TWN Info Service on UN Sustainable Development (Jan23/02)
18 January 2023
Third World Network

UN: Economic slowdown may force workers to accept lower quality jobs
Published in SUNS #9725 dated 18 January 2023

Geneva, 17 Jan (Kanaga Raja) — Global employment is projected to expand by 1.0 per cent in 2023, a significant deceleration from the 2.3 per cent growth rate of 2022, the International Labour Organization (ILO) has said.

In its World Employment and Social Outlook 2023 report, the ILO said that no major improvement is projected for 2024, when employment growth is expected to have edged up to 1.1 per cent.

The ILO said the outlook is pessimistic for high-income countries, with close to zero employment growth. In contrast, low-income and lower-middle-income countries are projected to see employment growth surpassing their pre-pandemic growth trend.

It said global unemployment is projected to edge up slightly in 2023, by around 3 million, to reach 208 million, corresponding to an unemployment rate of 5.8 per cent.

“Despite the negative global economic outlook, global unemployment is projected to increase only moderately, since a large part of the shock is being absorbed by rapidly falling real wages in an environment of accelerating inflation,” it added.

However, although global unemployment declined significantly in 2022, down to 205 million from 235 million in 2020, it still remained 13 million above the 2019 level, said the report.

The ILO also said beyond the gap in employment, job quality remains a key concern. Without access to social protection, many people simply cannot afford to be without a job. They often accept any kind of work, often at very low pay and with inconvenient or insufficient hours.

“The projected slowdown is therefore likely to force workers to accept jobs of worse quality than they might enjoy in better economic conditions.”

Furthermore, with prices rising faster than nominal wages, workers will experience rapidly declining disposable incomes even when they can keep their current jobs, said the report.

“The need for more decent work and social justice is clear and urgent,” said ILO Director-General, Gilbert F. Houngbo.

“But if we are to meet these multiple challenges, we must work together to create a new global social contract. The ILO will be campaigning for a Global Coalition for Social Justice to build support, create the policies needed, and prepare us for the future of work,” he added.

According to the ILO report, a worsening global economic outlook threatens to exacerbate decent work deficits.

It said rising geopolitical tensions, an uneven recovery from the COVID-19 pandemic, and bottlenecks in supply chains that are only slowly easing have created conditions for “stagflation”, the first period of high inflation coupled with low growth since the 1970s.

It said the large swings in consumption and disruptions in supply chains that accompanied the pandemic led to asymmetric demand and supply shocks, causing labour shortages and rising prices in a number of sectors.

“Inflation – in particular, high food and energy prices – is eroding disposable income, with repercussions for aggregate demand and the ability of the poorest in the world to maintain adequate living standards.”

The report said that these inflationary pressures have prompted major central banks to take a more restrictive monetary policy stance.

“The ensuing increases in interest rates, compounded by the conflict in Ukraine, are slowing economic activity and raising the spectre of financial instability in highly indebted countries.”

This is significantly increasing uncertainty and deterring the business investment on which continued reduction in unemployment and working poverty depends.

“In short, the progress in decent work and social justice that many countries achieved in recent decades is at risk of being eroded for many years to come.”

The report said a combination of asymmetric demand and supply shocks has increased core inflation rates.

Part of these problems stems from the large swings in consumption observed during the pandemic when demand shifted away from services towards (electronic) goods in 2020, to swing back to services in the course of 2021 as economies around the world gradually lifted workplace and travel restrictions.

It however said supply adjustments did not take place at the same speed. Especially the rising demand for goods together with the simultaneous decline in maritime transportation capacity led to significant disruptions in global supply chains (GSCs).

With the gradual opening that began in 2021, activity resumed quickly, thanks to pent-up demand stimulated by forced savings built up at the beginning of the pandemic. As a consequence, several sectors, including aviation and tourism, experienced serious capacity shortages.

“Surprisingly, the strength of these shocks seems to have been underestimated by policymakers despite them having been fully anticipated,” said the report.

Rising prices for energy and food, driven by cyclical factors and reinforced by supply disruptions caused by the conflict in Ukraine, pose existential threats for the poor, it added.

It said that double-digit inflation rates are affecting more than 2 billion people worldwide, deepening inequalities within countries and lowering aggregate demand.

