Today’s post is by Mark Keese of the OECD Directorate for Employment, Labour and Social Affairs
Six years after the start of the financial crisis, employment still hasn’t got back to pre-2007 levels in many countries, and for many people working conditions have got worse, according to the OECD’s Employment Outlook 2014, released today. Talk of ‘sovereign defaults’ and the whole system unravelling has faded, but – at a personal level – the conversation of the Great Recession has become one about job loss amongst family and friends, cutbacks at work, falling wages, under-employment, insecurity, and what this means for simply trying to make ends meet.
Although the average unemployment rate in the OECD countries finally fell from 8.5% at the peak in 2009 to 7.4% and is predicted to continue to drop slightly throughout 2015, almost 45 million people are still recorded as unemployed, plus an unknown number who’ve disappeared from the unemployment statistics because they have given up looking for work. And the number of people suffering from long-term unemployment (12 months or more) has nearly doubled since 2007, reaching 16.3 million across the OECD countries in total.
Unemployment is not the only concern. Many of those who kept their jobs have also encountered more difficult times. For this reason, the Outlook investigates how the crisis has also influenced working conditions including earnings, security and job quality (measured along three dimensions: the level and distribution of earnings; employment security; and the quality of the work environment). Real wage growth has slowed, or even dropped, as a result of rising unemployment and policies that reduced or froze public sector earnings as a part of fiscal consolidation efforts. The downwards adjustment in wages has helped to improve competitiveness, rebalance current accounts and promote growth. But real wages have fallen harder than expected in some, mainly European, countries. With wages cut, people can’t purchase as much as they used to. With inflation close to zero in some countries, cutting wages further means cutting “nominal” wages: people will actually get less cash from one month to the next. The Outlook argues that wage moderation and even real wage cuts were probably needed in some countries, especially in the Eurozone, to restore competitiveness lost prior to the crisis, when wages grew more rapidly than productivity and countries accumulated large current account deficits. But there comes a point where further cuts don’t create any more jobs, but do create more hardship. What is more, wage cuts only make sense if they lead to lower prices as well. This hasn’t always happened, so policymakers need to make sure that firms don’t just hoard all the savings from lower wages, but pass them on to consumers.
A big concern is the loss of income low-paid workers and their families have suffered as a result of slower wage growth or wage cuts. The Outlook advises countries to look at who will be hit hardest, and who can least afford, wage adjustment in their future policies. Implementing or strengthening mandatory minimum wages, progressive taxation and in-work benefits would help protect those more vulnerable workers.
Non-regular employees, whose work contracts are not ‘permanent’ or ‘open-ended’ (so called “atypical” jobs), are at greater risk of under- or unemployment than regular employees. Yet unfortunately, these types of contracts are becoming more common. While there are some benefits to non-regular employment, such as increased flexibility, they don’t always outweigh the negative consequences. Contrary to belief, “atypical” jobs are not an automatic stepping stone to permanent work. In Europe, fewer than half of temporary workers actually moved into a permanent contract three years later and in countries like France, Italy or Spain the proportion is around 20%– too often, they either get pushed out of the workforce, or continue with a sequence of short-term contracts.
One reason for their lagging behind is that temporary employees of similar ages and with similar skills are 14% less likely to receive employer-sponsored training than their colleagues with permanent contracts. Countries are encouraged to reduce the large gap that exists in some countries between the employment protection of permanent and temporary workers which would help reduce the reliance by employers on temporary work. Continuing the current trends of increasing non-regular employment, with worse conditions, could lead to a decrease in human capital as skills are not developed. Some countries have already initiated reforms which effectively give non-regular employees greater protection relative to permanent workers or reduce use of such contracts, and other governments are urged to follow suit.
The crisis has also deepened the problem of poor job quality. The groups who accumulate the most disadvantages are youth, low-skilled workers and temporary employees. Of the three, low-skilled workers are the most likely to be pushed into unemployment. Almost one in four low-skilled workers reports experiencing too many challenges at work and too few resources to cope. The Outlook suggests several actions to improve job quality. Stronger training programmes, for example, would help employees to better handle their job demands, as well as prepare supervisors with better management practices. Countries should also implement labour market policies that facilitate mobility between sectors and foster job creation. Fortunately, policymakers don’t have to choose between job quality and the quantity of jobs: several countries have proven that it’s possible to succeed in increasing both.
With so many challenges in the labour market, what can today’s employees and future employees do to better their own chances? Various skills and factors influence a person’s employment status and salary. Early on in a career, the field-specific skills gained from studying matter more. But later on, more generic skills have a stronger impact on hourly wages. For young people, education is the biggest cause of differences in hourly earnings. Experience also plays an increasingly significant role in explaining wage variation among youth. And although the evidence suggests few young people seem to combine work and study, securing some work experience even before finishing studies is shown to help land that first job. The Outlook identifies a role for policymakers and employers here, and highlights how programmes that provide work-experience are essential to ensure economic recovery. Policymakers and employers should identify the benefits of work-study programmes and take note of best practices. After all, investments in youth can help secure the future prosperity and well-being of nations.