600 million jobs needed to spur growth over next decade

Projecting a possible double-dip recession in advanced countries, increasing unemployment and underemployment, the International Labour Organisation (ILO) says the world must rise to the urgent challenge of creating 600 million jobs over the next decade in order to generate sustainable growth.

IN its Global Employment Trends 2012 report, the ILO says that the world enters the year 2012 facing a stark reality: one in three workers in the labour force is currently either unemployed or poor. Out of a global labour force of 3.3 billion, 200 million are unemployed and a further 900 million are living with their families below the $2-a-day poverty line.

The ILO projects 400 million new entrants into labour markets over the next 10 years. As a result, on top of the challenge of improving labour productivity in developing countries to lift the world's 900 million working poor out of poverty, 400 million new jobs will be needed simply to avoid a further increase in global unemployment.

'Despite strenuous government efforts, the jobs crisis continues unabated, with one in three workers worldwide - or an estimated 1.1 billion people - either unemployed or living in poverty,' said ILO Director-General Juan Somavia. 'What is needed is that job creation in the real economy must become our number one priority.'   

Rapid slowdown

According to the ILO report, global growth has decelerated rapidly, increasing the threat of a prolonged jobs recession. Following the deepest global recession since the end of the Second World War, the recovery has been shortlived and shallow, barely recovering to rates prior to the crisis and unable to close the gap that has opened up.

In the meantime, it adds, the macroeconomic woes in some advanced economies have worsened, increasing global uncertainty.

While only a few countries have been facing serious and long-term economic and fiscal challenges, the global economy has cooled down fast as uncertainty has spread beyond the advanced economies, moving the world economy even further away from the pre-crisis trend path. At the current juncture, even a double-dip recession remains a distinct possibility, it warns.

Partly, the protracted nature of the recovery is due to the nature and depth of the crisis as well as its synchronised impact, which required policy action and economic adjustments on several fronts.

'A combination of unresolved financial market problems and financial reforms that have not yet been fully operationalised, a shift of private debt into public debt and subsequent sovereign debt sustainability issues, an ongoing process of private sector de-leveraging and a global and sectoral restructuring of activities triggered by the crisis has put the brakes on global growth.'

Grim (un)employment outlook   

As a result of the weaker-than-expected recovery, labour markets are unlikely to recover from the strain they have suffered since the beginning of the crisis, the report cautions.

For the fourth consecutive year, says the ILO, global unemployment remained elevated in 2011, with more than 197 million unemployed around the world, a figure unchanged from the year before and still nearly 27 million more than in 2007.

The number of unemployed around the world increased by 5.8 million in 2008 and then surged by more than 21 million in 2009, an increase from a rate of 5.5% to 6.2%. Global unemployment remains stuck at a rate of around 6.0%, despite rapid economic growth of 5.1% in 2010 and 4% in 2011.

The baseline projection shows no change in the global unemployment rate between now and 2016, remaining at 6% of the global labour force. This would lead to an additional 3 million unemployed around the world, giving a total of 200 million in 2012, and rising to 206 million by 2016, says the report.

Downside risks to economic activity have increased substantially since mid-2011, with global growth of below 2% in 2012 a growing possibility. The most notable risks are: the question of debt sustainability in weak sovereigns and exposure of banks in a number of advanced economies, which could spark contagion; in countries such as Japan, the United States and many in the euro area, policies that are insufficiently strong to address the effects of the crisis on the major advanced economies; vulnerabilities (including risks of overheating from surging credit growth) in some emerging market economies; and volatile commodity prices and geopolitical tensions.

The report highlights both the downside and upside scenarios for global unemployment and employment.

According to the ILO, the downside scenario assumes negative shocks in the euro area (primarily through bank capital reflecting losses on holdings of public debt), the United States (through slower potential output growth and increasing loan losses on mortgage portfolios) and emerging Asia (through losses on non-performing loans). The scenario assumes fallout effects in other regions, for instance, through a decline in commodity prices, which impacts commodity exporters.

In this scenario, global growth would fall to 1.6% in 2012 and then rise to around 5% in 2013, versus the baseline projection of 4% growth in 2012 and 4.5% in 2013.

In the downside scenario, global unemployment would rise to 204 million in 2012, 4 million more than under the baseline scenario, with a further increase to 209 million in 2013, 6 million more than in the baseline scenario.

The largest impact is projected for the Developed Economies and European Union region, which would have an additional 3 million unemployed in 2012 and an additional 4 million unemployed in 2013 versus the baseline scenario. This region's unemployment rate would rise to 9% in 2012 and edge up to 9.1% in 2013, versus projections of 8.5% for 2012 and 8.4% under the baseline scenario.

According to the report, the upside scenario for global unemployment and employment assumes a relatively benign outcome from the euro debt crisis, which would lead to growth acceleration in the Developed Economies and European Union region (from 1.4% in 2011 to 2.5% in 2012), which in turn would lead to somewhat faster growth in regions with strong ties to Europe and the United States, namely, Central and South-Eastern Europe (non-EU) and CIS (Commonwealth of Independent States), Latin America and the Caribbean and the Asian regions.

