How to avoid a jobless recovery

Jobs – or the lack of them – are on attendees’ minds at an OECD Forum session entitled, “How to avoid a jobless recovery”. As moderator Chris Giles, economics editor of the Financial Times, points out, the economic recovery following the recession has yet to be matched by a fall in unemployment (which the OECD projects will peak at about 8½% this year). Concern over unemployment comes against a backdrop of increasing pressure to cut state spending, which many fear could impede efforts to cut joblessness.

And it isn’t simply joblessness that’s a concern, but also long-term and structural unemployment, says Richard Trumka, President of the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO). He believes workers in the United States are “angry, anxious and going through tremendous amounts of pain”, and warns that headline economic figures don’t really reflect the experience of workers. “All the GDP in the world doesn’t mean there’s a recovery. Until people are back in work, they won’t believe in a recovery.”

The jobs crisis is being felt particularly by young people, according to Luca Scarpiello, a board member of the European Youth Forum. He’s been responding to a question about fears of the crisis creating a “lost generation” of young people who suffer permanently reduced job prospects. For young people, he says, that would mean experiencing unemployment as a structural part of their lives, and relying on short-term labour contracts that offer little in the way of training or skills development. The risk of a lost generation also represents a tremendous potential waste of human capital – after all, he says, “we are the most trained generation in history”.

So, what to do? Panellists are discussing ways in which government policies could tackle unemployment – and the risk that cuts in government spending could actually make things worse. The big run-up in government spending during the crisis has raised deficits and public debts, and there’s intense pressure for governments to get their financial houses back in order. That probably means spending cuts.

But as Pier Carlo Padoan, the OECD’s Chief Economist, has pointed out, we must make the right cuts: In some cases, it might even be a good idea to raise spending – especially in growth-friendly areas like R&D and education. But, considering the still-fragile state of OECD economies, is it too soon to be talking about fiscal consolidation? The noted British economist, Robert Skidelsky, has sounded a warning note. “Many economies are on a life-support system,” he says. “Economic output would be reduced if support was turned off.” And, responding to a question from the floor, he’s also queried the benefits of cutting public jobs: “I am always amused by those who prefer the total waste of unemployment to the partial waste of a large public bureaucracy.”

Nevertheless, as announcements from several governments in Europe this week have underlined, consolidation now seems to be the order of the day. But, as Chris Giles has reminded governments in his summing up, that needs to be balanced with a determined effort to cut unemployment.

College – costs and benefits

Is a college degree good for your wallet? That question has been exercising minds at The New York Times.

On the one hand, as this article argues, plenty of students who start university never get a degree, which means much of their investment ends up down the drain. And, as it also points out, “college degrees are simply not necessary for many jobs”.

On the other hand, as the TimesEconomix blog points out, there’s a simple economic argument in favour of going to college: Graduates earn more. “The real pay of college graduates has risen over the past 25 years,” writes David Leonhardt. “The real pay of every other group has dropped.”

Indeed, as the chart shows, graduates enjoy a considerable “earnings premium” almost everywhere, not just in the U.S. In purely economic terms, such gaps reflect the supply and demand for education. Graduates are relatively scarce compared to non-graduates, and so can command higher wages. (Needless to say, some graduates are scarcer – and more in demand – than others.)     

College graduates’ earnings premium: The chart from OECD Education at a Glance 2009 shows that college graduates consistently earn more than people who’ve only finished high school (“upper secondary education”), who are represented by the “100” line. Graduates’ earnings are shown on two bars – “Tertiary-type A” is essentially a traditional degree, taking about three or four years; “Type B” covers shorter term, more skills-based tertiary education. More data here.    

So, the economic case for third-level education is strong – it’s good not only for individual prosperity but also economic growth. In recent decades, arguments like that have driven a huge expansion in university education around the world.

But there are limits to the benefits from such growth. University isn’t for everyone, and it’s perfectly possible to earn a good living without earning a degree. (If you want proof, try calling a plumber at 3a.m. and asking how much he’s charging.)  And as the philosopher-cum-mechanic Matthew Crawford has written, even people who are well able for academia may find more satisfaction in labour that doesn’t require a degree: “Some people are hustled off to college, then to the cubicle, against their own inclinations and natural bents, when they would rather be learning to build things or fix things.”  

Unfortunately, in recent decades the drive to add university places led some countries to reduce vocational training. That’s beginning to change, with an increasing awareness among education policymakers of the need to provide a mix of opportunities catering to both academically and vocationally minded students. Indeed, a team at the OECD has been reviewing policies on vocational training in a number of countries, and looking at their responsiveness to the changing needs of students and employers. To find out more, click here.

Useful links

OECD Education at a Glance 2010 

educationtoday – OECD’s social media site on education issues

Learning for Jobs – An OECD review of vocational education and training

 OECD Insights: Human Capital

Working 9 to 4.30

People in OECD countries are working slightly shorter hours than they used to. In 1998, they worked 1,821 a year; a decade later, that had fallen to 1,764. Over a 40-hour week, that amounts to a cut of just under 90 minutes. The reasons for the fall vary, but they can reflect factors like policies that promote flexible working for parents.

The longest hours worked are in the Czech Republic, Greece, Hungary, Korea and Portugal; the shortest are in France, Germany, Luxembourg, the Netherlands and Norway. Based on the headline numbers, the difference between the country with the longest hours, Korea, and that with the shortest, the Netherlands, is 867 hours – divide that by 52, and it’s about 16 hours a week. But an important note: International comparisons need to be treated with caution as the nature and reliability of data sources vary greatly between countries. 


