Economic slowdown drives up unemployed to 180 million, says ILO

Joblessness and poverty have intensified as a result of the world economic downturn, and no improvement may be forthcoming if, as seems possible, the economic malaise persists, the International Labour Organization reports in a study on global employment trends.

by Kanaga Raja

GENEVA: Two years of economic slowdown have pushed the number of unemployed worldwide to a new high of 180 million, and the number of the poor living on $1 or less a day (working poverty) has returned to the levels recorded in 1998, 550 million, the International Labour Organization has reported.

This trend of increasing unemployment and working poverty is unlikely to be reversed in 2003 in light of the uncertain prospects for global economic recovery, the ILO said in a report on “Global Employment Trends 2003,” published on 24 January.

The deteriorating world employment situation and the risk that a weak or delayed recovery will exacerbate unemployment, underemployment and working poverty is disturbing, the ILO said, warning that if the slowdown becomes a full-scale recession, the consequences for the social and political stability of large parts of the world are grave.

Currently, worldwide there are about 730 million who are unemployed, underemployed and working poor.

Claire Harasty, senior ILO labour economist and the main author of the study, said that this was the first time this report was released separately from the World Employment Report (WER). (In the past it constituted the first chapter of the WER.) This was in response to rising demand and interest for a yearly labour outlook. The WER is published once every two years.

Unemployment and poverty on the rise

The ILO study estimates that the number of unemployed worldwide grew by 20 million since 2000 to reach a total of 180 million at the end of 2002. The effect of the increase has been most severe on women who are particularly vulnerable to economic shocks and on the youth whose unemployment rate has been spiralling upwards.

The shaky global economy has also pushed more people into informal employment. Due to the precarious and badly paid nature of many informal jobs, this has resulted in higher levels of poverty. This trend together with the rise in poverty traditionally associated with lower economic growth has reversed recent reductions in working poverty since the late 1990s.

While the ILO calls workers living at $1 a day or below as working poverty, the World Bank uses this yardstick in Asia and Africa to measure absolute poverty, while using the $2-a-day figure in Latin America to measure absolute poverty.

The ILO estimates that by the end of 2002, the numbers of those in working poverty may well have returned to 550 million, the level recorded in 1998. If this trend were to continue, it could endanger the UN Millennium Development Goal (MDG) of halving world poverty by 2015.

The ILO study assessed the global economic situation in 2002. Unemployment began to grow soon after the ICT (information and communications technology) bubble burst in spring 2001, sparking the economic downturn. The aftermath of the 11 September attacks in New York and Washington amplified the effects of the downturn.

The travel and tourism industry was badly affected, with an estimated 10.5 million jobs lost worldwide. Moreover, the slowdown in the North meant job losses in the export-oriented, labour-intensive industries of the South, especially in the garment industry.

GDP was forecast to grow in 2002 by an average of 2.8% globally, an increase of only half a percentage point compared with 2001, and down from the 4.7% growth rate in 2000. Modest growth in the US, a weakening pace of recovery in the EU and recession in Japan are holding back any rebound in the developing world. Projections by the World Trade Organization (WTO) say that world trade growth started to rebound in mid-2002, and a modest 1% expansion after a fall of 4.5% in 2001.

The ILO study paints a rather uncertain picture in terms of prospects for global economic growth.  Economic prospects hinge on the performance of the three main engines of the world economy, the US, Europe and Japan.

A turnaround for Japan seems a distant prospect and Europe is preoccupied with creating the mechanisms for concerted countercyclical fiscal and monetary policies rather than using them. That leaves the US, which has been responsible for over half of the modest global recovery in 2002.

However, the study points out that US household indebtedness is reaching levels that could prove unsustainable, and while productivity gains in recent years are impressive, with slower growth in demand, there is risk of further job shakeouts. This threatens to increase unemployment, which at 6% is already almost 50% higher than two years ago.

In Asia, most economies are showing signs of a turnaround, but some elements are still preventing a full recovery. Most Asian countries are oil importers and weaker oil prices in 2001 supported an economic recovery but the recent price increases have reduced this stimulus.

Nevertheless, economic growth in Asia is forecast at 6.3% in 2003, up from 5.6% in 2001, according to the International Monetary Fund (IMF). However, the ILO study says that these GDP forecasts “seem optimistic in light of the uncertainty of the economic recovery in the US.”

Regional analysis

In addition to providing a global outlook on the employment challenges, the study also provides an analysis on the unemployment situation on a region-by-region basis.

