The global economic outlook continues to be dim, with two-thirds of advanced economies and half of the developing economies struggling with declining employment rates. The International Labour Organization (ILO)’s World of Work Report 2011- Making markets work for jobs presents an in-depth analysis of the global labour market that has been adversely hit by the global economic downturn. Its key recommendations to rectify the crisis centers on: supporting real investment for job creation; building close links between wages and productivity; and strengthening employment programmes funded from a broader tax base. The core argument is that job creation should be “put at the top of the policy agenda – and urgently.”
According to the report, 80 million jobs need to be created over the next two years in order to adequately absorb the growing young labour force and revert to the pre-crisis employment rate. However, in light of the current trends of the job market, only half of those jobs are expected to be newly generated. The sluggish job market has driven many discouraged job-seekers to leave the market altogether, while prompting many to take on insecure and precarious positions. As a consequence, the risk of social unrest has seen a dramatic increase in recent years across the world: around 40 per cent of the 119 countries with available information face an increased chance to experience social unrest, the report estimates. The report also highlights that it is the employment issue, rather than reduced or stalled economic growth, that has been the key determinant of the discontent.
Gains from growth in the pre-crisis period have been distributed unevenly, the report points out. Increased profits during this period have not been associated with an increase in productive investments, but were rather the outcome of the enlarged gains of the financial sector. Productive investments in advanced economies, for instance, have been stymied by tight credit regulations, which have hampered the credit takings of small and medium-sized enterprises, the report explains. It argues that a “closer link between profits and productive investment is crucial for job creation,” and for a sustainable exit strategy out of the crisis. Real investment should be more directed to viable small firms in this regard.
Moreover, the report finds that policies to moderate wage policies that have been implemented over the past few decades in many countries have not contributed to lowering unemployment, but rather exacerbated the global imbalances and the crisis. It largely attributes the expansion of such policies to financial globalization that has facilitated transnational investments. This has induced the erosion of the bargaining power of workers on their wage levels, the report notes. Trade openness has also contributed to the expansion of wage moderation policies as it has imposed downward pressure on the wage levels of advanced economies to compete with low-wage manufacturers. The findings of the report, however, indicate that “a comprehensive income-generating strategy would have expansionary effects on aggregate demand and employment, without aggravating fiscal deficits.” It therefore recommends that wage shares - the share of income generated that goes to workers - should be upheld and effectively linked with productivity. Yet a country-specific policy instrument can only be successfully devised and implemented through collective bargaining, social dialogue, and operationalization of well-designed minimum wage instruments, the report contends.
The report further outlines the financial means to strengthen employment programmes through tax reform. Following the global crisis and tightened fiscal constraints, efforts to reduce public debt and deficits have disproportionately been directed to cutting support for labour market and social programmes. Tax systems of both advanced and developing economies have also levied less from the highest income quartile and corporations, altogether imposing a larger burden on workers and poor households. The report therefore calls for more progressive and alternative taxation methods which will broaden the options for revenue generation, including wealth tax; capital gains tax; financial transaction tax; and environmental tax.
An adequate taxation system, when accompanied by effective employment programmes, will set a crucial base to a sustainable recovery, the report highlights. Notably, it argues that “not enough attention has been paid to jobs as a key driver of recovery.” Many countries have concentrated on strengthening fiscal austerity without considering the recovery of the real economy and a reform of the financial sector that elicited the crisis. As a result, many have been implicated in a vicious circle with the erosion of social protection policies and workers’ rights negatively affecting growth and employment. The report stresses that it is thus a crucial time to put jobs back on the global agenda, and coordinate national and international policy actions to make markets work for jobs.
Click here to view the report.
Click here to view an executive summary of the report.
Click here to view a press release on the report.
See also: World of Work Report 2010