It said that energy producers and enterprises with market power are earning record profits while other enterprises are struggling to pass on cost increases to their customers or are feeling the crunch of reduced demand.

“Workers are already experiencing a significant decline in real income and often lack bargaining power to seek compensation for these losses or are employed by struggling enterprises that are unable to raise their pay.”

The ILO said its Global Wage Report 2022-23 shows that global real wages are estimated to have declined by 0.9 per cent in 2022.

Even among low-wage service workers in advanced economies, who have seen the fastest increase in wages in decades owing to a shortage of labour, wage growth is barely keeping par with inflation.

The unexpected acceleration of inflation came to the detriment of workers, who find themselves on the losing side of surprise inflation. Meanwhile, the decline of unionization rates and collective bargaining coverage has reduced the power of social dialogue to elicit a fair sharing of the cost of inflation, said the ILO.

“In the absence of redistributive efforts, the majority of households will see declining real incomes, which will cause aggregate demand to fall.”

Countries that are experiencing deteriorating terms of trade face additional declines in real incomes as a result of inflation.

These countries need to spend significantly more on imports of food and energy, thereby transferring purchasing power to net exporters of those items, said the report.

This increased spending can cause balance-of-payment crises for developing countries with limited opportunities to borrow internationally, thereby worsening financing conditions for governments and enterprises, it added.

It noted that global policy space is limited and fragmented. The COVID-19 pandemic has left a large dent in the capacity of major policymaking institutions.

Central banks around the world have exhausted their capacity to support the recovery, it said.

Similarly, fiscal policymakers have accumulated a substantial amount of debt in order to support local businesses and households and are increasingly compelled to phase out some of the support measures, if they have not done so already.

“Rising interest rates, along with a strong US dollar, threaten the ability of countries to refinance debt, especially when coupled with capital flight.”

Between 2019 and 2022, the proportion of low-income countries experiencing debt distress or facing a high risk of debt distress increased from 49 per cent to 56 per cent.

The report said that it is of utmost importance to ensure that governments continue to have access to finance, since the implementation of austerity measures, or a situation of being forced to implement them by financial market distress during an economic downturn, would be catastrophic for labour markets.

Given the current economic policy consensus, the process of keeping inflation under control will be painful for households and many enterprises, it added.

It said that although inflation is driven more by supply than by demand factors, most policy action has focused on demand-side management to counter expectations of rising inflation.

In particular, the current policy response in advanced economies relies very much on monetary policy causing a contraction in aggregate demand, as evidenced by the record pace of interest rate hikes.

Workers will experience pressure on incomes under such a policy, either because of reduced jobs growth, or job losses, or because of falling real wages for those who remain employed, said the report.

It said in the absence of proper policy coordination, the risk is that large advanced and emerging economies will pursue a policy agenda primarily catering to their own domestic challenges, without regard for the wider global spillovers.

Monetary policy tightening, in particular, seems to be reacting to immediate inflation concerns without sufficient consideration of inter-temporal and international spillovers, it added.

“This may be creating an overly tight global macroeconomic environment that will have an unduly severe impact on the real economy and labour markets around the world. Alternative policy responses that balance demand- and supply-side measures and protect the most vulnerable through targeted interventions could offer a more effective means of combating inflation while sustaining economic growth and development.”

The multitude of challenges are causing a slump in confidence – accelerated by the Ukraine conflict – which will feed into economic contraction, said the report.

GDP-weighted policy uncertainty across 21 countries has been found to have risen since 2021 and is at levels far above the long-term average, although not quite reaching the uncertainty experienced during the early phases of the pandemic, it added.

“Median consumer confidence has fallen to its lowest level in the past two decades in a sample of 44 countries, highlighting the severe impact of the cost-of-living crisis on households.”

The global economy is forecast to grow a mere 2.7 per cent in 2023, far below the 3.6 per cent average annual growth between 2000 and 2021, said the ILO.

“This prediction is down by 0.9 percentage points since April 2022, highlighting the marked deterioration of economic conditions. The slowdown means that, instead of a recuperation of the output losses incurred during the pandemic, the output gap relative to the pre-crisis trend is widening again.”

The significant slowdown in the world’s three largest economies – China, the euro area and the United States of America – is a major contributor to the global downturn, said the report.