In the upside scenario, global unemployment would be around 1 million lower than in the baseline scenario in 2012 and 1.7 million lower in 2013. However, this would not be sufficient to significantly alter the trajectory of the global unemployment rate, which is projected to remain stuck at around 6%.

The reduction in unemployment would largely occur in the Developed Economies and European Union region, where the unemployment rate would fall from 8.5% in 2011 to 8.3% in 2012 and to 8.2% in 2013.

The report also finds that in 2011, 74.8 million youth aged 15-24 were unemployed, an increase of more than 4 million since 2007. The global youth unemployment rate, at 12.7%, remains a full percentage point above the pre-crisis level. Globally, young people are nearly three times as likely as adults to be unemployed.

In this light, the increase in social unrest in many countries and regions around the world is of little surprise. 'In the Middle East and North Africa regions, for example, youth are around four times as likely as adults to be unemployed, with youth unemployment rates well in excess of 25% in both regions.'

Decline in labour force participation

According to the report, the increase in global unemployment of nearly 27 million since 2007 is unprecedented, and this headline figure provides an indication of the severity of the shock to many labour markets around the world.

Nevertheless, the figure substantially understates the extent of the global employment shortfall. In many countries, there is evidence of an accelerated decline in labour force participation.

In the five years from 2002 to 2007, the global labour force participation rate declined from 65.1% to 64.8%, a drop of 0.3 percentage points. In the four years from 2007 to 2011, the rate dropped to 64.1%, a decline of 0.7 percentage points. The pace of decline in labour force participation at the global level since 2007 has been two-and-a-half times greater than in the five years leading up to the crisis.

In the world as a whole, there were nearly 29 million fewer people in the labour force in 2011 than would have been expected based on pre-crisis trends. This number is equal to nearly 1% of the actual global labour force in 2011, and to nearly 15% of the total number of unemployed in the world.

'Put another way, if all of these potential workers were available to work and sought work, the number of unemployed would swell to over 225 million, or to a rate of 6.9%, versus the actual rate of 6%.'

The report finds that participation rates have plunged in many countries in the Developed Economies and European Union region, resulting in 6 million fewer people in the labour force than would have been expected based on pre-crisis trends. Adding this cohort to the unemployed would raise the region's unemployment rate from 8.5% to 9.6%.

Youth in developed economies have been hardest hit: youth comprise one-third of the labour force shortfall versus less than 12% of the region's labour force, with a total of 2 million fewer youth in the labour force than would have been expected.

Productivity growth

'Viewing employment and productivity growth rates together sheds light on whether the economic downturn has been characterised more by impacts on employment or by impacts on productivity and whether employment growth or productivity growth [is] likely to lead a recovery,' the report says.

Globally, employment grew at an average annual rate of 1.1% between 2008 and 2011 and is projected to accelerate to 1.4% growth in 2012-13, compared with historical growth of 1.8%. The longer-run projection over 2014 to 2016 is for continued sluggish growth of 1.3%.

In contrast to this, while labour productivity growth for the world as a whole did decelerate - averaging only 1.6% between 2008 and 2011 - and was on a decelerating trend prior to the crisis, the impact of the crisis on labour markets has been skewed more towards weak employment generation than towards reduced labour productivity growth and this trend is projected to persist over the next several years.

'As labour productivity growth is projected to rebound to above trend growth rates over the projection period, this provides evidence that, based on the projected rates of economic growth, there is space to accelerate employment generation globally while still maintaining levels of productivity growth in line with pre-crisis trends.'

In terms of labour productivity levels, says the report, the gap between labour productivity in the developed and developing regions has narrowed over the past two decades, but it remains substantial: output per worker in the Developed Economies and European Union region was $72,900 in 2011, compared with an average of $13,600 in developing regions. This means that, adjusted for differences in prices across countries, the average worker in a developing country produces less than one-fifth of the output of the average worker in a developed country.

Working poverty

According to the ILO, there were an estimated 456 million workers around the world living below the $1.25-a-day poverty line in 2011, a reduction of 233 million since 2000 and of 38 million since 2007.

However, this global aggregate is heavily influenced by the dramatic decline in extreme working poverty in the East Asia region, where, owing to rapid economic growth and poverty reduction in China, the number of poor workers has declined by 158 million since 2000 and by 24 million since 2007.

In terms of rates, while in the world as a whole the share of workers living below the $1.25 poverty line declined from 26.4% to 14.8% between 2000 and 2011, in the world excluding East Asia, the decline over the same period was far less: a reduction of 7.6 percentage points, from 25% to 17.4%.

Nearly 30% of all workers in the world - more than 910 million - are living with their families below the $2-a-day poverty line. These workers and their dependents remain highly vulnerable to further economic shocks.

