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.
The OECD Forum starting today will bring together around 2000 people in over 20 sessions, but the main question will be how to make sure the economy is a firm foundation on which to build our societies’ goals.
As OECD data on rising inequality show, the benefits of growth do not automatically trickle down to generate more equal societies. The most immediate challenge is to ensure that growth benefits everyone – women, men, children, the elderly – providing not just income, but access to the goods and services such as housing, health care or education vital to personal well-being and development.
That means we need to adopt a new, inclusive approach that looks at the social as well as the economic aspects of growth. “Inclusive growth” is already happening at the level of national economies, with countries linked together by global value chains (GVCs). And not just in the OECD area. One of the most striking features of the 21st century economy is how the economic centre of gravity is shifting towards Asia, and surprisingly for many, Africa, home to six of the world’s ten fastest growing economies in Africa.
These trends make old ideas of development partnerships obsolete. Large emerging economies now have their own international aid programmes. The private sector is funding major global health, education and other projects. Civil society is increasingly shaping policy and not just working in the field.
However, government policy has not always kept up with the deepening and widening of globalisation and the pace it’s happening at. For example, some multinationals may pay as little as 5% in corporate taxes in a given country when smaller businesses are paying up to 30%. But this is perfectly legal, and exploits the fact that tax systems are still essentially nation-based and were designed for the “old” economy.
Even so, public opinion and the media are outraged, especially given the efforts demanded of ordinary citizens to help cut budget deficits, and the suffering caused by austerity programmes in certain countries. There is a feeling that tax is not the only area where businesses are not acting ethically. Banks manipulating interest rates or food manufacturers deceiving consumers about the ingredients in their products destroy confidence and reinforce mistrust. Government responses to these issues are often perceived as too lenient, and encourage the feeling that there is one law for the rich and powerful, another for the rest.
Many are saying that the social contract – the agreement between citizens and their government, defining the rights and duties of each – is now broken. In the face of unprecedented unemployment levels, governments have cut expenditure. As a consequence, more and more people cannot afford health care, and many young people in particular are giving up trying to find jobs or investing in further education. This is a personal tragedy, and it also weakens social cohesion and the future prospects of the economy, given the growing need for workers with new skills.
The ability of advocacy groups like unions to protect core rights and promote social change is in question, especially if they neglect newer forms of informing, mobilising and campaigning around issues such as social media. At the same time, there are doubts as to whether “social media based” movements are anything more than a passive expression of opinion, and whether protest groups that reject the usual structures of leadership and policymaking can stay together long enough to bring about lasting change in the face of opponents organised in a more traditional way.
There is consensus though that access to information and the ability to exploit it will play an increasing role in the economy and society in the future, with both benefits and dangers. Business models and personal behaviour and attitudes are already changing. But once again, policy is not evolving as quickly as the trends and technologies it is supposed to respond to, or even guide. Massive amounts of personal data are being collected, often with little or no consultation or consent, or debate as to who has the right to know what.
The fact that so many of the phenomena being discussed are immaterial (data, intellectual property, the financial system) can blind us to the fact that we still depend on physical, material, resources to live full lives. Beyond the immediate and pressing concerns linked to the situation today, we have to look to the future. Growth will come to a halt if it destroys the very natural bases on which it ultimately depends. And growth as such will not solve our problems if it is not sustainable as well as equitable and inclusive.
The links below are grouped around the main themes of the Forum. Click to read an article presenting the topic itself, and giving access to dozens of articles providing background data, analysis and opinion.
This post comes to us from Fiona Stewart of the Financial Markets, Insurance and Pensions Division of the OECD’s Directorate for Financial and Enterprise Affairs.
Those of us struggling with our commutes to work in France don’t need to be reminded that pensions are on the top of the agenda again in many OECD countries. Workers are understandably perturbed when they feel as if their hard earned right to a well deserved retirement is under threat.
Yet, given the ageing of the population across the OECD region, the scale of the challenge of paying for our pensions is rarely understood. Without reforms, spending on pensions will require an extra 5% of GDP by 2050 – posing a much greater challenge to our economies on a long-term basis than the financial and economic crisis of recent years.
We are all living longer – which is a good thing – and we are increasingly healthy at older ages. When pension systems were first introduced, the retirement age was 65 and life expectancy was 65. Now we might work for 30 years and be retired for 30 years. Lord Turner, who conducted a major review of the pension system in the UK a few years, ago spelt out the choices we have starkly – we can save more, live on less in retirement or work longer.
Some say that corporations making big profits should be taxed more (the banks which were so involved in the financial crisis being singled out) or that governments should cover the rising cost of our pensions rather than individual workers. But this does not solve the problem that the costs of our pensions are ever rising and there are fewer and fewer young workers to pay for them.
One particularly striking (being the operative word) fact in France is that young students are demonstrating against the rise in the retirement age. No one seems to be trying to explain to them that if these reforms do not happen they are the ones who will be hit hardest and have to pay in the long run – as they will have to pay for the decades of retirement their parents are likely to enjoy, whilst, when it comes to their turn to retire, there may not be enough money to pay for their pensions. To the great French cry of ‘Liberty, egality, fraternity’ should be added ‘intergenerational solidarity’!
The complexity of the pension debate again means that the students are mixing the issue with other matters – notably arguing that if the older generation work 2 years longer, they will have to wait 2 years more until these jobs are ‘freed up’ and they can start work. Yet the experiment of the 1980s and 1990s recessions, when early retirement was used as a policy tool to try to fix unemployment, showed that these policies did not free up jobs, but in fact had the opposite effect, as the number of jobs within an economy is not a fixed pie to be shared out.
