The OECD’s Employment Outlook argues that time is running out to help workers move up the jobs ladder
Paul Swaim, Senior Economist in the OECD Employment, Labour and Social Affairs Directorate and Editor of the OECD Employment Outlook
The recovery is underway, but millions of workers risk being trapped at the bottom of the economic ladder. While unemployment is on a downward trajectory in most countries, about one-half of the crisis-related increase in joblessness in the OECD area still persists more than seven years after the crisis began. Around 42 million persons were without work in May 2015 across the OECD, 10 million more than just before the crisis. Long-term unemployment is a particular concern. The number of persons who have been unemployed for a year or longer is 77% higher than then it was just before the crisis struck in 2007. Young people in the OECD are twice as likely to be unemployed as prime-age workers. More than 40 million 15-29 year-olds (or 1 in 6 youth) across OECD countries are neither employed nor in education or training, the so-called NEETs. More than half of all NEETs –27 million young people – have dropped off the radar completely. They have literally disappeared from their country’s education, social, and labour market systems. Whatever their age, the long-term jobless can become demoralised and are sometimes stigmatised by potential employers, so there is a real risk that some members of this group will become permanently disengaged from the labour market.
Not only is the labour market recovery still far from complete, but the OECD Employment Outlook 2015, released today, argues that time is running out to prevent millions of workers from being left trapped at the bottom of the economic ladder. Many of the youth who finished their schooling during the crisis years and have struggled to gain a secure toe-hold in the labour market may be approaching the “make or break” point so far as being able to ascend the career ladder. Indeed, one of the striking findings in this edition of the OECD Employment Outlook is that long-term career prospects are largely determined in the first ten years of working life. Some of the experienced workers who have lost their jobs during the crisis are also having a difficult time putting their careers back on track. For example, a number of those who lost jobs in the manufacturing or construction sectors will need to make a career switch to growing service industries and often to adapt their skills if they are to avoid becoming trapped on the margins of the labour market.
The scarring effects of the crisis on the hardest hit groups are compounded by longer-run trends that are making it more difficult for low-skilled workers to move out of precarious, low-paid jobs into jobs that offer opportunities for career advancement. If the missing rungs are not put back into the jobs ladder, the legacy of the crisis is likely to include a further permanent increase in economic inequality above the already record high levels that had been reached before the crisis in many OECD countries. Governments need to take action now if they are to avoid a permanent increase in the number of workers stuck in chronic unemployment or cycling between unemployment and low-paid jobs.
Polices to support upward mobility in the labour market are a priority
The Employment Outlook underlies the high social costs resulting from earnings inequality by showing that a substantial portion of the persons who are unemployed or in low-paid jobs at one point in time are at a high risk of becoming trapped at the bottom of the earnings ladder. Policy makers should thus place a high priority on assuring that the crisis does not leave additional workers permanently excluded from work or trapped in low-paying and insecure jobs, thereby ratcheting inequality up another notch.
Concerns about a possible increase in inequality are heightened by the fact that most OECD economies had already become significantly more unequal in the distribution of income during the decades preceding the crisis, reflecting a large rise in earnings inequality. It follows that the challenge to promote upward mobility at the bottom of the jobs ladder is much more than a cyclical issue related to the global crisis. It is also a key to helping all workers to participate successfully in a rapidly evolving economy. Technological change and the digital revolution in particular have been important drivers of this trend by skewing job demands towards high-level skills and putting downward pressure on the pay of less skilled workers. These structural changes in the economy are part of a continuous process of adaptation to new technologies and processes, as well as globalisation. In this context, workers must have the opportunity to build the skills needed by employers, but also to adapt them to changes in labour demand and to use their skills fully on the job. This is of crucial importance to ensure human capital plays its expected role in boosting innovation and productivity, but also to make growth inclusive.
Governments need to begin restoring the missing rungs back in the jobs ladder and help workers to climb them
The Employment Outlook analyses in detail three types of policy measures that are particularly important for improving the labour market prospects of the workers who are currently stuck at the bottom of the economic ladder. First, effective activation measures are needed that connect jobseekers with suitable jobs. Second, skill deficits in the workforce must be addressed since one of the strongest predictors of poor career outcomes is a low level of skills. Finally, direct measures to raise job quality have an essential role to play, especially in shoring up the earnings of low-paid workers. The importance of these types of measures has long been apparent, but their importance has been magnified by the crisis and by the increase prevalence of temporary and other atypical jobs in a number of countries. Career advancement opportunities are often limited for workers in these types of jobs.
Turning the recovery into an opportunity to promote inclusive growth
Going forward, the most general lesson for labour market policy makers is that more attention should be paid not only to the number of job opportunities available, but also to the quality of these jobs and who requires targeted assistance to access them. In order to promote full recovery from the crisis and help workers to thrive in an ever-changing economy, governments must take action to foster stronger employment growth and improve workers’ access to productive and rewarding jobs. Doing so will help to repair the broken rungs of the jobs ladder and reverse the long-run increase in inequality. It will also strengthen the sustainability of economic growth, another key requirement for promoting inclusive growth.