In search of the ‘lost generation’

Economies may be recovering, but one problem looks set to linger – unemployment . The situation is especially severe for young people (15-to-24-year-olds). Currently, there are nearly 15 million unemployed young people in OECD countries, about four million more than at the end of 2007. (Explore the numbers at the OECD Factblog.)

As the recovery gathers pace, unemployment should begin to ease. But there’s a real concern that this recession will still create a “lost generation” of young people who, as a result of being unemployed in their teens and early twenties, face a lifetime of diminished job prospects.

What’s to be done? A paper just released by the OECD explores some possible solutions. These could include providing young people with a wider range of training and education opportunities, both academic and vocational, as well as offering those who leave school early with a “second chance” to get some skills. It could also mean making changes to employment protection rules that can trap young people in short-term, dead-end jobs.

Useful links

OECD Insights: From Crisis to Recovery – Employment and the Crisis

OECD work on employment

OECD Employment Outlook

A billion dollars and 7000 jobs

Foreigners just can’t seem to get it right. When they’re not “coming over here and taking our jobs”, they’re staying over there and taking our jobs. Brian Keeley deals with the first prejudice in the Insights on International Migration, pointing out, among other things, that immigrants do work locals are unwilling to do, the so-called “3D jobs” – dirty, dangerous and difficult.

The second accusation is that outsourcing, offshoring and the other manifestations of globalisation and trade have a negative impact on employment in OECD countries.

That’s not the view of C. Fred Bergsten, director of the Peterson Institute for International Economics. Writing in the Washington Post, Bergsten argues that trade creates jobs. The $1.5 trillion worth of goods and services the US sells to the rest of the world each year creates about 10 million high-paying jobs, and “every $1 billion of additional exports would create about 7000 ‘very good jobs'”.

OECD analyses of trade and employment support Bergsten.

The crisis has caused both employment and trade to shrink, but the longer-term trend shows that the rise in trade over the past decade has generally been accompanied by increased prosperity and employment in countries that have liberalised. History also suggests that open economies end up better off than closed ones, as the two Koreas show.

Trade doesn’t seem to have damaged job stability either. The share of workers with less than one year of job tenure and average tenure, two commonly used indicators of labour turnover and job stability, did not change much in the decade before the crisis.

As for wages, a study of trade among 63 countries showed that a rise of one percentage point in the ratio of trade to GDP (for example when the share of trade in GDP rises from 10% to 11%) is associated with an increase in per-capita income of 0.5 to 2%.

Useful links

Bergsten provides a version of his article with links to supporting material here

The Insights on International Trade has a chapter on trade and employment

The OECD Trade Directorate discusses trade and employment here

Employment and the crisis

We are publishing From Crisis to Recovery, a new book from the OECD Insights series here on the blog, chapter-by-chapter.  This book traces the roots and the course of the crisis, how it has affected jobs, pensions and trade, while charting the prospects for recovery.

These chapters are “works in progress” and their content will evolve.  Reader comments are encouraged and will be used in shaping the book.

By way of introduction…

Being forced out of a job is an unpleasant experience. Employers often prefer to use euphemisms such as “I’ll have to let you go” that imply it’s somehow liberating or what the worker wanted. Thomas Carlyle, the man who coined the expression “the dismal science” to describe economics, was much nearer the mark. Writing in 1840, he claimed that “A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under this sun.”

Modern research supports Carlyle’s view. For instance, finding yourself unemployed has a more detrimental effect on mental health than other life changes, including losing a partner or being involved in an accident. A long spell of joblessness has social costs too, whether at the level of individuals and families or whole communities.

Tackling unemployment and its consequences has to be a major part of governments’ response to the crisis.

This chapter looks at the workers and sectors most affected by the crisis and how policies can help workers weather the storm.

Get a job!

There are some signs that the economy is pulling out of the crisis , but when we say that the economy is recovering, what exactly do we mean? That economic activity is on the increase? Markets are up? While these are sure signs that world economies are beginning to regain some ground, there is one indicator that has everyone concerned, and that is employment.

From a 25-year low at 5.6% in 2007, the OECD unemployment rate rose to a postwar high of 8.8% in October 2009, corresponding to an increase of nearly 18 million in the number of unemployed – and the most rapid and sizeable increase in unemployment ever recorded in the postwar period. The latest OECD projections (in the November 2009 Economic Outlook) suggest that the unemployment rate in the OECD area will peak at 9.1% in the second quarter of 2010, but remain at 8.6% even by the end of 2011. Taking into account increases in the working age population, it will take around 23 million jobs to get back to 2007 levels of employment.

Even if the economy rebounds relatively quickly, employment recovery could be slow. It took the US four or five years to reabsorb the sharp rises in unemployment following the 1970s oil shocks, and twice as long in Europe. There are fears that this time round, we could see a “jobless recovery” and that the increase in unemployment becomes structural as many of the unemployed drift into long-term joblessness or drop out of the labour force altogether. So it’s critical for governments to focus on building a “jobs rich recovery”. How can they do this?

In the short term, by offering partial unemployment benefits and allowing for flexible short-time working programs for workers faced with substantial earnings losses. These measures help companies and workers adjust to decreases in productivity without cutting jobs altogether. Job subsidies, recruitment incentives and public sector job creation schemes can also help tackle the worst impacts on employment, but after this damage limitation phase, it is essential to focus on helping people who have been laid off to avoid being left behind, through access to adequate benefits and employment services. The global economic crisis has accelerated changes in the job market, meaning that the demand for certain skills has also changed. So helping people re-train is also critical for employment.

Thanks to Stefano Scarpetta (OECD) for his contribution to this post.

Employment is the focus of the next chapter in From crisis to recovery, a new Insights book being previewed on this blog.