The current weak economic recovery will keep unemployment rates in OECD countries high until at least the end of 2013, according to a new OECD report.
The Employment Outlook 2012 says that the OECD-wide joblessness rate is forecast to remain high at 7.7% in the fourth quarter of 2013, close to the 7.9% rate in May 2012. This leaves around 48 million people out of work across the OECD. In the Euro area, unemployment rose further in May to an all-time peak of 11.1%.
To get employment rates back to pre-crisis levels, about 14 million jobs need to be created in the OECD area. Young people and the low-skilled continue to bear the brunt of the jobs crisis. Moreover, job creation during the weak recovery of the past two years has often been concentrated in temporary contracts because many firms are reluctant to hire workers on open-ended contracts in today’s uncertain economic environment, says the report
“The recent deterioriation in the economic outlook is very bad news for the labour market,” said OECD Secretary-General Angel Gurría, presenting the report in Paris. “It is imperative that governments use every possible means at their disposal to help jobseekers, especially young people, by removing barriers to job creation and investing in their education and skills. The young are at most risk of long-term damage to their careers and livelihoods. Targeting the most cost-effective policies is essential.” (Read the speech.)
The situation varies widely between countries. Unemployment has been rising in the European Union since the end of 2011, but has been stable at around 8.25% in the United States. In OECD countries, the unemployment rate was highest in Spain, at 24.6%, with double-digit rates also in Estonia, France, Greece, Hungary, Ireland, Italy, Portugal and the Slovak Republic.
In most key emerging economies, with the exception of South Africa, labour markets have weathered the crisis well. But there have been recent signs of a slowdown in the rapid pace of economic and employment growth in some, notably Brazil, China and India.
Long-term unemployment has risen since the start of the crisis in the OECD area, with around one in three unemployed out of work for 12 months or more. The share of long-term unemployed remains highest in EU countries, at around 44% on average. But also in the US, the share of people out of work for 12 months or more has soared, from 10% pre-crisis to around 30% today.
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. This group faces a high risk of poverty and social exclusion. Addressing this should be a priority for action by governments.
Helping people stay in touch with the labour market is essential to avoid today’s high levels of long-term unemployment becoming entrenched, says the OECD. Spending on active labour market policies, such as job-search assistance and training, must be maintained or increased, when possible, to help the unemployed back to work.
Since the start of the crisis, such spending has increased, often by more than in previous recessions but not by enough to keep pace with the steep rise in the number of unemployed. Countries cutting the resources available to job-seekers risk making the unemployment situation even worse, and jeopardising the long-term potential for economic growth, warns the report.
Publicly-subsidised work experience could help people keep in touch with the labour market. Targeted subsidies for new hires by employers would have greater impact and be more cost-effective than wide reductions in payroll taxes, says the OECD. Apprenticeships and other dual vocational and training programmes would also help young people to improve their job skills and career prospects.
The OECD also calls for action to tackle other labour market challenges such as rising inequality. The labour share of national income has fallen, often sharply, in most OECD countries in recent decades. This trend is closely related to the overall increase in inequality and is being driven, among other factors, by technological change and greater international economic integration. Enhanced investment in education and skills and better targeted tax and transfer programmes can help to ensure that the fruits of economic growth are more broadly shared, says the OECD.