Global unemployment may increase by 50 million – ILO

The global economic crisis is expected to lead to a dramatic increase in the number of people joining the ranks of the unemployed, working poor and those in vulnerable employment, the International Labour Office (ILO) has warned.

Kanaga Raja

IN its report Global Employment Trends 2009, released on 28 January, the ILO said that based on new developments in the labour market and depending on the timeliness and effectiveness of recovery efforts, global unemployment in 2009 could increase by a range of 18 million to 30 million workers in comparison with 2007, and more than 50 million if the situation continues to deteriorate.

At a media briefing to launch the report, ILO Director-General Juan Somavia said that the ILO message 'is realistic, not alarmist...but we have to assume clearly that we are now facing a global jobs crisis'.

'Many governments are aware and acting, but we feel that much more decisive and coordinated international action is needed to avert a global social recession. We are seeing progress in poverty reduction unravelling and [the] middle class worldwide weakening. The political and security implications of this are daunting,' he said.

He stressed that the crisis is underscoring the relevance of the ILO Decent Work Agenda. 'We find many elements of this Agenda in current measures to promote job creation, deepening and expanding social protection and more use of social dialogue.'

In response to a question, the ILO chief noted that there are countries that have a certain level of fiscal space, such as many of the countries in Latin America and Asia, and they are utilising that fiscal space. There are countries that don't have much fiscal space, but because they are large and important countries, they have the capacity to go to the capital markets. In this respect, he referred to the United States, Europe and Japan.

There are the rest which are mainly the Least Developed Countries and some countries in between (which do not have fiscal space or the capacity to go to the capital markets). For them, it is important that they have access to both International Monetary Fund (IMF) resources and greater development cooperation resources.

What is happening is that those countries in the first two categories are doing something completely different than in past crises. They are expanding the economy - not contracting it, he said.

Somavia noted that the IMF policies of the past were that if a country was in a crisis, it has to contract its economy and export a lot to earn enough money to pay the debt.

'Today, countries are expanding. They are applying counter-cyclical policies. They are putting much more resources into the flow - that's the fiscal stimulus part - and there is much more State present,' he said, adding that all of this is different from the previous ways of dealing with crises.

The danger here is that countries that don't have the fiscal capacity or cannot go to the capital market have to go to the IMF. 'And as far as we are seeing today, the IMF may apply exactly the same policies of the past,' he said.

Downward spiral

The ILO report said that in response to the financial crisis and dwindling access to funding, many companies in an increasing number of countries have taken action to reduce operating costs including postponement of investment and reductions of the size of the workforce.

In turn, consumers who have become uncertain about their livelihoods or who have joined the ranks of the unemployed or the working poor have been left with little choice but to curtail spending, thus adding to the downward spiral of economic activity.

The economic weight and market size of the Developed Economies and European Union, and the global linkages of the financial sector, mean that the crisis has had a major impact on other parts of the world which are seeing their sources of funding being squeezed and their export markets decline. In many developing economies, these problems added to the challenges posed by the impact of the spike in commodity prices in the first half of 2008.

The report said that the labour market outlook for 2009 depends on the effectiveness of coordinated government measures, and the time it will take for the global economy to find a path toward sustainable and socially equitable growth.

Given these uncertainties, the report presents three scenarios for labour markets in developed and developing economies.

According to the report, the first scenario projects unemployment using the revised economic outlook published by the IMF in November 2008 and based on the relationship between economic growth and unemployment during 1991-2008.

According to the IMF, global economic growth will slow down to 2.2% in 2009. In the Developed Economies and European Union, economic growth is projected to be negative (-0.3%), and all other regions are also expected to slow down considerably.

Based on current labour market trends, the first scenario would mean that the global unemployment rate may rise to 6.1% in 2009, and 198 million people will be unemployed. This is an increase of 18 million over the estimated number of unemployed in 2007.

The report noted that the IMF announced in December 2008 that it is likely to revise its global forecast for 2009 downward again in January 2009. In other words, global economic growth in 2009 is likely to fall below the 2.2% that was forecast in November 2008, and the first scenario can best be seen as an 'optimistic' baseline scenario.

