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Jobs – a continuing crisis

16 July 2010
by Brian Keeley

Unemployment has been rising for so long that it’s easy to become complacent about it. But as a number of recent OECD reports have underlined, this is a crisis on a scale not seen for decades.

According to the latest OECD Employment Outlook, released last week, the impact of the recession on jobs “appears likely to end up being comparable to the deepest earlier recession in the post-war period, namely, that following the first oil price shock in 1973.” A quick reminder about the scale of the problem: From very low levels before the crisis, unemployment has risen by half to around 8.7% in OECD countries, adding up to an extra 17 million people out of work. But even that number may not represent the true picture.

Over the course of long slowdown, people may give up looking for work or may find themselves working part-time when they’d prefer to be fulltime. Take all those people into account, and the true level of unemployment may well be about double the official number.

Will things get better? Eventually, but it will take time. OECD countries are recovering only slowly from the recession and, in any case, unemployment is a “lagging indicator” of economic downturns – it starts rising only after economies have begun slowing and improves only once they have begun strengthening. As a result, even by the end of next year, unemployment is unlikely to be much below 8%, meaning OECD countries will face a jobs gap of 15 million – the number of jobs they would need to create to get back to pre-crisis levels of employment.

But as a number of commentators have noted, some countries could face special problems in reducing unemployment, in particular the United States. The Economist, for instance, is  warning that “the American jobs machine has stalled badly”.

Quite what’s happening is a subject of intense discussion among economists at the moment. The debate is a little technical, but it centres around what’s known as Okun’s law, which – to complicate things even further – is not a law but a rule of thumb. In very simple terms, it’s a description of the relationship between changes in employment and changes in economic growth. According to some observers, the law hasn’t held up well during the current crisis in the U.S. – unemployment, they argue, rose too high and is now falling too slowly. Others, such as Freakonomics, disagree. 

In the face of the tragedy that unemployment represents, such a debate might seem a little removed from reality. But it has important consequences for the real world. For  instance, as Dave Altig of the U.S. Federal Reserve suggests, anomalies in U.S. jobs data could reflect a “mismatch between skills required in the jobs that are available and skills possessed by the pool of workers available to take those jobs”. In other words, the jobs are there but the right kind of workers aren’t there to fill them.

It will take some time before we know if that’s really the case. If it is, it could suggest that the crisis has created – or, perhaps more likely, accelerated – a structural shift in the U.S. economy and, possibly, other OECD economies. Old-style jobs in manufacturing, for example, may be gone not just for the duration of the recession but forever. Workers in those sectors, many with relatively low levels of education, could face a difficult transition to lower-paid jobs or, worse still, long-term unemployment.

Useful links

OECD work on employment and policies to combat unemployment  

OECD Insights: From Crisis to Recovery

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