It finds that Latin America and the Caribbean (LAC) region was the most affected by the 2001 global economic slowdown in terms of output growth. Economic growth fell to 0.6% in 2001 and a contraction of 0.6% is projected for 2002, as opposed to almost 4% growth in 2000.

The situation is due partly to the sluggish performance of the North, as well as deteriorating terms of trade especially in commodity prices. The drop in prices for coffee (lowest level in 30 years), oil and sugar in 2001 contributed to a decline in export income.

Moreover, intra-regional trade also registered a sharp slowdown in the region, which grew by 1% in 2001 after expanding by 20% in 2000. Within the Mercosur (Southern Common Market) and NAFTA (North American Free Trade Agreement) zones, intra-regional trade plummeted by 41% and 8% respectively in 2002.

Unemployment increased in almost all of LAC between 2001 and 2002, which recorded an unemployment rate of close to 10 percent. A major challenge has been youth unemployment, which hit 16% in 2001, up from 12% in 1997.

The ILO study predicts that the LAC region will underperform in 2002, with Argentina acting as a drag to the whole region. The adjustment measures implemented in Latin America do not appear to have initiated new growth and dependence on the US market has increased. Moreover, many Latin American countries are still vulnerable to financial disruptions and have balance-of-payments deficits.

GDP is forecast to contract in 2002 and grow by 3% in 2003, provided that the US remains out of recession. Even this optimistic forecast will not improve the region’s employment situation. A growth of 4.5% over 5-10 years is needed to halve the unemployment rate and working poverty.

With the uncertainty in global economic recovery, the outlook for the LAC region remains bleak, the ILO study points out. This projection reflects the impact of the Argentine crisis. If Argentina were excluded from the assessment, regional GDP could grow slightly, with most economies experiencing positive, if modest and reduced, rates of growth.

Argentina is currently in the throes of the worst crisis in Latin America’s history. Unemployment has skyrocketed to over 25% and an estimated 50% of Argentinians are below the national poverty line, twice as many as in 2001. A major challenge for Argentina is the lack of confidence in its currency and financial system.

Apart from the LAC region, the industrialized countries in relative terms posted the steepest rise in unemployment rates. Unemployment rose steadily from 6.1% in 2000 to 6.9% in 2002 in the North. In the EU, unemployment increased from 7.4% in 2001 to 7.6% in 2002. In the US, unemployment increased from 4.8% in 2001 to 5.6% in 2002.

Asia suffered the most from the bursting ICT bubble, with South-East Asia posting a rise in unemployed from 6% in 2000 to 6.8% in 2001, and a slight fall to 6.5% projected in 2002. East Asia also recorded lower output growth and rising unemployment from 3.2% in 2000 to 3.6% in 2001 and 4% in 2002. In light of the sluggish growth in the industrialized countries, many Asian countries are looking towards China as a significant export market.

One billion new jobs needed

The ILO study says that to absorb new entrants in the labour market and reduce working poverty and unemployment, about 1 billion new productive jobs are needed in the coming decade to meet the MDG of halving poverty by 2015.

The study projects that nearly 60% of the world’s labour force will be in Asia by 2010, with China making up a quarter and other developing regions (Sub-Saharan Africa, Middle East and LAC) increasing their share. Meanwhile, the share of industrialized countries will decrease to one-fifth by 2010. Thus, the bulk of new jobs that need to be created by 2010 must come in Asia and Sub-Saharan Africa.

In order to meet the one-billion job mark over the decade, three fundamental structural objectives need to be addressed, the study emphasizes. First, the formal economy’s demand for labour is low and is decreasing further. A macroeconomic framework to stimulate employment-intensive investment is essential.

Second, there is increased vulnerability to external shocks. The recent examples of Latin America and South-East Asia illustrate how quickly economic shocks can be transmitted and magnified. Countercyclical macroeconomic policies play an important role in cushioning the negative impacts of slowdowns or recessions on employment. In the long run, development strategies should aim to move economies up the global value-chain and capture a larger share of the dividends of trade growth.

Third, poverty itself inhibits employment growth. Pro-poor policies are needed to help women and men secure productive and remunerative work.

“Only through pro-poor jobs and pro-poor policies can we address this growing employment crisis...” said Juan Somavia, ILO Director-General. “Faster economic growth is necessary, but is not enough. Failure of policymakers to act now could have grave consequences for us all,” he warned. (SUNS5269)

From Third World Economics No. 298 (1-15 February 2003)