Global unemployment to rise by 3.4 million this year, says ILO

The global unemployment rate is projected by the International Labour Organization (ILO) to rise in 2017, amid a protracted economic slowdown which has set back progress in increasing both the quantity and quality of jobs.

by Kanaga Raja

GENEVA: The global unemployment rate is expected to rise modestly from 5.7% in 2016 to 5.8% in 2017, representing an increase in the number of unemployed globally of 3.4 million, the International Labour Organization (ILO) has said.

In its World Employment and Social Outlook – Trends 2017 report released on 12 January, the ILO said that this will bring total unemployment to 201.1 million in 2017.

The ILO further said that the global unemployment rate is then expected to hold relatively steady in 2018, as the economic outlook improves, although the pace of labour force growth will still outstrip employment creation, resulting in an additional 2.7 million unemployed people.

“We are facing the twin challenge of repairing the damage caused by the global economic and social crisis and creating quality jobs for the tens of millions of new labour market entrants every year,” said ILO Director-General Guy Ryder in an ILO news release.

“Economic growth continues to disappoint and under-perform – both in terms of levels and the degree of inclusion. This paints a worrisome picture for the global economy and its ability to generate enough jobs. Let alone quality jobs.”

“Persistent high levels of vulnerable forms of employment combined with clear lack of progress in job quality – even in countries where aggregate figures are improving – are alarming. We need to ensure that the gains of growth are shared in an inclusive manner,” Ryder said.

The ILO report said that the increases in the global unemployment level and rate in 2017 are driven by deteriorating labour market conditions in emerging countries, which are expected to see increases in unemployment in the order of 3.6 million between 2016 and 2017. Their overall unemployment rate is expected to climb to 5.7%, compared with 5.6% in 2016.

In contrast, in developed countries, unemployment is expected to fall in 2017 (by 670,000), bringing the rate down to 6.2%.

In developing countries, unemployment levels are expected to increase in 2017 (by 450,000), with unemployment rates hovering around 5.5% in 2017 (and 2018).

Global economic growth is expected to have remained relatively unchanged in 2016, at 3.1%, compared with 3.2% in 2015.

The protracted slowdown since 2008 is being driven by several factors, including continued global uncertainty regarding the economic outlook and a range of potential policy shifts (e.g., interest rate movements), which have dampened investment and trade and, in turn, aggregate demand.

However, said the ILO, economic growth is expected to pick up slightly in 2017 (to 3.4%) and 2018 (3.6%).

The upward trend is largely being driven by anticipated improvements in emerging countries, notably in Brazil and the Russian Federation, where major contractions in 2016 dragged down economic growth. Furthermore, the negative impact of the sharp terms-of-trade shock experienced by commodity exporters is likely to reverse and an increase in capital inflows should help to buttress economic improvements.

For developed countries, the outlook for economic growth is also expected to improve, although growth rates are projected to remain below 2%. Economic growth in these economies overall fell to 1.6% in 2016 (from 2.1% in 2015), but is expected to pick up to 1.8% in 2017. In comparison, between 2000 and 2007 economic growth averaged close to 3% in developed economies.

The slowdown in 2016 was in part driven by lower-than-expected performances in the United States and Europe. “In both these cases, there is some uncertainty regarding the anticipated improvements in their economic outlook going forward, which could have wider implications for the global outlook,” said the ILO.

Vulnerable employment and

working poverty

Given the disappointing global economic performance in 2016 and the below-trend outlook, progress on reducing decent work deficits has stalled, notably as concerns the ability (or inability) of the global economy to (i) generate a sufficient number of jobs, (ii) improve the quality of work for those with a job, and (iii) ensure that the gains of growth are shared in an inclusive manner.

The report underlined that vulnerable forms of employment, i.e., own-account work and contributing family employment, remain pervasive.

In particular, vulnerable employment as a share of total employment is expected to fall less than 0.2 percentage points per year over the next two years (compared with an average annual decline of 0.5 percentage points between 2000 and 2010). As a result, the share of vulnerable forms of employment is expected to remain above 42% over the coming years, accounting for over 1.4 billion people worldwide in 2017.