The report said that the second scenario is based on the historical relationship between economic growth and unemployment at times of economic crises. In this scenario, the negative impact on unemployment is taken in each country at the time of the largest year-on-year drop in GDP, and this relationship is used to project global and regional unemployment for 2009.

This scenario becomes more realistic if the economic outlook would deteriorate beyond what was envisaged in November 2008, it takes more time for financial markets to stabilise, for government interventions to have a positive impact, and for business and consumer confidence to be restored.

According to the second scenario, the global unemployment rate would rise to 6.5%, an increase of 0.8 percentage points over 2007. This would correspond to an increase in the global number of unemployed by 30 million people in comparison with 2007.

The largest negative impact on the unemployment rate is seen in the Developed Economies and the European Union, where the unemployment rate would rise to 7.1%. This rate translates into an additional seven million people in 2009 over 2007 in this group of economies, two million more than in the first scenario.

According to the ILO, in the third scenario, the unemployment rate is projected in each country as the rate in 2008 plus the largest change in unemployment since 1991 in the Developed Economies and the European Union and half of the largest increase in economies in other regions. In other words, the scenario shows what would happen if the worst impact on the unemployment rate would repeat itself simultaneously in all developed economies.

The rationale for taking half of the worst impact in economies in other regions is that in developing economies, the main impact of the current crisis is not necessarily reflected in the unemployment rate. The impact as captured in the vulnerable employment rate and changes in working poverty may be equally important, said the report.

According to the third scenario, the global unemployment rate would rise to 7.1%, an increase by 1.4 percentage points over 2007. In the Developed Economies and the European Union, the unemployment rate would rise to 7.9%. This would correspond to an increase in the global number of unemployed of 51 million people in comparison with 2007.

Working poverty and vulnerable employment

The report also made projections for the working poor (people who are unable to earn enough to lift themselves and their families above the $1.25 or $2 per person, per day, poverty line) and people in vulnerable employment (either contributing family workers or own-account workers who are less likely to benefit from safety nets that guard against loss of incomes during economic hardship).

It said that a projection of trends according to the first scenario would result in a decrease of the extreme working poverty rate (at $1.25 per person, per day). By 2009, the decrease would amount to 1.8 percentage points in comparison with 2007, ranging from a strong decrease by 3.9 percentage points in East Asia to decreases by 0.5 points in the Middle East as well as in Central and South Eastern Europe (non-EU) & CIS (Commonwealth of Independent States).

In the other two scenarios, the extreme working poverty rate would rise in both 2008 and 2009, in the third scenario by 6.1 percentage points in comparison with 2007. According to the latter scenario, South Asia is among the regions with the largest increase in extreme working poverty, more than 13 percentage points over 2007, which translates into 95 million people. This reflects the large number of workers just above the poverty line in this region. Globally, this number would amount to 203 million.

Using similar scenarios as for extreme working poverty, the scenarios for working poverty at $2 a day show possibilities ranging from a decrease by 2.1 percentage points at the global level in 2009 if past trends would have continued, to an increase by 4.8 points in the third scenario. In the second scenario, working poverty in East Asia would still decrease, which reflects the strong economic growth in this region in all scenarios. The largest increases in working poverty according to the third scenario can be seen in South-East Asia and the Pacific and in North Africa.

On the development of vulnerable employment, the report noted that the projection of the global vulnerable employment rate according to the first scenario would result in a vulnerable employment rate just below 50% of the employed in 2008. According to the first scenario, the vulnerable employment rate would show a further decrease in 2009 to 48.9%, which is 1.7 percentage points below the rate in 2007. 'It is however expected that, in the light of recent economic developments, this trend will not materialise,' said the report.

