The impact of the global financial and economic crisis on employment and social development and policy responses

Transcription

1 The impact of the global financial and economic crisis on employment and social development and policy responses Briefing note for the ITC Seminar on The economic crisis and the Global Jobs Pact (Turin, 2-6 November 2009) Aurelio Parisotto Policy Integration Department, ILO A. Introduction The current economic recession is unprecedented for its speed, its depth, its global scope and the way it is simultaneously affecting economies worldwide. It is not a crisis of Russia or of a group of economies in Asia. It is a crisis of the financial and corporate sector in almost all countries. It arrives after years of fast, unequal growth and growing polarization across and within nations. It comes on top of a series of shocks in the global energy and food markets that markedly affected the incomes of the poor and the vulnerable. Recovery from such a systemic economic downturn is going to be subdued. Given the financial nature of the crisis, time will be needed for the banking sector to go through the process of cleaning up balance sheets and re-establish sound foundations for large volumes of lending. Households in rich countries will also need time to restore their wealth and their confidence in the future, key prerequisites to sustain higher levels of spending for consumption. Corporations will defer investment as long as prospects for sales remains uncertain, credit is scarce and costly, and productive capacity is largely underutilized. Given the global geographical spread of the crisis, moreover, no country will be able to abruptly squeeze wages and other domestic production costs to rapidly gain new market shares in export markets. To cope with a crisis of this type requires an international collective effort of a new kind. Some observers are heralding incipient signs of recovery, or green shoots. Indeed, a few developing economies are maintaining positive growth rates, largely driven by their large domestic markets, sound financial systems and high level of reserves. But the reality is that the perspectives for a global recovery remain fragile and vary markedly across countries. Like any great upheaval, the crisis is producing economic shock waves that will reverberate over time. As the crisis unravels, falls

2 in incomes and job opportunities reach the poor, exacerbating long-standing vulnerabilities and inequalities. A recent World Bank report estimates that, excluding India and China, GDP per capita in the developing countries will fall 0.6 per cent in In a similar vein, the latest UN forecasts indicate that 60 developing countries and 14 transition economies are likely to experience falls in per capita income in This trend is a dramatic setback on the way to achieve the MDG poverty reduction objectives. Long waves of distress are also hitting labour markets in all regions, with impacts across the entire income distribution. Whatever shape and length the economic recovery will take, comparable experience from previous crises shows that employment recovery will lag behind. For women and men worldwide, and in particular for the most vulnerable and disadvantaged, the crisis will not be perceived as receding until they get a decent job and a minimum floor of social protection. Decisive action could considerably contribute to shorten that lag. This note reviews the main features of the deep and prolonged labour market distress created by the global financial and economic turmoil. It considers national and international policies and frameworks to address the jobs crisis, and it outlines some issues for discussion. A main argument is that strong employment and social protection policies are needed right away in order to counteract both the immediate and the long-lasting effects of the global economic downturn. Policies and institutions for social development are central to shape patterns of recovery that foster sustainable economic growth, employment creation and decent and stable societies. B. Employment and labour market outlooks in the aftermath of the crisis More than one year after the Lehman shock in September 2008, stock exchange markets are up and industrial output in some major countries is showing initial signs of recovery. Nonetheless, there remains controversy among economists on whether the recession is definitely over and what pace and shape the economic recovery might take. Some think growth will resume naturally, but fear the implications of excessive government spending for inflation and public finances and call for budget discipline and a withdrawal from the expansionary stimulus packages that have propped up ailing economies all over the world. Others - including the IMF, the World Bank and the United Nations warn in their forecasts that the initial signs of recovery are relatively frail and that the coordinated effort to pull the world economy back from the brink of a severe depression needs to be maintained. They point out that finance markets are still not functioning normally and confidence in the future amongst individuals and enterprises is fragile, as a result in many countries consumption and private