LABOUR TRENDS

In the coming years, employment growth will stall, workers will have a harder time finding quality employment and real incomes are likely to fall, the ILO cautioned.

The global LFPR (labour force participation rate) is estimated to have recovered to close to 60 per cent in 2022, slightly below its level in 2019.

It is projected to continue its long-term downward trend through 2023, declining by 0.2 percentage points till 2024.

“In total, around 3.6 billion people are estimated to have been part of the labour force in 2022, a figure that is projected to increase by around 35 million per year thanks to the growth of the working-age population.”

The ILO said that globally, in 2022, the number of working-age women outside the labour force surpassed that of men by 750 million – a consequence of women’s LFPR being 24.9 percentage points below that of men.

Gender gaps in LFPR, though a global phenomenon, occur highly unequally across the world; in areas such as North Africa, the Arab States and South Asia, women are only a third as likely as men to be economically active.

The report said deep structural barriers in these areas, often rooted in social norms, hinder women’s participation in labour markets.

The report said that in 2022, more than one in five of young people aged 15 to 24 were NEET (not in education, employment or training).

This amounts to 289 million young people who were deprived of the opportunity to obtain valuable skills through early work experience or some form of training or education.

Young women are twice as likely as young men to be NEET, which means that gender gaps in terms of LFPR are likely to perpetuate, it added.

It also said that in 2022, around 268 million people were not in the labour force but were nevertheless interested in obtaining employment.

This group includes workers who are discouraged because they don’t see any possibility of obtaining profitable employment and also those who are not currently available to take up employment.

Global employment is projected to expand by 1.0 per cent in 2023, a marked deceleration following 2.3 per cent growth in 2022, said the report.

There is a significant dichotomy between country income groups: employment in low-income and lower-middle- income countries is projected to expand at rates seen before 2020, but upper-middle-income and high-income countries will see much slower employment growth, it added.

Employment growth in high-income countries was positive in 2022 only because of strong employment growth in the first half of the year.

The ILO said the projected (unweighted) average employment growth in 2023 with respect to the third quarter of 2022 is essentially zero in those high-income countries with available quarterly data, and employment growth in high-income countries is projected to continue to be close to zero in 2024. All other country income groups are projected to see employment growth in 2024 similar to that in 2023.

The report further said total hours worked recovered less well from the COVID-19 crisis than did employment: hours worked per worker have persistently declined.

Whereas in 2019, the average weekly hours per worker, globally, was slightly above 42 hours, the figure was only 41.4 hours per week in 2022.

The decline is most significant in lower-middle-income countries (minus 1 hour per week), but also sizeable in low-income and high-income countries (about minus 0.5 hours per week).

This decline in hours will have reduced income per worker where workers have been unable to raise their hourly earnings, said the report.

Weekly hours worked per worker are projected to decline in all country income groups, with the largest decline (of 0.4 hours per week) in high-income countries, it added.

Global unemployment declined significantly in 2022 to 205 million, down from 235 million in 2020 but still 13 million above the level of 2019, said the report.

The unemployment rate, standing at 5.8 per cent in 2022, was still above its 2019 rate. High-income countries have experienced considerable progress in reducing unemployment, the rate having declined to 4.5 per cent in 2022, even lower than the 4.8 per cent of 2019.

“Whereas upper-middle-income countries have managed to recuperate to the unemployment rate of 2019, both low-income and lower-middle-income countries still face rates that exceed the pre-crisis levels by more than half a percentage point,” the ILO said.

Global unemployment is projected to edge up slightly in 2023, by around 3 million. Women in the labour market are marginally more likely than men to be unemployed – their unemployment rate was 5.8 per cent in 2022, 0.1 percentage points above that of men, it added.

It also said that young people in the labour force are three times as likely as adults to be unemployed, the global youth unemployment rate being about 14 per cent in 2022. This translates into 69 million young people who were looking for a job but unable to find one.

In 2022, around 473 million people were interested in finding a job but did not have one. This unmet demand for jobs includes the 205 million unemployed people and an additional 268 million who wanted employment but did not qualify as unemployed.

The ILO said that the latter group includes, for instance, workers who are discouraged from searching because they see no possibility of obtaining employment and also those currently unable to take up employment at short notice, such as those with family responsibilities and full-time students.