In the second scenario, the vulnerable employment rate would still fall in 2009, but by only 0.6 percentage points, bringing it to exactly half of the employed in 2009. The third scenario suggests a strong rise in the proportion of persons in vulnerable employment in both 2008 and 2009. According to this scenario, the vulnerable employment rate would rise to 52.6% in 2008, and the number of people in vulnerable employment would rise by 84 million to almost 1.6 billion in 2008.

Rising joblessness

The report also highlighted recent developments in the global labour market. It noted that after four consecutive years of decreases, the global unemployment rate increased from 5.7% in 2007 to 6.0% in 2008, rising for men to 5.8% and for women to 6.3%. The ranks of the unemployed increased by 10.7 million people between 2007 and 2008, which is the largest year-on-year increase since 1998. The global number of unemployed in 2008 is estimated at 190 million, out of which 109 million are men and 81 million are women.

The global number of unemployed youth increased to 76 million, and the youth unemployment rate has increased by 0.4 percentage points in 2008. Given the current economic downturn, the youth labour market situation is all the more worrisome in view of the lack of progress in addressing youth labour market issues during more prosperous years, said the report.

In 2008, roughly three billion people around the world were employed, a growth rate of about 1.3% over the previous year, which is low in comparison with an annual average growth rate of 1.6% during the past 10 years, and in line with the lower economic growth rate in 2008.

The distribution of employment creation by region shows that the three Asian regions - South Asia, South-East Asia and the Pacific, and East Asia - account for 57% of global employment creation in 2008.

In the Developed Economies and European Union, on the other hand, net employment creation in 2008 was negative - total employment decreased from 473.1 million to 472.2 million, or by 900,000 jobs, which explains in part the low global employment creation that year.

Region-wise, the report noted that in 2008, North Africa and the Middle East still had the highest unemployment rates at 10.3% and 9.4% respectively, followed by Central and South Eastern Europe (non-EU) and CIS at 8.8%, sub-Saharan Africa at 7.9% and Latin America at 7.3%.

The lowest unemployment rate was once again observed in East Asia at 3.8%, followed by South Asia and South-East Asia and the Pacific, where respectively 5.4% and 5.7% of the labour force was unemployed in 2008.

Compared with 2007, the largest increase in a regional unemployment rate was observed in the Developed Economies and European Union region, from 5.7% to 6.4%. The number of unemployed in the region jumped by 3.5 million in one year, reaching 32.3 million in 2008.

In an overview of economic events, the report observed that in 2008, global financial markets experienced their worst crisis since the 1930s. The crisis was triggered by the collapse of the housing bubble in the United States, although the actual causes go deeper.

In the United States and other developed countries, there were credit excesses in residential mortgages, commercial mortgages, credit cards, auto loans and student loans. And there were excesses in the securitised products that converted these debts into toxic financial derivatives; in financing for leveraged buyouts and in the dangerous credit default swap market.

The high commodity and energy prices, the sub-prime crisis, contraction of the real estate market in many developed economies, and the severe global financial services shock, which has triggered a massive tightening in lending, have had a significant impact on most sectors of the economy and on employment.

In conclusion, the report said that there is a strong consensus among observers that the crisis will get worse in 2009 before it gets better. While the risk of a total systemic financial meltdown has been somewhat reduced by the actions of the G-7 major industrial countries and other economies to backstop their financial systems and provide economic stimulus, severe vulnerabilities remain.

It is likely that the credit crunch will get worse as de-leveraging by major institutions and the household sector continues. Further declines in trade, flows of foreign direct investment and remittances will affect labour markets and employment.

The unprecedented economic stimulus packages announced by governments will take time to have an effect on economic growth and employment. The recent turmoil has presented a new set of challenges to most if not all regions of the world by rendering the achievement of a path toward sustainable and socially equitable growth and decent work for all increasingly more difficult.

Much will depend on the extent to which policy interventions, at the national and global levels, are successful, said the report. 

Kanaga Raja is a researcher with the Third World Network. This article is reproduced from the South-North Development Monitor (SUNS, No. 6628, 29 January 2009), which is published by TWN.

*Third World Resurgence No. 221/222, January-February 2009, pp 7-9