3 investment remain weak. 1 Most forecasters expect that, unless the underlying global macroeconomic imbalances are remedied, the growth of the world economy could remain relatively sluggish over the next few years. Views are less divergent as it concerns the consequences of the global economic downturn on the labour market. There is solid empirical evidence from past financial crises showing that employment takes several years to pick up following a turnaround in output or other indicators such as business confidence or stock market prices. 2 Evidence also show that recessions tend to be longer when they are associated with credit crunches and house price busts, and they are more severe the more they are internationally synchronized, ie the greater the number of countries that are in recession at the same time. 3 Given the global nature of the current crisis, even if growth recovers, as stated by the IMF s Managing Director,: It might still take some time for employment to follow. Unemployment might very well continue rising next year, even as the economy bounces back. For people losing their job, the crisis is not over. 4 In short, countries in all regions are looking at the risk of a deep and prolonged jobs crisis fraught with social and political dangers. Indicators of global labour market distress have been on an upward track since the burst of the crisis. The ILO estimated that continued labour market deterioration around the world in 2009 would produce an increase in global unemployment of between 39 and 61 million workers relative to 2007, which could result in global unemployment ranging from 219 to 241 million. Joblessness is likely to continue well into future years despite initial signs of recovery. A simple scenario exercise suggests that, depending on the scope of policies to counteract the job shortfall, from three to six 1 The Global Development Finance Report released by the World Bank in June 2009 warns about the possibility of a second round in the crisis from the financial sector to the real economy back to the financial sector. Banks and firms in emerging countries might have stayed away from the financial excesses of the recent years, but have high levels of external debt contracted to support their high growth rates. They will find it hard and costly to sustain it as private capital flows to developing countries are drying up and multilateral finance remains inadequate and burdensome. 2 In a study of several serious financial crises, Rogoff and Reinhart concluded that the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of seven percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 per cent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment, see Carmen M. Reinhart, Kenneth S. Rogoff, The aftermath of financial crises, NBER Working Paper No , January Marco Terrones, From Recession to Recovery, presentation to the Committee of the Whole on Crisis Response, 98 th International Labour Conference, Geneva, 3 June Remarks by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, at the Global Creative Leadership Summit, New York City, 23 September

4 years might be needed before labour market conditions similar to the pre-crisis situation be reestablished. 5 In the industrialized economies, unemployment escalated in the first quarter of The sharpest increases were registered in Spain, Ireland and the United States, perhaps because financial institutions were particularly hit and, in the case of Spain, of the very high number of workers on temporary contracts (see Table 1). In other countries, such as Canada, Denmark, France, Germany, Italy and the Netherlands, the fall in output was larger than the fall in employment, partly as a result of policy measures taken by governments. 6 The increase in unemployment slowed down in the remaining quarters of 2009, but overall levels rose to historical highs. In the United States, the unemployment rate went from below 5 per cent in 2007 to 9.8 per cent in 2009, close to its historical high over the past 40 years, and it is projected to be 8.9 per cent in 2010 and 7.7 per cent in Japan and Sweden are two other countries where joblessness reached almost unprecedented levels. As the crisis spread rapidly, increases in unemployment were registered in almost all countries outside the industrialized world. The Baltic States, Turkey and countries in Eastern Europe were dramatically affected. Massive retrenchments and lay-offs also occurred in the export-oriented manufacturing industries of developing Asia and Latin America. On the whole however, the observed increases in unemployment rates were relatively moderate compared to the situation of the industrial economies. Among a sample of emerging and developing economies for which data are available, a few even registered a slight decline, eg Indonesia, Mauritius and Uruguay (Table 1). In fact, the relatively skilled, formal sector urban workers who were directly hit by the crisis are still a small portion of the workforce of most developing economies. To some extent, this divergence also reflected the resilience of countries in Asia and Latin America that, having drawn lessons from previous financial crises, could take advantage of sound fiscal stances, low inflation, low external debt and their high external reserves to undertake quick action. Unemployment statistics, however, are not fully adequate to gauge the degree of labour market distress in developing economies. Changes in employment and unemployment figures, for instance, do not include changes in the numbers of discouraged workers nor - more critically - of those pushed into informal work. As the crisis unravels, both episodes become common. 5 Committee of the Whole on Crisis Response, C.Pl./TD.1-Brief, 98 th International Labour Conference, Geneva, June D. Bell and D. Blanchflower, What should be done about rising unemployment in the OECD?, mimeographed, September Paul Krugman, Mission not Accomplished, NYT 2 October