The jobs gap is a new indicator that captures the entirety of unmet demand for employment – 473 million – and provides a much better representation of labour under-utilization than does unemployment alone, the ILO said.

“Globally, the jobs gap rate was 12.3 per cent in 2022, well above the global unemployment rate of 5.8 per cent.”

The report said beyond the size of the jobs gap, job quality remains a key concern. Many people simply cannot afford to be without a job, owing to their poverty and lack of access to social protection. They will undertake any kind of activity, often at very low pay, sometimes with insufficient hours.

“A shortage of better job opportunities in the context of the projected slowdown will push workers into jobs of worse quality. Furthermore, as prices rise faster than nominal labour incomes, many workers will be unable to maintain their real income. Both factors imply deteriorating labour market conditions in dimensions other than employment.”

Average real wages fell in 2022, meaning that wage and salaried workers are unable to raise their incomes in line with inflation, said the report.

“This decline is reducing the purchasing power of the middle class and hitting low-income groups particularly hard and comes on top of substantial losses in the total wage receipts for workers and their families during the COVID-19 crisis.”

The decline in real wages in 2022 is estimated to have been most severe in advanced economies, at 2.2 per cent. Emerging economies, on the other hand, experienced reduced but positive wage growth of 0.8 per cent.

Falling real incomes are particularly devastating for poorer households, who risk slipping into poverty and food insecurity, said the report.

“The higher share of food and transportation in the budget of poorer households means that the cost-of-living increase among low-income households can be between 1 and 4 percentage points higher than that faced by high-income ones.”

In 2022, an estimated 214 million workers were living in extreme poverty, corresponding to around 6.4 per cent of the world’s employed, the ILO added.

RISKS TO THE OUTLOOK

The report said the labour market outlook has significant downside risks.

It said for one thing, global economic growth has a significant risk of falling below 2 per cent for a multitude of reasons: policy mistakes in terms of monetary tightening, the dollar strength, persisting inflationary forces, widespread debt distress in vulnerable emerging markets, a halting of gas supplies to Europe, a resurgence of global health scares and a further slowdown of China’s economic growth.

It said lower economic growth and aggregate demand will also affect employment creation negatively. However, labour market prospects could turn out more negative even without those threats materializing.

It said businesses may be unable to hold on to workers should financing conditions worsen significantly, causing a major rise in unemployment that will further depress growth.

Sovereign bond interest rates may rise to levels that force governments into austerity measures to avoid further distortions, thereby putting under threat the support measures that households and businesses require to navigate the crisis.

In low- and middle-income countries, there is risk that economic growth may not be very inclusive and that this, coupled with rising food and energy prices, may leave a large proportion of households with lower disposable income, said the report.

“This in turn will reduce demand for many locally produced goods and services, likely causing a reduction in at least formal employment growth.”

Slowing globalization is limiting decent work opportunities in low- and middle-income countries. The emergence of a global middle class and the notable reduction in working poverty over the last two decades were supported by a continued integration of international markets and the integration of frontier markets in GSCs, said the ILO.

It said this dynamic was already slowing down, however, after the global financial crisis of 2009. As geopolitical tensions rise, there is a risk of retrenchment of supply chains and the possibility of a reversal in the progress of decent work creation, it added.

“In addition to re- or near-shoring certain high-end activities in or closer to advanced economies, the quest for multiple suppliers to strengthen supply chain resilience is likely to increase costs and undo part of the benefits gained from globalization over previous decades,” the ILO cautioned.

Although this may have only limited effects on employment, it will add to cost pressures, keeping inflation rates above levels observed previously, it said.

The report said global uncertainty remains elevated amidst a multitude of risks, depressing investment and job creation.

A ratcheting of uncertainty has been observed over the last 15 years, starting with the global financial crisis and exacerbated by the COVID-19 pandemic and the Ukraine conflict.

Major crises such as financial or health crises often trigger further disruptions because of the knock-on effect they have on the social fabric, said the report.

In particular, unless supported by strong policy action, economies often fail to recover the output lost and, worse, will settle on a less dynamic path of economic development, it added.

Shattered expectations and heightened conflict about the distribution of incomes cause social unrest and political instability.

“Such socio-economic crises are self-reinforcing, creating long spells of economic and political instability that demand major overhaul and a new social contract,” said the ILO. +