Significantly, almost half of all workers in emerging countries are still in vulnerable forms of employment, and almost four out of five workers in developing countries are in this employment category. As a result, the total number of workers in vulnerable employment is projected to grow by 11 million per year.

Working poverty is expected to continue its long-term decline, driven by reductions in both emerging and developing countries, decreasing from 29.4% of the employed in emerging and developing countries in 2016 to 28.7% in 2017 [at the extreme and moderately poor poverty threshold, i.e., those living on less than $3.10 per day in purchasing power parity (PPP) terms].

While working poverty rates have continued to decrease, the reduction in absolute numbers of working poor is slowing. In 2016, the emerging and developing economies were home to a total of 783 million working poor, a figure that is expected to fall to 776 million in 2017.

“While emerging countries are experiencing rapid reductions in both the rate and the number of working poor, progress in developing countries is too slow to keep up with population and employment growth.” Consequently, said the report, the number of workers earning less than $3.10 per day is expected to increase by close to 3 million per year in developing countries until 2018.

As a response to the ongoing global uncertainty and the persistence of major economic challenges, the risk of social unrest or discontent has heightened across almost all regions.

Based on the ILO’s social unrest index, which measures expressed discontent with the socioeconomic situation in countries, the average global social unrest score increased by 0.7 points between 2015 and 2016, to 22.4 points. This level, while lower than the post-crisis peak, remained above the long-term average (since 1980) of 21.9 points.

In terms of regional developments, only three regions experienced declines in the index between 2015 and 2016, most notably Northern Africa. In contrast, eight regions experienced increases, with the largest rise taking place in the Arab States, followed by sub-Saharan Africa and Eastern Asia.

Discontent with the social situation and a lack of decent job opportunities are factors that play a role in a person’s decision to migrate. Latest estimates suggest that there were more than 232 million international migrants in the world in 2013, of which some 207 million were of working age. Almost two-thirds of these, or 150 million, were migrant workers, accounting for some 4.4% of all workers.

According to the ILO report, the protracted slowdown in global economic activity has been a result of weaker-than-anticipated performance in key economic variables. Several drivers have continued to underpin slow economic growth. In particular, subdued private investment and trade flows have remained a major concern for both current economic conditions and the medium-term outlook.

The trend decline in investment and trade is creating a large gap in aggregate demand, which cannot be fully offset by public spending because of tight fiscal constraints and is unlikely to be filled by private consumption due to sluggish employment and labour income growth. Moreover, forgoing investment today results in lower productive capital stock and productivity growth in the future, thus lowering income growth.

However, since the onset of the global economic crisis, there has been an overarching level of uncertainty – often difficult to assess quantitatively – that has also played a central role.

The report pointed out that there are several factors that could explain the slowdown in potential growth. The first is that weak trade growth over recent years does not appear to be entirely cyclical. The intensification of global supply chains has slowed down significantly since 2009 compared with the period 2000-08, implying that trade volumes and global production could become increasingly disconnected from one another.

Consequently, developed countries see much smaller potential productivity gains due to global supply chain intensification, while the potential for developing countries to benefit from innovation and technological diffusion and access to quality imports is diminished.

In addition, developed countries have experienced low growth in conjunction with extremely low interest and inflation rates – as well as extremely loose monetary policy – for several years in a row.

The ILO said that if secular stagnation (i.e., lower consumption and investment demand) does indeed intensify, global unemployment would rise by an additional 0.3 million in 2017 and almost 1 million in 2018. Under such a scenario, developed economies would be affected the most, while emerging and developing countries would benefit initially from higher capital inflows, but would then also suffer due to negative spillover effects caused by lower trade and investment.

However, a coordinated fiscal loosening would provide an immediate jump-start to the global economy, which in the medium term might remove fears of low growth and thereby also raise investment demand.

The scenario assumes there is an increase in public investment outlays, but importantly it also takes into account each country’s fiscal space. Under this scenario, global unemployment could be lowered, relative to baseline projections, by 0.7 million in 2017 and 1.9 million by 2018.