5 Discouraged workers are those members of the working age population who are available and willing to work but do not actively seek employment and therefore are not registered among the unemployed. If taken into account, their number would significantly increase the unemployment rate in developing countries. In South Africa, for instance, the expanded unemployment rate including discouraged workers would jump from 23.6% to 29.7 % in the first quarter of 2009; from 9.0 % to 12.6 % in Brazil; and from 5.1% to 15.6 % in Mexico. 8 Similarly, although it is difficult to capture it in official labour market statistics, the increase in poor quality informal work is a major effect of economic recession in developing countries. In the absence of a social security system, people cannot be totally unemployed; they have to find some sort of work to survive. This would typically be in activities such as street trading or casual day labouring which are often very unproductive and yield incomes below the poverty line. 9 A reversal in rural-urban migration is also typical of recessions, and the large scale return of redundant workers to their rural areas of origin has been documented in several countries in Asia as a result of the current crisis, eg Cambodia, China, India and Vietnam. 10 To sum up, in a crisis the numbers of those in employment might remain constant or even rise but much of it could be of extremely low quality trapping individuals, communities and whole countries in poverty. The deteriorating returns to employment for informal economy workers who live wide apart from crisis-hit global financial centres are documented in several field studies. Field surveys on the impact of the crisis were conducted by WIEGO in 10 countries (South Africa, Malawi, Kenya, Peru, Thailand, Indonesia, Pakistan, India, Colombia and Chile). 11 WIEGO carried out 12 focus group discussion on three sectors of the informal economy (59 home-based workers, 52 street vendors and 53 waste pickers) and participated in by a total of 164 informal workers. As a result of the crisis, much like their formal counterparts, informal economy workers are experiencing decreasing demand for goods and services (around 65% of the respondents), rising cost of inputs (average of 86% of the respondents), and increasing price volatility for goods sold (41% average decrease in prices of goods sold). However, unlike those in the formal economy, the informal firms and informal wage workers 8 The increase would be 1.2% in the United Sates and between 0.3% and 0.5 % in France, Germany and the UK, see Protecting People, Promoting Jobs, ILO report to the G20 Leaders Summit, Pittsburgh, September 2009, table The increase in the number of the self-employed in occupations with low entry barriers such as truck driving is a well-established trend of recessions in industrialized countries. In shrinking markets, new entries push earnings down. 10 See P. Huynh, S. Kapsos, Kee B. Kim and G. Sziraczki, Impacts of Current Global Economic Crisis on Asia s Labour Markets, Asian Development Bank Institute, No Cushion to Fall Back on: The global economic crisis and informal workers, Inclusive Cities study, Women in Informal Employment: Globalizing and Organizing (WIEGO), synthesis report, August

6 have no social safety nets to address the continuing threats to the stability and quality of their working lives. They continue to work harder but earn less, hence, their chances to lift themselves out of poverty are diminished. While official statistics in some countries seem to suggest that the impact of the crisis has been relatively less severe for women workers in the formal economy than their male counterparts the increase in unemployment rates is lower in most of the countries for which data are available - field surveys suggest that the additional burden on informal workers was especially harsh on women. More than half (54%) of the respondents to the WIEGO survey reported they had to devote more time to work, both paid and unpaid work. Forty-nine per cent of the home-based workers indicated that they carried out child care duties alongside their home-based production. Widows and single mothers were specially pressured as they had no external support to care and earn for their children. During times of crises, women are sometimes forced to provide for other relatives who have lost their jobs. This leads them to make crucial decisions and difficult cutbacks in the households expenditure - quantity and quality of food, education of children, health treatments/medicines and resorting to increased indebtedness. Overall, ILO projections of working poverty across the world indicate that 200 million workers are at risk of joining the ranks of people living on less than US$2 per day between 2007 and The longer the distress on the labour market persists, the more those workers, their families and their communities run the risk of being trapped in long-lasting poverty. The likely pressure for cuts in public social spending could exacerbate their difficulties and could contribute to further spread inequities and inequalities. For the millions of people who live in poverty in poor countries, the current economic downturn will not be only a short-term stressful event. Its consequences will be passed across generations affecting all members of a family, including children, for years to come. In other words they will lead to scarring, ie long-lasting damage to individuals, society and the economy more broadly. 12 The effects of underinvestment in human capital formation, for instance, are particularly relevant to the prospects for economic growth and poverty reduction in developing economies. There are many 12 The long-standing effects of recessions on educational achievements, the creation of small businesses and the spending on innovation and R&D are outlined in John Irons, Economic scarring: The long-term impacts of the recession, Economic Policy Paper No. 243, September The paper makes an important point: fiscal policies to stimulate the economy and address the hardships of families and individuals have long-term economic benefits that should be compared with the long-term costs associated with the deficits created in order to finance those policies. While the latter costs are often mentioned in the policy debate on fiscal stimuli - arguing that deficits can transfer wealth from future generation of taxpayers to the present - the former benefits are usually neglected