Fortunately OECD governments have learnt this lesson and are indeed pushing ahead with raising the retirement age – as we saw in the UK this week. Some have also linked the retirement age to longevity increases, making the rise gradual and automatic which should avoid damaging political battles such as these in future.
Sure our pension systems aren’t perfect – and neither are the French reforms. For example, there are still unanswered issues such as how to ensure women, who tend to have broken career paths for child rearing, receive more equal pensions, or how we should treat those in particularly strenuous or dangerous jobs, or the unfairness caused by differences in longevity across social classes. The 40 year contribution period to be introduced into France is fairly long by OECD standards, and arguably hits blue-collar workers more disproportionally But these issues should not cloud the core fact that working a few extra years in retirement is an essential step to putting our pension systems on a sustainable path and securing them for future generations.
As France demonstrates, much still needs to be done by governments to communicate why pension reforms are needed and how we must not only share the costs of our rising longevity, but hopefully celebrate the fact as well.
By the end of next year, around 15 million new jobs will be needed to get OECD countries back to pre-crisis levels of unemployment. That’s the “jobs gap” .
Paradoxically, there’s also a “skills gap” – a shortage of qualified people to fill job vacancies. According to David Arkless of Manpower Inc., companies in Europe have around three million unfilled vacancies. Why? Despite high unemployment, they still can’t find the right people.
The debate offered a fascinating insight into the skills shortage at a moment when the issue is being eclipsed by unemployment. But as OECD Secretary-General Angel Gurría pointed out, “thinking about skills now is an act of foresight”. If we wait to act until economies recover, it will be too late.
Education and training as an investment in the future will be key. But, as Sharan Burrow, head of the international labour body ITUC, warned, this could be at risk as governments seek to cut back on spending. “If we don’t invest in education, we’ll be having this same debate in 10 years,” she said.
Just days before the release of the OECD’s annual survey of international migration, the panel also discussed whether countries should ease migration for skilled workers. Manpower’s Arkless pointed out that, in many cases, “the people who can fill jobs are in the wrong place with the wrong skills”. So, does it make sense to let them move more freely to the right place? In theory, yes. But in practice, as presenter Nik Gowing pointed out, that can face real political obstacles: “How do you persuade politicians to argue for skilled immigration in a time of unemployment?” he asked his panellists.
To hear what they had to say, tune in this weekend to The World Debate on BBC World at these times.
One impression you could get at this year’s Forum is that participants have trouble sticking to the subject. Looked at another way, it’s the fact that issues can’t be tackled in isolation, and that each session is closely connected to the others.
For instance, at this morning’s media briefing from TUAC, the Trade Union Advisory Committee to the OECD, Richard Trumka president of the AFL-CIO argued that, apart from the financial market aspects, the underlying reason for the crisis was a drop in aggregate demand. This would be a familiar position for at least one of the participants in the earlier discussion on the future of capitalism, Robert Skidelsky, “Keynes’s great biographer” to quote a book review by Joseph Stiglitz.
TUAC also talked about growing inequality, as documented in the OECD’s Growing Unequal study, and the fact that workers at the lower end of the income distribution had to borrow excessively to pay for homes and immediate consumption. As a result, they paid for the crisis four times over, losing their homes, losing their jobs, losing the value of their pensions, and then having to pay higher taxes to pay for the stimulus packages and the ensuing sovereign debt.
The unions warned that a “stampede” towards fiscal consolidation would only make matters worse by reducing aggregate demand even further, whereas what is needed is an income-led recovery. But how should governments go about creating the conditions for this?
TUAC’s answer was also proposed in the session on matching skills and jobs: invest in innovation, R&D. A downturn is the time for upskilling, a time to redefine jobs and retrain workers to take advantage of them.
As Barbara Ischinger, head of the OECD’s Education Directorate pointed out, education and training systems need to prepare learners not only for rapid change, but for jobs that haven’t even been created yet, using technologies that are still to be invented, to solve problems that cannot be foreseen.
The educationtoday blog has guest posts from participants in this session.
Barbara Ischinger discusses New thinking, working and tools for the 21st century
Bob Harris, of Education International and Chair of TUAC’s Working Group on Education, Training & Employment analyses the impact of Exit strategies on public services and democracy
John Hope Bryant, Vice Chairman of the U.S. President’s Advisory Council on Financial Literacy until January 2010 Chairman and CEO of Operation HOPE proposes Education and financial literacy as a business case
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.
What – or who – caused the crisis? Slate offers not one but 15 answers to that question here. But if you’d like a more official response, you might like to keep an eye on the Financial Crisis Inquiry Commission (FCIC) in the United States, which is due to begin public hearings this week. The ten-member commission was set up by Congress with a sweeping mandate to investigate the causes of the crisis – everything from the possible role of fraud and abuse in the financial sector to the way bankers are paid.
There are precedents for this sort of probe. In the early 1930s, the U.S. Senate’s Pecora Commission investigated the causes of the Great Depression, and “unearthed a secret financial history of the 1920s, demystifying the assorted frauds, scams and abuses that culminated in the 1929 crash”, according to Ron Chernow. That investigation had a long-term impact on the U.S. financial sector, leading to the establishment of the Securities and Exchange Commission (SEC) and the separation of commercial and investigation banking.
Whether the FCIC will have the same impact remains to be seen, but its chairman, Phil Angelides, has made it clear that he wants the commission to ask – and answer – some tough questions. “You have millions of people unemployed, millions have lost their homes, and Wall Street is having a record year with record profits and record bonuses,” he told ABC News. “People want to understand why.” What questions should the commission ask? The New York Times and The Huffington Post have some suggestions.
The Commission is due to report by mid-December 2010, but members have indicated they plan to post important findings on their website (under construction) before then.