The G20 and Employment Outlook*

Oct 12th 2011, Jayati Ghosh
Everybody now recognises that the global economic crisis is far from over, and that we are now entering Act 2 of what may well turn out to be a drama of multiple acts. But in fact some analysts have been pointing out that even the economic recovery that was quickly hailed in 2010, especially in emerging markets, has hardly been evident as far as labour market conditions are concerned.

A new document from the ILO (''Short-term employment and labour market outlook and key challenges in G20 countries'', ILO and OECD September 2011) makes official what many had suspected for a while now: the global recovery from the Great Recession was much less of a recovery in terms of employment, and even this is massively threatened by the ongoing economic instability and gloomy future prospects for output expansion. The paper, prepared for the G20 meeting in late September in Paris, summarises recent data on output and employment in G20 countries to arrive at the dire conclusion that, despite regional and national variations, the outlook for employment growth is poor across all the G20 countries.

In the temperate language beloved of institutional institutions, the report notes that ''all G20 countries are facing substantial labour market challenges to promote productive employment and decent work opportunities for all. Some of these have arisen during the crisis and early phases of the recovery; others reflect longer-term structural issues that require further policy attention.'' (page 1)

Recent data on employment are available from 17 of the G20 countries. (China, India and Saudi Arabia still do not collect or even estimate annual or quarterly data on employment, unlike all other G20 countries). They show that labour market performance relative to the pre-crisis situation is highly differentiated across the G20 countries. In the three years to the first quarter of 2011, 13 countries showed an overall decline in the employment to working-age population rate and only five showed an increase.

Four countries showed relatively strong growth in employment rates and declines in unemployment rates: Turkey, Brazil, Germany and Indonesia. Russia showed a slight increase in the employment rate, but also an increase in the unemployment rate. In other countries, the change in the employment rate has been negative since 2008 and the unemployment rate has increased, in some countries (like Spain, United Kingdom and United States) by more than 50 per cent.

Long-term unemployment (unemployment of 12 months or more) has risen in 15 of the 17 countries (with Mexico and Brazil being the exceptions). It began to rise sharply in 2010 in several countries, some quarters after short term unemployment peaked, as many workers who lost their jobs in the recession were unable to find other jobs in the recovery. Long-term unemployment increased most sharply in Canada, Spain, UK and US (where the share of long-term unemployed tripled to reach a historic high of more than 33 per cent in early 2011). It is very high in South Africa (68.3 per cent), Italy (50 per cent) and Germany (47.3 per cent) and above 40 per cent in France, Spain and Japan.

This is likely to lead to future declines in labour force participation because of what is known as the ''discouraged worker effect'', which means that future unemployment rates may not even reflect the existence of these discouraged and probably disgruntled potential workers.

Also, as the ILO notes, labour market slack goes beyond unemployment and also includes under-employment – and this is especially marked in countries with large informal sectors, including most of the emerging market members of the G20. In countries like India, it is well known that the lack of adequate unemployment benefits, insurance and other worker protection typically means that open unemployment is not a viable option and workers have no choice but to keep engaging in some activity, often very informal and low-paying. The crisis worsened conditions of work in all the G20 countries, and the recovery has not led to things becoming better. In many of the advanced G20 economies, a significant and often growing share of the workforce is employed on temporary contracts.

One particularly worrying feature of recent trends is the growth of youth unemployment. The report notes that youth have been hard hit by the global economic crisis in all G20 countries: they were among the first to lose their jobs in the downturn, and since then, for many new entrants into the labour market, job opportunities have been scarce. In all G20 countries, youth unemployment is twice or three times the adult unemployment rate and has increased further during the crisis.

All this points to a significant underutilisation of labour resources, which has been accentuated by the inadequate use of women workers in paid productive work. Participation rates of prime-age women are lower than those of prime-age men in all G20 countries and very significantly lower in Saudi Arabia, Turkey and India. So the report points to two key challenges for global policy makers: better utilisation of labour resources and better quality jobs.

The crisis and post-crisis pattern has also been one of growing inequality in earnings of different categories of workers. In many G20 countries, earnings inequality has increased over the past 20 years. With very few exceptions (France and Japan), earnings of the 10 per cent best-paid workers have risen relative to those of the 10 per cent least-paid workers. In most countries, wage disparities grew more in the upper half of the distribution than in the bottom half, indicating the professional workers (often in the finance sector) experienced significant increases in earnings even as real wages of other workers fell.

So the global picture is worrisome indeed. Even before the current instability, labour markets that had almost collapsed in terms of demand during the global crisis have not recovered adequately to improve employment prospects, wages and working conditions of the bulk of workers. And now we almost certainly face another global recession (and possible prolonged depression) and definitely uncertain global markets, in which jobs are likely to become even more scarce, fragile and vulnerable.

Although India is little mentioned in this report, because of the lack of recent data, most of these processes across most of the G20 countries find strong resonance in India. We know from NSSO data that the employment rate from the 15 plus age group declined from 56 per cent in 2004-05 to 54 per cent in 2007-08 (just before the crisis) to 52 per cent in 2009-10, a significant decline. The unemployment rate also declined slightly in India in 2009-10, reflecting the increased education involvement of youth aged 15-24 years. Meanwhile, the output recovery in manufacturing and services after the global downturn in 2008-09 has not been accompanied by equivalent employment recovery. Even those who have got their jobs back have faced declining real wages and increased working hours.

This is confirmed by countless case studies from all over India, including those capturing the plight of migrant workers who had found work in export-oriented activities during the boom of the past decade. Consider this recent report from P. Sainath: 'The economic crisis of 2008 saw the closure of countless power loom units in Gujarat. Yet in 2009, over 5,000 'unreserved' travellers from Ganjam, Orissa, still boarded trains for Gujarat almost every day at the Berhampur railway station. These were and are mostly labourers migrating for work in Surat and Mumbai. ''Our employers [in Surat] know we have few options,'' says Ganesh Pradhan in Ganjam. There are no days off, no recess, and 12-hour shifts. ''Work is up, pay is down. The lunch break has gone…we're losing money and strength…. [But] it's not as if we know that things are much better anywhere else.'' (''Decadal journeys: debt and despair spur urban growth'', P. Sainath, The Hindu 26 September 2011)

This is clearly an economic crisis of major magnitude, which in turn portends social and political crises that are just waiting to happen. In this dire context, it is really surprising to see that lack of urgency being displayed by G20 leaders.

* This article was originally published in the Frontline- Volume 28, Issue 21, October 08-21, 2011.

Site optimised for 800 x 600 and above for Internet Explorer 5 and above