"Global Unemployment Crisis Continues, Wage inequalities Rising"


Article on the ILO's World Employment Report

From World of Work
No. 18, Fall, 1996, pp. 3-5

Nearly one billion people around the world, approximately 30% of the entire global workforce, are unemployed or underemployed in industrialized and developing countries alike, says a new ILO report*.

Debunking Myths

The release of the ILO's second annual report on world employment clearly touched a raw nerve in media and public-policy circles worldwide, addressing, as it did, one of the major questions of the day: How to reverse the negative trends in labour markets worldwide and restore the concept of full employment to its rightful place at the centre of economic policy-making?

The report notes that nearly one-third of the world's labour force is either unemployed or underemployed and the trend in labour markets is "grim" in most regions of the world, with East Asia being the only notable exception. In industrialized countries, almost 35 million people are out of work and millions more cling precariously to jobs which barely generate a living wage. The number of working poor is on the increase, wage inequalities are widening and the long-term unemployed risk virtual expulsion from the labour market.

In most developing countries low-productivity, informal sector jobs continue to be the rule rather than the exception, poverty is widespread and chronic underdevelopment means that millions of workers are destined to eke out a living in physically onerous, low-productivity tasks. In the transition economies of eastern and central Europe, unemployment has sky-rocketed, poverty has increased and the prospects for widespread prosperity in a market economy have moved further out on the horizon.

The scale of the unemployment problem is such that popular theorists have begun to speak of an era of "jobless growth" in which economies develop on the back of advances in technology and trade but without creating jobs or new income opportunities. The increasing number of layoffs associated with corporate down-sizing combined with new forms of work (part-time, self-employed etc.) have led other commentators to suggest the new global economy is leading to "the end of work" as we know it. The ILO report goes out of its way to debunk these theories, not just because they are based on flimsy analysis and utopian expectations, but because they risk distracting attention from the real priority, which is to renew the post-Second World War international commitment to achieving full employment.

The report also takes issue with the most proffered solution to labour-market problems: deregulation. While recognizing that progress in trade and technology may lead to selective reform of some labour practices, the report explicitly rejects the blanket presumption that regulations are invariably sources of rigidity and that deregulation is thus the optimal solution, particularly when those regulations have the positive benefit of promoting productivity and protecting workers.

Global unemployment crisis continues, wage inequalities rising

In its report, World Employment 1996/97, the ILO calls the global employment situation "grim". The ILO warns that the growing numbers of "working poor" risk aggravating the social and economic ills caused by high jobless rates.

In the world's wealthiest nations, members of the Organization of Economic Cooperation and Development (OECD), at least 34 million people are unemployed. In the European Union, unemployment increased last year to an average of 11.3% of the workforce, with France, Germany, Italy and Sweden registering sign)ficant increases. In the United States, on the other hand, job creation has intensified and unemployment has dipped below 5%. Unemployment rates have also declined in the United Kingdom. In both countries, however, income disparities have tended to widen.

In the transition economies of Eastern and Central Europe, unemployment rates declined slightly but remained at doubledigit levels. In Russia and some other countries of the former Soviet Union, unemployment continued to increase. Among Latin American countries, Unemployment in Colombia rose to almost 12%. Unemployment increased in urban areas in Argentina, Bolivia, Ecuador, Jamaica, Mexico, Uruguay and Venezuela. In sub-Saharan Africa and many parts of Asia, data on direct unemployment barely exists, but problems of massive underemployment and poverty persist in these low-income regions.

The ILO believes that nothing short of a renewed international commitment to full employment is required to reverse the poverty, unemployment and underemployment now prevailing in so many parts of the globe. "It is not just heartless but pernicious to assume that nothing can be done to remedy unemployment, that so-called 'jobless growth' (when a country's gross domestic product, or GDP, grows with no substantial job growth) is the best that can be hoped for in an increasingly competitive economy or that current rates of unemployment somehow constitute a natural and inevitable outcome of market forces," says ILO Director-General Michel Hansenne. "Current levels of unemployment make no economic sense and are neither politically nor socially sustainable."

The ILO report identifies the underlying causes of deteriorating labour market conditions as being:

  • Lower growth rates in industrialized countries since 1973, and the failure of most developing economies to recover fully from the economic crisis of the early 1 980s.

  • Slow adjustment of wages to declining labour productivity and the emergence of wage inflation, which lasted until the mid-1980s.

  • The progressive eviction from the world of work of the long-term unemployed and the increasing casualization of millions of workers in informal sector activities.

    The report concludes that while there is no single ideal prescription for developing industrialized and transition economies, the "priority requirement for reversing the prolonged deterioration in employment conditions is the restoration of high and sustained rates of economic growth".

