Reducing unemployment

Combating unemployment
Increasing employment
An overview of trends over three decades shows that the current employment crisis stands in striking contrast to the not-too-distant past. As recently as the 1950s and 60s, the industrialized economies enjoyed both full employment and steady growth in productivity and incomes. The benefits of this growth spread to developing countries too, with Latin America experiencing a virtual industrial revolution. The 1970s' oil shocks brought that era to an end. Though real wages have since fallen back to pre-1973 levels, economic growth rates never revived. Unemployment has risen.

Barring a change in present policies, the ILO's [World Employment 1995] report warns that prospects for job growth remain, with few exceptions, gloomy throughout the world. Most long-term employment forecasts indicate that rates of growth higher than the trend since 1974 are required to restore full employment. This means that under current scenarios, growth will not be sufficient to cure Europe's endemic employment ills, reverse the decline in real US incomes, halt the spread of poverty and underemployment in developing countries or prevent the marginalization of an entire continent - Africa.

According to the ILO, the employment problem needs to be attacked on three fronts. The first is increased international coordination of macroeconomic policies in order to stimulate recovery and remove obstacles to the sustainability of growth. The second is successful micro- and macro-adjustment, at the national level, to the growth-augmenting benefits of the global economy. The third is a range of socially enlightened policies that will improve respect for basic labour standards while addressing such problems as long-term unemployment, poverty, skills shortages and widening disparities in income distribution.

The report acknowledges that there is no simple or painless solution to the employment problem. National action is constrained both by internal obstacles to reform and external economic forces. At the international level, cooperation has weakened and appears extremely difficult to restore. Global interdependence restricts governments' margin of manoeuvre on budgetary, monetary and exchange-rate policy. Just as no country or region can expect to grow in isolation from world trade and investment flows, no government can stimulate its economy or reflate on its own without risking destabilizing trade and current account difficulties in the long term. International cooperation will need to find ways out of this dilemma.

In spite of the difficulties, the ILO argues that there is scope for effective action at both the national and international levels to fuel a coordinated recovery. Inflation in industrialized countries, the report finds, is generally under control. The level of capacity utilization is generally low. Real wages have fallen and most countries have current unemployment rates that indicate there is scope for expansion without generating serious inflationary pressures. With respect to fiscal policy, the problem of sustainability of the public debt is to a large extent linked to the high level of real interest rates in a context of slow growth: "A reduction of interest rates in the context of a coordinated recovery will reduce the debt-servicing burden and hence increase the sustainability of public debt". Higher levels of economic activity should have a favourable impact on government revenues. A return to growth in the industrialized world would bring benefits to developing countries as well.

International coordination should address itself to a number of problems that threaten the sustainability of growth and investment in industrialized economies, including the persistence of historically high interest rates, volatility in financial markets, trade imbalances ad the proliferation of speculative portfolio investment (including derivatives) as opposed to Foreign Direct Investment (FDI). The objective should be to reduce destabilizing effects on exchange and interest rates, to channel a greater proportion of world savings to productive real investments, and to lower real long-term interest rates.

The ILO is concerned that in the absence of an international commitment to full employment, national policies may fail to give the required priority to the employment objective. The cooperative international action that is essential for improving the global employment situation would prove more difficult to mobilize. The report notes that an ILO Convention (No. 122) calls for a commitment to full employment and it has been ratified by over 80 member States: "The formal provision thus exists; it only remains to increase the efforts to translate its objects into reality.

In 1999, the European Commission as well as the Council of Europe declared the 2001 to be the [European Year of Languages]. Both initiatives will be aiming specifically at the unemployed, those living in areas where languages overlap, and language teachers. Knowing more than one EU language is expected to raise people's chances to get a better job.

In 1999, the European Union adopted the [European Employment Pact], containing fresh initiatives, including the provision of extra funds. Part of it is a process, launched in 1997, designed to provide all member states with clear objectives for combating unemployment, and setting before them the example of those states which had been most successful in creating new jobs. In a second parallel process, the EU countries committed themselves to improving the efficiency of the European economy and encouraging innovation, in order to stimulate job creation. The Cologne Summit added a third process, one which would bring together the EU's political, economic and social leadership, in order to encourage economic growth and job creation, even while preserving a healthy economic climate, with low inflation, thanks to an effective balance between wage increases and price stability, for example. The European Central Bank, as well as EU employers' organizations and trade unions, would take part in this consultation. In addition to this global action framework, the European Council sought to provide EU businesses with additional funds for investment in ventures which create employment. To this end it called on the European Investment Bank (EIB), the EU's financial institution, to release additional funds for lending. The amounts in question include an extra 500 million euro from the current risk-capital budget, thus doubling the resources for the European Technology Facility. This Facility allows the European Investment Fund, another EU institution, to invest in reliable venture capital funds, which in turn invest in dynamic small and medium-sized enterprises (SMEs), with a strong potential for job creation. These funds also advise the businesses which they help finance, in order to reduce the risk of failure. The EIB will also make available an extra one billion euros for risk-capital funding of SMEs investing in high-technology projects in the period from 2002 to 2003. The EIB shall also increase its lending to certain sectors of economic activity which generate large numbers of jobs. They include urban renewal, education and health, environmental protection and renewable energy.

1. Solutions to the employment problem are hampered by the lack of a common vision to inspire action. Policies and institutional arrangements at both the national and international levels can and should be improved to reverse the drift towards a global employment crisis. Full employment needs to reassume its rightful place at the top of the economic policy agenda.

2. The lost secret of growth has proven irrecoverable, because key pieces of the international economic system - specifically active employment policies, a social consensus on wages and productivity and international macroeconomic stability - have either broken down or been substantially weakened. All three elements need to be revived, although they need to take account of the challenges and opportunities wrought by globalization. Policy makers need to recall that a high and stable rate of productive job creation is the mainspring of equitable economic and social development, and renew their commitment to achieving full employment.

3. The post-WW II international commitment to the goal of full employment has been eroded and its revival will provide the basis for the renewed international cooperation that is so essential for solving the employment crisis. A universal commitment to achieving full employment, a goal which, admittedly, many countries today believe to be unobtainable, is necessary because a defeatist attitude on employment risks becoming a self-serving prophecy. Moreover, the relative neglect of employment issues (as opposed to inflation) has gone too far.

4. The current employment situation is both morally unacceptable and economically irrational; it represents an enormous waste of resources and an unacceptable level of human suffering. If the problems linked to joblessness and poverty are not addressed, the prospects for a more divided, unequal and turbulent world will increase. The political will to undergo necessary structural adjustments could be weakened if the social costs prove too high, heightening both the economic cost of adjustment to globalization and the risk of trade protectionism, an option which would only blight the opportunities that exist for solutions.

Type Classification:
D: Detailed strategies