A hatchet job on unemployment

202 million people unemployed. That is the estimate for global unemployment for 2013 from the International Labour Organisation in its latest report on employment trends.

This shockingly high number of people is almost ten times Australia's population, but as bad as it is, it understates the problem. The ILO has identified 67 million potential workers who, since 2007 before the global financial crisis, have dropped out of the labour market and are not being counted as unemployed as the participation rate has fallen. Unemployment totalled 169 million in 2007, just prior to the job-destroying effects of the GFC.

The reasons for the record number of unemployed people are simple – global economic growth has been too weak to generate the employment opportunities needed to keep up with population growth, plus more importantly, there the GFC-inspired huge job losses in the wake of the world recession.

In analysing this dreadful picture of unemployment, the ILO is scathing of the policy responses implemented not only during the recession, but since the world has returned to what is, at best, only moderate growth. It noted, "incoherence between monetary and fiscal policies adopted in different countries and a piecemeal approach to financial sector and sovereign debt problems, in particular in the euro area, have led to uncertainty weighing on the global outlook".

Rather directly, but accurately, it added, "The indecision of policy makers in several countries has led to uncertainty about future conditions and reinforced corporate tendencies to increase cash holdings or pay dividends rather than expand capacity and hire new workers”.

In other words, the ILO suggests a large part of the unemployment crisis is due to policy failure, rather than any specific structural problems in the labour market in most countries. Policy austerity has damaged demand for labour at a time when stimulus measures would have had the opposite effect.

Disconcertingly for those wanting or hoping for lower unemployment, the ILO cites what have undoubtedly been poor education and skills policies as a major constraint on future job creation. It notes that "new jobs that become available often require competences that the unemployed do not possess. Such skill and occupational mismatches will make the labour market react more slowly to any acceleration in activity over the medium run, unless supporting policies to re-skill and activate current job-seekers are enhanced”.

Governments need to be educating and uplifting the skill set of it workforce, especially those unemployed, if the benefits of the economic recovery are to show up in lower unemployment. Even on an optimistic scenario for economic growth, there is likely to be persistently high unemployment in the world for many years simple because the risk is developing that the current ocean of unemployment lack the skills to re-engage with the workforce as demand for labour increases.

The ILO highlights the problems with youth unemployment, suggesting young people are "stricken” by the crisis with some 73.8 million young people unemployed globally at the moment. This translates to a youth unemployment rate of 12.6 per cent. Of those unemployed, the ILO estimates that around 35 per cent have been unemployed for more than six months. It makes the obvious but chilling point that "such long spells of unemployment and discouragement early on in a person's career also damage long-term prospects, as professional and social skills erode and valuable on-the-job experience is not built up”.

Based on a solid, if not strong economic recovery in coming years, the ILO is forecasting the number of unemployed to rise to 210.6 million over the next five years, which implies a slight fall in the unemployment rate due to population growth.

But it is not just the number of unemployed that is the concern. The ILO estimates wages are so low in some countries that there are 397 million workers living in extreme poverty with an additional 472 million workers unable to address their basic needs on a regular basis.

The ILO proposes some policy reforms to address the unemployment and working poor problems. They seem obvious. It recommends tackling policy uncertainty to increase investment and job creation; coordinate stimulus for global demand and employment creation; address labour market mismatch and promote structural change and increase efforts to promote youth employment.

This looks to be a wish list rather that something too many governments will take up… unfortunately.

For those wanting to delve into the details of the report, the link is here.