    Full Employment: Feasible and Highly Desirable

    In a direct challenge to much publicized arguments which forecast an era of "jobless growth", the ILO emphasizes that there is little empirical basis for the notion that globalization, technological change or corporate downsizing are ushering in an era of jobless growth or bringing about the end of work as most people have known it. Michel Hansenne warned against spurning the full employment ideal that guided national and international social policy in the post-Second World War decades: "Abandoning the goal of full employment means lowering social expectations at a time when the world economy is becoming more integrated through trade and investment flows." "These forces," he said, "have the potential for spurring higher rates of economic growth and job creation and thus higher levels of well-being and social justice." But they need to be harnessed by the right mix of social and economic policies.

    Trade, Technology and Globalization

    The ILO argues that, contrary to popular misconceptions, the world's job woes are not being driven by rapid technological progress and trade liberalization, both of which are necessary for stimulating economic growth and productivity. Trade between industrialized and developing economies "is only a minor explanatory factor behind the rise in the unemployment of low-skilled workers and in wage inequality in the industrialized countries". The report notes that the experience of dynamic Asian economies provides evidence that "sound domestic policies, expanding global trade and investment flows provide rich opportunities for higher rates of economic growth and job creation".

    Boosting Non-Inflationary Growth

    Foremost among the requirements for reversing the drift away from full employment is "to reverse the trend decline in growth rates over the past two decades" in industrialized countries. While much academic literature maintains that expansionary efforts to boost growth rates will inevitably founder on the rocks of inflation or supply-side constraints, the ILO report insists that a deficiency in demand could well be responsible for the prolonged period of slow growth in the world economy, and that wage inflation can be held in check if industrial practices and labour-market regulations are designed to do so. The report says that "higher growth is possible provided a sustained period of expansionary policies is supported by credible policies to prevent a resurgence of inflationary wage increases and to overcome the skill shortages that will be generated".

    Mechanisms for moderating wage inflation are the second prerequisite if the expansionary impulse is to avoid being choked off by the reaction of financial markets. The report acknowledges that while no easy solutions exist, several options are worth exploring, including "strengthening of the coordination of wage bargaining through the synchronization of bargaining periods and the provision of consensus forecasts of future economic possibilities". Other options include social pacts between employers, workers and governments, the encouragement of profitsharing and tax-based income policies.

    A third requirement for reversing the rise in unemployment is "to improve the design and implementation of labourmarket policies". In industrialized countries this includes reforming unemployment benefits systems. Subsidies and payroll-tax measures designed to promote the reintegration of long-term unemployed may prove useful, but should be examined carefully because of the possible side effects. Additional measures include "the correction of market failures which result from the underprovision of training" as well as "training programmes targeted on the most disadvantaged groups in the labour market".

    While recognizing that there may well be aspects of labour-market regulations that need reforming in different countries, the report argues that "there is no basis for a blanket presumption that these regulations are invariably sources of rigidity and that deregulation is automatically the optimal solution". In many cases labourmarket regulations have the positive benefit of promoting higher productivity and protecting vulnerable workers.

    Transition Economies

    The unemployment problem in transition economies results from "the legacy of labour-hoarding in state-owned enterprises carried over from the previous economic system". Although enterprises in Central and Eastern Europe and the former Soviet Union have already undertaken substantial restructuring, often at the cost of increased unemployment and poverty, the report says that "a formidable challenge still remains in terms of restructuring uncompetitive enterprises and of adjusting the structure of enterprises in order to raise abour productivity".

    Obstacles to new enterprise development need to be reduced and barriers to foreign investment (such as uncertain legal procedures and inadequacies in the business infrastructure) need to be dealt with. Other practical problems include inadequate housing market flexibility and the difficulty of ensuring adequate social protection for workers affected by restructuring. An array of measures, including an improved institutional framework in which unions and employers' organizations can undertake effective collective bargaining may need to be supplemented by temporary measures to contain the rise in unemployment.

    Developing Economies

    The majority of workers in developing countries "are engaged in low-productivity work that is often physically onerous but yet yields only meagre earnings". Although the ILO report acknowledges thatfullemploymentis along-term objective for most developing countries, it nonetheless "provides a useful framework for the formulation of employment policy".

    The report attributes the deteriorating employment conditions in many parts of the developing world (other than in the dynamic Asian economies) to "the failure to recover fully from the economic crisis of the early 1980s". Slower, and in many cases, even negative growth has meant stagnation in the creation of modernsector jobs and consequent overcrowding in low-productivity activities.

    The report calls for economic reforms, where necessary, in order to achieve macroeconomic stability and begin generating an "environment conducive to high savings and investment and the efficient allocation of resources" in order to permit developing countries to "benefit fully from expanding trade and investment flows in the global economy". The report adds that in many cases "pure market reforms often need to be supplemented by public investment and other measures to strengthen the supply response of producers to new economic incentives".

    *World Employment 1996/97: National policies in a global context. International Labor Office, Geneva. ISBN 92-2-110326-9.

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