“Boosting economic growth in an equitable and inclusive manner requires a multi-faceted policy approach; one that addresses the root causes of secular stagnation, e.g. inequality, while also taking account of country specificities,” said the ILO.

Regional trends

According to the report, the African economy is currently characterized by relatively weak economic growth in comparison with the average growth rate achieved in the continent over the past decade.

In the current context, the ILO said, the prevailing economic conditions are likely to correspond to only marginal improvements in the labour market. The unemployment rate for the continent as a whole is likely to remain unchanged from its 2016 rate of 8.0% going into 2017, which, when applied to a rapidly growing labour force, corresponds to an increase in total unemployment of 1.2 million.

A similar trend is observed with regard to vulnerable employment, with a slight decrease in the rate but an increase in the number of workers in this form of employment.

Meanwhile, despite marginal decreases in extreme working poverty (i.e., individuals who live on less than $1.90 per day), the region – driven by trends in sub-Saharan Africa – is performing poorly with regard to moderate working poverty (i.e., those living on between $1.90 and $3.10 per day).

At 1.6% in 2016, economic growth in sub-Saharan Africa is at its lowest level in over two decades – a sharp contrast to the annual average of nearly 5% over the past 10 years. This downturn has largely been due to the effects of low commodity prices on resource-intensive countries, such as Angola, Nigeria and South Africa (with oil-exporting countries faring particularly poorly). The reductions in commodity revenues have typically led to fiscal tightening, amidst inflationary pressures and weaker terms of trade.

For sub-Saharan Africa as a whole, a slight recovery to 2.9% is anticipated for 2017, the achievement of which will rely on recoveries among commodity exporters, alongside elevated growth rates in a number of non-resource-intensive economies.

Sub-Saharan Africa’s unemployment rate is forecast to be 7.2% in 2017, unchanged from 2016. While the unemployment rate remains stable, the number of unemployed is expected to increase from 28 million in 2016 to 29 million in 2017 due to the region’s strong labour force growth.

In the context of sub-Saharan Africa, however, poor-quality employment – rather than unemployment – remains the main labour market challenge. This problem is compounded by rapid population growth, specifically growth of the working-age population. For example, an additional 12.6 million youth in the region will enter the labour force over the next four years. As such, the region risks forgoing any gains from the potential “demographic dividend” unless sufficient productive opportunities are provided for young people.

Across most of sub-Saharan Africa, the lack of productive opportunities for youth and adults alike means that 247 million people were in vulnerable employment in 2016, equivalent to around 68% of all those with jobs. While a marginal decrease in the rate of vulnerable employment is anticipated over the next two years, due to growth in the working-age population, the number of people in vulnerable forms of employment is expected to increase by 14.6 million.

Inter-related with vulnerable employment is the issue of working poverty. Sub-Saharan Africa continues to be characterized by elevated rates of working poverty, with 33.6% of all employed people living in extreme poverty in 2016 – i.e., on less than $1.90 per day – and an additional 30.1% in moderate poverty – i.e., between $1.90 and $3.10 per day. This corresponds to over 230 million people in sub-Saharan Africa living in either extreme or moderate poverty.

Northern America recorded growth of 1.5% in 2016 – substantially lower than the 2.5% growth achieved in 2015. The slowdown in 2016 was driven principally by lower growth in the United States: GDP grew by 1.6% in 2016, compared with 2.6% in 2015. The slowdown in the US, combined with lower commodity prices, has also dampened growth in Canada (an estimated 1.2% in 2016, compared with 2.5% in 2015).

“Weaker than expected economic performance was accompanied by weak productivity gains, particularly in the first half of 2016 – placing further pressure to keep interest rates low. With investment growth still weak, due to lingering risk aversion associated with the global economic crisis and a climate of uncertainty, growth is likely to rely on domestic consumption and, to a lesser extent, on rebounding export growth.”

Growth is anticipated to pick up in 2017, with growth of 2.2% projected for the region (2.2% in the US and 1.9% in Canada).

