How can labour market policies help promote a quick return to work?


Opening remarks by Angel Gurría, OECD Secretary-General, for the launch of the OECD Employment Outlook 2010 (Watch the video of the press conference)

OECD Auditorium, Paris
7 July, 2010

Ladies and Gentlemen, good morning:
It is a great pleasure for me to present to you the 2010 edition of the OECD Employment Outlook, our flagship publication on employment.

Ensuring a quick return to work for the many who have lost their job during the crisis or have not managed to find one after leaving education, has quickly climbed to the top of the policy agenda of most governments, a point stressed by the G20 Leaders at their recent Summit in Toronto.

This year’s edition provides a detailed assessment of the labour market impacts of the financial and economic crisis and identifies the key policy priorities to promote a job-rich recovery. Let me share with you some of its main recommendations.

The economic recovery in OECD countries is still fragile

Economic recovery in OECD countries is underway. But it is still fragile. While economic activity is booming in most emerging economies, average growth in OECD economies will be around 2¾ per cent, both during 2010 and 2011. This is still considerably low; especially knowing that we are emerging from the deepest downturn since the Great Depression.

GDP growth has been picking up at a faster pace than expected in the United States and Japan, but the recovery in the euro area is still quite timid, at around 1.2% during 2010. (Some economists, like Nouriel Roubini, put it at 0%). In general, output is still far below its potential, household confidence and private spending are still weak, while banks are still not lending as they were lending before the crisis.

The financial and economic storm has passed. The crisis has now moved on to its second phase; a phase marked by a weak recovery, over-leverage of public budgets and persisting high levels of unemployment. This last challenge is, in our view, the most critical policy challenge: the human cost of the crisis.

Employment keeps faltering

The recovery might be underway, but employment growth is still lagging. In the two years to the first quarter of 2010, employment in the OECD area fell by 2.1% and the unemployment rate increased by just over 50%, to 8.6%, equivalent to over 46 million people unemployed. This is a tragedy!

The problem is that, in most cases, growth will not be robust enough to quickly absorb the large unemployment and under-employment accumulated in many countries. Unemployment is unlikely to begin falling until the end of this year. Thereafter, the pace of decline is likely to be modest. As a result, the OECD unemployment rate may still be around 8% by the end of 2011.

This would mean that the OECD average impact of the 2008-09 recession on employment would be comparable to that of the deepest earlier recession in the post war period: the one following the first oil shock in 1973.

And the threat of structural unemployment grows

With many unemployed experiencing long spells of joblessness, the risk that the sharp increase in cyclical unemployment becomes structural in nature is rising. The risk level varies from country to country but it is a growing concern. In the United States, for example, we welcomed the news of a reduction in unemployment rate just to find out that the size of its labour force is shrinking. Since last May it has shrunk by 652,000 workers.  This means that discouraged workers are dropping out of the labour force.

The possibility of having high unemployment rates in 2012, 2013 and 2014 is threatening to mark whole generations and change our culture in deep ways. As I read in a recent very interesting article by Don Peck, the Deputy Managing Director of The Atlantic magazine, if this era of high joblessness persists much longer, “it will likely change the life course and character of a generation of young adults ─ and quite possibly those of the children behind them as well”.

Reducing unemployment is still the top priority for governments. But now the circumstances have changed.

Reducing unemployment, and deficits: A daunting challenge!

At the beginning of the year, most governments planned to hold constant, and in some cases further expand, resources devoted to labour market programmes during 2010. But the pressure to cut large fiscal deficits is mounting rapidly in many countries, bringing with it the need to make hard choices on how to allocate the scarcer public resources across the different pressing areas of public policy.

Given the depth of the labour market slack and the social and economic risks associated with it, a strong case can be made that labour market programmes must remain adequately funded. But it becomes essential to focus on cost effective programmes and target the most disadvantaged groups at risk of losing contact with the labour market.

The 2010 OECD Employment Outlook takes into account this policy twin challenge and makes a series of recommendations to help decision-makers make more with less.

Let me share with you very briefly some of these policy recommendations:

1. Measures to support labour demand should evolve from preserving jobs to jumpstarting job creation. As the economic recovery gains momentum, it is important to begin phasing out short-time work schemes, so as not to hinder productivity ─ enhancing labour reallocation across sectors and firms. At the same time, tight fiscal conditions suggest shifting the focus from generalised cuts in social security contributions to measures that jumpstart job creation, for example hiring subsidies targeted to the long-term unemployed or other vulnerable groups.

2. Income support to the unemployed should be maintained, but it is essential to condition it on effective job search. In those countries where the duration of unemployment benefits is normally short, or the coverage of benefits for workers in atypical jobs is low, there was a strong case for extending maximum duration and coverage of benefits in the downturn. These extensions should be maintained in the early phases of the recovery until the pool of long-term unemployed begins to drop significantly, accompanied by close monitoring of job-search efforts to avoid benefit dependence.

3. At the same time, there is a clear need to expand the coverage of basic social protection programmes in many emerging countries to reduce the risks of vulnerable families sliding into extreme poverty and exclusion. An important lesson from the crisis in these countries is that in order to respond effectively to the sudden increase in social needs, it is crucial to already have social protection programmes in place. 

4. Activation strategies can and should play a major role in speeding the reintegration of jobseekers into employment during the recovery. But they have to be adapted to the different phases of the downturn and recovery to ensure effective support to a large and growing pool of unemployed.

5. More investment in training should be a core element in an effective re-employment strategy. A shift towards greater investment in training, especially linked to local labour market needs, is warranted in the present circumstances. This would facilitate the re-employment of jobseekers, especially those with low or obsolete skills, and help to maintain an effective labour supply, thereby boosting future growth prospects.

6. A comprehensive strategy to promote job creation and sustained economic growth may also involve reconsidering certain labour regulations. As the recovery gathers pace, it is essential to create the right incentives for firms to hire more workers. Beyond temporary hiring subsidies and efforts to foster the employability of jobseekers, this could involve a rebalancing of employment protection between temporary and permanent contracts. Doing so would allow temporary jobs to function better as stepping stones into permanent jobs, rather than as traps.

The re-balancing of employment protection should be introduced as part of a comprehensive package that also provides adequate safety nets, with strictly-enforced work-availability conditions, and a well-designed activation package.

This is just a little taste of the sort of assessments and recommendations that you will find in the OECD Employment Outlook 2010. You will also find a very interesting section on the effects of policy and institutions on workers mobility and another section on the benefits of part-time work as an access platform to full employment.

We very much hope that you find it interesting and that you help us to spread its key messages and policy recommendations.

There is a lot at stake. If we don’t act fast, if we don’t apply effective and innovative employment policies and if we don’t find the proper balance between fiscal consolidation and the economic and jobs recovery, then a whole generation of young adults is likely to see its life opportunities permanently diminished.

The OECD stands ready to help and we count on your support to help us disseminate the very high stakes involved in getting it right.

Thank you very much.