Australia's global disconnect on inclusive growth

It might be six years since the onset of the global financial crisis but unemployment remains a critical issue throughout most G20 countries.

The plight of Europe is obviously well documented but for workers it has been a struggle almost everywhere, including countries such as Australia which emerged reasonably unscathed from the crisis.

The economic recovery -- stuttering in Europe but proving more resilient in the US and the UK -- still has a long way to go. Remarkably there remain more than 100 million people still unemployed across the G20 and 447 million living on less than $2 a day.

Real wages have stagnated among developed countries and have even begun to fall in some G20 countries, including Australia. It should come as little surprise that income and wealth inequality continues to widen within countries.

Youth unemployment remains a critical issue. It‘s above 50 per cent in Spain, over 40 per cent in Italy and at around 22 per cent across the euro zone. In Australia, youth unemployment is approaching 14 per cent -- higher than in the US -- and is at its highest level since 2001.

On a more positive note, China’s remarkable transformation has seen global poverty decline in recent decades. China has also contributed to a decline in global inequality -- as opposed to inequality within countries. Nevertheless, poverty remains a key challenge among many nations, particularly across Africa and Asia.

These findings -- contained within a recent joint report from the International Labour Organization, World Bank and OECD -- provide a sobering reminder of who the real casualties were during the financial crisis. It certainly wasn’t the banks or sovereign governments who received bailouts but households and businesses -- many of whom lost everything through no fault of their own.

Now we are confronted with the clean-up. Europe certainly isn’t creating a lot of jobs and although the US and UK are creating plenty they are increasingly low-paid or part-time positions. Even Australia appears to be following that trend, with an increasing share of our jobs in lower wage service roles.

That’s the daunting challenge confronting the G20 who -- after years of bickering over austerity -- have finally realised that cutting demand isn’t a great way to recover from a crisis. Since the G20 ‘growth target’ was announced in February -- which proposes to increase global output by 2 per cent over the next five years on top of established benchmarks -- the G20 leaders and ministers have been saying all the right things.

This week it was the L20 – it’s the G20 but with labour ministers – who flooded into Melbourne for a series of meetings. At the centre of the L20 agenda is increasing total employment -- thereby facilitating the G20 ‘growth target’ -- and increasing the quality of jobs available.

According to the ministerial declaration, “promoting and creating quality jobs, and tackling the economic and social consequences of unemployment, underemployment, inequality and social exclusion, are priorities for all our economies”. I doubt too many people would disagree with that.

“Reducing youth unemployment, stimulating demand, and raising female participation and employment ... command a high priority”. G20 leaders will also be fighting an uphill battle to ensure that elevated unemployment does not become structural by “providing training to meet the skills needs of tomorrow, improving job matching and boosting labour market participation.”

It sounds so simple doesn’t it? Six years of misery for so many households summed up in just a few sentences. Of course, the easy part is identifying the problem; the much harder challenge will be boosting demand and job prospects, particularly within the eurozone.

In that regard, the G20’s ‘growth target’ is still light on details. Australia’s federal government, for example, has provided almost no information on how it intends to increase GDP by an extra 2 per cent over the next five years.

So far the G20 has played down the role of the government in stimulating domestic demand. But in the eurozone -- where insufficient demand remains a key problem -- governments will inevitably have to fill the gap if they wish to see the unemployment rate come down in any reasonable fashion.

Obviously that should be combined with reforms to workplace agreements -- some countries need more flexible labour markets; others countries could benefit from stronger worker protections -- and extensive retraining to facilitate a shift towards industries where the economy has a comparative advantage.

From Australia’s perspective it’s difficult to say where we stand. The federal budget took active steps towards increasing inequality and that sits in stark contrast to the discussions held at the G20 and now the L20 meetings. Youth unemployment is a critical issue for the Australian economy but has largely been ignored in favour of a crackdown on ‘dole bludgers’ and ‘welfare queens’.

There is a clear disconnect between our federal government and the L20, who are promoting a return to more inclusive growth, which benefits workers across the income distribution. The L20’s focus is long overdue -- the national income share from wages has been declining for decades -- but it’s a message that has clearly fallen on deaf ears in Australia.