In both countries, the unemployment rate is expected to remain relatively stable as job creation rates keep pace with the number of people entering the labour force and seeking employment. In the case of Canada, unemployment is projected to remain stable throughout 2017 and 2018, at 7.1%. For the US, the rate is expected to remain at 4.9% in 2017, rising moderately to 5% in 2018.

The unemployment rate for the Latin America and Caribbean region is expected to rise by 0.3 percentage points in 2017, to 8.4%.

This significant increase in the region’s unemployment rate is largely being driven by Brazil, where the deeper-than-anticipated recession of 2016 will be playing out in 2017. Brazil’s unemployment rate is expected to reach 12.4% in 2017, almost 1 percentage point higher than the 2016 rate.

The number of unemployed people in the region in the coming years will be further increased as labour force growth exceeds job creation.

In Mexico, the region’s second-largest economy, the unemployment rate is expected to remain comparatively low in 2017, at 4%, with a modest upturn anticipated in 2018, when job creation is expected to slow relative to labour force growth.

The report said that vulnerable forms of employment in the region steadily declined between 2009 and 2014.

However, since the onset of the slowdown in 2015, the share of workers in vulnerable employment has risen at a steady pace, climbing nearly a full percentage point between 2014 and 2016, from 31.0% to 31.9% (and anticipated to remain there through 2018). The number of people in vulnerable employment is expected to continue to increase, reaching over 93 million in 2018, up from 90.5 million in 2015.

Accounting for nearly 60% of the global workforce, the Asia and the Pacific region’s net employment expanded by over 20 million in 2016, equivalent to growth of around 1.1%, with a similar expansion anticipated in 2017.

Southern Asia has created most of the new employment, with employment expanding by 13.4 million in 2016, underpinned by population-driven labour force growth. The majority of this new employment was created in India.

Total employment expanded by around 5 million in South-Eastern Asia and the Pacific, equivalent to growth of 1.6%, and is forecast to grow by another 4.5 million in 2017, with Indonesia and the Philippines accounting for the majority of employment growth in this sub-region.

In Eastern Asia, employment is growing the least, at less than half a percentage point each year, largely as growth of China’s workforce starts to shrink.

Vulnerable employment as a share of total employment in the region as a whole decreased from nearly 60% in 2000 to 50.1% in 2016. However, within the region, vulnerable employment is still stubbornly high. For example, Southern Asia had an estimated rate of 74.8% in 2016, compared with 30.9% in Eastern Asia and 50.8% in South-Eastern Asia and the Pacific.

Economic activity in the Northern, Southern and Western Europe region is expected to continue to slow, with GDP growth forecast to reach 1.5% in 2017, down from 1.7% in 2016 and 2.1% in 2015. The region’s economic growth is set to pick up again in 2018, albeit only marginally.

Several global and interlinked forces are weighing negatively on the region’s growth projections for 2017. Firstly, said the ILO, the benefit of low energy prices, which supported regional aggregate demand throughout 2016, is expected to wane in 2017, as oil prices are likely to rebound. Secondly, weaker aggregate demand by key trade partners, notably large emerging market economies, is weighing on export growth. In addition, the outcome of the United Kingdom’s vote to leave the EU is likely to undermine investors’ and financial markets’ confidence in the medium term, both in the UK and in Europe.

These downside risks are only partially offset by expectations that expansionary monetary policy by the European Central Bank will continue and that EU countries will engage in more growth-oriented fiscal policy.

Within the region, said the report, the largest downside revision to GDP growth concerns the UK, where growth in 2017 is projected to be 1.1%, down from an average of 2.3% between 2013 and 2016.

The regional unemployment rate is projected to reach 9.1% in 2017, down by 0.2 percentage points with respect to values anticipated for 2016. Considering that the regional unemployment rate fell by almost 2 percentage points between 2013 and 2016, this represents an important slowing of the region’s progress towards returning the unemployment rate to its pre-crisis level of 7.4% (in 2008).

Indeed, significant reductions in the unemployment rate are expected in only a few countries, including Croatia, Ireland, the Netherlands, Portugal and Spain. However, a small number of countries within the region, most notably the UK, are likely to see their unemployment rates edging upwards over the next couple of years, the ILO said. (SUNS8385)                                           p