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How to avoid a jobless recovery

26 May 2010

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.

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