While the global share has declined from 46% in 2000, progress has again been far faster in East Asia than in the rest of the developing world, the report observes. East Asia has managed to reduce the number of working poor who live below the $2 poverty line by 247 million since 2000, which is more than six times the level of poverty reduction in the developing world excluding East Asia, where the rate of poverty reduction has been mixed. In sub-Saharan Africa, North Africa, South Asia and the Middle East, the number of workers living with their families on less than $2 a day continues to grow.

While working poverty has been on the decline, there has been a marked slowdown in progress since 2008. A projection of pre-crisis (2002-07) trends in the incidence of working poverty shows a difference of 1.6 percentage points in 2011. This amounts to 50 million more working poor in 2011 than projected based on pre-crisis trends.

Similarly, there are an estimated 55 million more workers in 2011 living with their families below the $2 poverty line than expected on the basis of pre-crisis trends.

Strongly linked to the working poverty indicator, the report says, is the indicator on 'vulnerable employment', defined as the sum of own-account workers and unpaid family workers.

The number of workers in vulnerable employment globally in 2011 was estimated at 1.52 billion, an increase of 136 million since 2000. This corresponds to a trend decline of the global vulnerable employment rate to 49.1%, down from 52.8% in 2000.

'This moderate decline was, however, not sufficient to prevent the absolute number of workers in vulnerable employment from increasing by nearly 23 million since 2009 due to a continuous expansion of the labour force in those countries most heavily affected by vulnerable employment conditions.'

The East Asia region has seen a reduction in vulnerable employment of 40 million since 2007, compared with increases of 22 million in sub-Saharan Africa, 12 million in South Asia, nearly 6 million in South-East Asia and the Pacific, 5 million in Latin America and the Caribbean and more than 1 million in the Middle East.

Regional trends

In terms of regional economic and labour market developments, in the Developed Economies and European Union region, the report finds that job losses during the crisis and the ensuing slow recovery resulted in a widening of unemployment gaps to historically high levels, reaching 45 million unemployed in 2010. Among developed economies, only Germany and Australia managed to increase employment in 2011 to above pre-crisis levels.

The report underscores that the current move towards austerity policies and across-the-board cuts in public spending programmes that are observed in the region are unwarranted and are likely to compound the problems in the labour market.

The outlook for employment creation has substantially worsened over the second half of 2011. With growth rates stalling and the return of recessionary conditions in some of the advanced economies, unemployment is on the rise again, projected to reach 43.6 million or 8.5% of the region's labour force in 2012.

Should growth prospects further deteriorate, already weak labour markets would take additional strain and unemployment rates could rise beyond 9% by 2013, the highest rate on record. Even under more favourable macroeconomic conditions, however, and with a quicker return of recovery, it is unlikely that the region would revert to pre-crisis unemployment rates before the end of the projection period in 2016.

The Latin America and the Caribbean region returned to pre-crisis economic growth rates in 2010 and continued its strong performance in 2011, albeit at a slower pace. Economic growth for the region is estimated at 4.5% in 2011, compared with 6.1% in 2010 and an average annual rate of 3.6% for the period 2000 to 2007. Continued growth is expected for 2012, albeit at a lower rate of 4.0%. The unemployment rate is projected to remain steady at 7.2%.

Following a remarkable rebound in 2010 (9.8%), economic activity in East Asia in 2011 decelerated but remained robust (8.5%), led by Mongolia (11.5%), China (9.5%), Hong Kong-China (6.0%) and Taiwan-China (5.2%).

Strong economic growth has continued to fuel employment growth. In 2011, employment in East Asia increased by an estimated 6.5 million, or 0.8%, consisting of 4.1 million additional men and 2.4 million additional women in employment, says the report.

Employment growth in East Asia is forecast to decrease from a rate of 0.8% in 2011 to 0.6% in 2012, with little change projected in the employment-to-population ratio (from 70.2% in 2011 to 70.1% in 2012), while the unemployment rate in East Asia is projected to remain unchanged at 4.1% (4.7% for men and 3.4% for women) in 2012. However, youth unemployment is expected to remain elevated, reaching 8.9% in 2012 (10.5% for young men and 7.1% for young women).

Economic growth in the sub-Saharan Africa region slowed down to 2.8% at the height of the economic crisis in 2009, but rebounded strongly to 5.4% in 2010. The region continued its recovery in 2011, growing at 5.2%.

Economic growth in 2012 in sub-Saharan Africa is projected at 5.8%, which is close to the pre-crisis average during 2000 to 2007, but - as in other regions - this benign outlook depends to a large extent on the dynamics of the global economy and, in particular, on growth in middle-income countries and oil exporters.

Current projections of the unemployment rate show little change between 2011 and 2012 (8.2% in both years), says the report.                       

This article is reproduced from the South-North Development Monitor (SUNS, No. 7294, 25 January 2012).

*Third World Resurgence No. 257/258, January/February 2012, pp 11-14