Introductory Remarks by Angel Gurría, OECD Secretary-General, at the G8 Labour Ministerial, Social summit 2009
Rome, Italy, 30 March 2009
Minister Sacconi, Ladies and Gentlemen:
It is a great pleasure to participate in this G8 Social Summit 2009. Tackling the human dimension of this economic crisis, the subject that brings us here today, is our most important challenge. We are facing the most serious and global economic crisis of our lifetimes, and we will only be able to address it if we join forces and work together.
The global economy is contracting. The credit squeeze, negative wealth effects (stemming from lower house and equity prices) and a generalized loss of confidence are dragging down economic activity everywhere. Trade flows are expected to fall by 9% in 2009. Foreign direct investment inflows will further contract, after shrinking by about 20% in 2008. Development aid flows are threatened, while remittances from migrants are dropping fast.
This meltdown is rapidly turning into a jobs and social crisis. Labour market conditions are weakening throughout the world, as companies are cutting production, closing factories and dismissing workers. Our latest projections (to be released officially tomorrow) indicate that the unemployment rate in the OECD area could approach 10% by 2010 compared with 5.6% in 2007. This implies that the crisis could swell the rank of the unemployed in the OECD by about 25 million people, by far the largest and most rapid increase in OECD unemployment in the post-war period.
And the job crisis is spreading rapidly around the world. The International Labour Organisation estimates that world-wide unemployment could increase by 40 million people by the end of this year.
The most disadvantaged labour-market groups – youth, low-skilled, immigrants and temporary workers – are already bearing the brunt of the rapidly rising unemployment. They are the first to lose their job and tend to have only limited access to social safety nets. And since they also face serious difficulty in finding a new job, they run the risk of becoming long term unemployed or discouraged.
Restoring global growth is an economic and political priority, but also an ethical, moral, social and human imperative.
1. Reviving the global economy
Our OECD projections indicate that the ongoing contraction in economic activity will worsen this year, before recovery gradually builds momentum through 2010. The uncertainties attached to this bleak outlook are exceptionally large, while the risks remain firmly inclined to the downside.
An essential first step is to implement without delay a coherent strategy to tackle the mess in financial markets. Above all, dealing decisively with impaired bank assets and broader concerns about bank solvency is needed to restore credit supply and to restore trust and confidence in financial markets. In this respect, the Geithner plan is a welcome initiative. We all have much at stake in its success.
Macroeconomic stimulus is also critical to cushion the fall in economic activity and prevent a deflationary downward spiral. Monetary policy should be used fully by keeping or bringing policy rates near zero. Measures introduced by central banks to enhance liquidity in markets have also helped to compensate for the tightening in financial conditions.
Fiscal policy is already playing an important role in OECD countries. For the average OECD country with a discretionary fiscal package, the cumulative budgetary cost over the period 2008-2010 amounts to 2 ¾ per cent of GDP. To these discretionary measures must be added the higher government spending on social security and lower tax payments that “automatically” kicks in to support demand as the economy weakens. Overall, the stance of fiscal policy will provide a powerful cushion to the economic downturn.
But all these measures to bring countries back on a growth track will not bear their best fruit if they are not accompanied by appropriate employment and social policies.
2. Mitigating the impact on people: Employment and social policies
Earlier economic downturns have provided important insights on what works and what doesn’t. Nevertheless, the current downturn poses some difficult new challenges to labour market and social programmes.
Over the past few months, we have already seen the youth unemployment rate soaring much more rapidly than the adult unemployment rate. Decisive actions targeted on at-risk youth 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.
At the other end of the age distribution, pressure to ease older worker unemployment by promoting early retirement or disability benefits should be resisted. The experience of the 1970s suggests that using early retirement to free up jobs for young people does not work and it takes a very long time to unwind these schemes when the economy picks up again. Recently, several countries have taken action to help individuals with health problems who want to work to retain a foothold in the labour market. It would be important to maintain these efforts.
Ladies and gentlemen,
Labour market and social policies are crucial tools to help workers and their families weather the current storm. It is essential to intervene quickly and effectively to avoid the financial crisis from becoming a full-blown social crisis with dramatic effects on vulnerable workers and low income households. This meeting is a unique opportunity to share our experiences, to learn from our respective policies and programmes.
Which policy areas are most in need of attention varies according to country-specific circumstances. What is important is to move ahead with a coherent package. I have highlighted some of the key aspects for such a package and a fuller discussion is provided in the OECD background document, as well as in our ongoing work on the crisis that will be discussed by the OECD Employment and Labour Ministers when they meet in Paris on the 28 and 29 of September.
Let’s not forget that most of these policy tools to mitigate the human impact of the crisis are not available for the great majority of the people of this planet. Only about one quarter of vulnerable developing countries have the ability to finance job-creation or safety net programs. Most developing countries are now facing serious difficulties and social tensions as a result of a crisis they did not create. We cannot let these people down; both for reasons of ethics and for enlightened self-interest. The developing world’s unemployment problem is a G7 problem, an OECD problem. We need to address the world’s labour crisis together, through enhanced and more inclusive international co-operation. Relying purely in national policies will no longer do the trick.
I therefore congratulate you for this inclusive Social Summit and very much hope that the coming G20 meeting will focus also on the human dimension of the crisis. For we can no longer think we will save ourselves without saving the others.
Thank you very much.-