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.