urgent need to to address the world’s labour crisis “through enhanced and more inclusive international co-operation”.

For further information, journalists should contact Stefano Scarpetta, head of the OECD’s Employment division or the OECD media division (tel. + 33 1 45 24 97 00 or email: news.contact @ oecd.org).