7 channels by which educational achievements are undermined in a recession. A growing body of literature shows the importance of improved early childhood nutrition for cognitive abilities, grade attainment and ultimately wages later in life. 13 Families under economic hardship may also delay or forgo plans for continuing education of their children, undermining their chances for future economic success but also a variety of social benefits, including better health outcomes, lower incarceration rates, greater volunteerism and active participation to civic life. 14 The scarring effects of the current recession appear particularly strong for the large cohort of young women and men who are about to enter the labour market, in poor and rich countries alike. If there is a distinctive feature of the way in which labour markets are adjusting to the global recession that is clearly borne out by labour market statistics, this is the increase in youth unemployment. Faced with a sudden and unexpected drop in demand, employers endeavoured to hold on to their experienced and skilled workers but have simply stopped hiring. In many countries, the rise in unemployment was driven largely by the freeze in hiring, less so by the highly visible layoffs. 15 The pervasiveness of this pattern, at least in countries in Europe, is evident in Chart 1. Increases in youth unemployment rates (18-25) are systematically higher than adult rates, at times 3-4 times so. The less educated, unskilled and minorities are bearing the main burden. The effects of the long-lasting labour market distress resulting from the current global recession on the youth are of particular concern. There is ample evidence that prolonged unemployment and underemployment at any stage in an individual s life weakens their chances of resuming productive employment. This is critically relevant as it concerns young women and men. A spell of unemployment or underemployment when young leaves permanent scars and continues to have a harmful impact in later life. The symptoms of this scarring are weaker performance in health, education, crime, productivity growth and overall poverty reduction See Ruel and J. Hoddinott, Investing in early childhood nutrition, IFPRI Policy Brief 8, November See D. Acemoglu and J. Angrist, How large are human capital externalities? Evidence from compulsory schooling laws, NBER Macroeconomics Annals, vol.15, pp. 9-59, See S. Cazes, S. Verick and C. Heuer, Labour market policies in times of crisis, ILO Employment Working Paper No. 35, 2009, for a discussion based on U.S. data. 16 See Bell and Blanchflower (2009) for a review of the literature. In their study of the UK, they also provide evidence that youth unemployment continues to hurt two decades later on a variety of variables including unemployment, health status, wages and job satisfaction, Bell and Blanchflower, What should be done about rising unemployment in the UK, IZA Discussion Paper No. 0833,

8 Chart 1: Relative change in the unemployment rate in selected countries in Europe (Q vs. Q4 2008) 7 6 Increasing Youth Unemployment Rates % Change in youth employment %Change in adult employment 5 Percentage in unemployment rates BE BG CZ DK DE GR ES IT UK LV HU NL PT RO SI SK FI SE Selected Countries Q vs. Q Source: ILO based on EUROSTAT data The world s economically active population rises every year by some 45 million persons; mostly young women and men in developing countries entering the labour market. There is a grave danger of long-term damage to their job prospects and productivity as a result of the scarring effects of unemployment and underemployment. The challenge is to absorb this increase in the labour force. The ILO estimates that the global economy would have to create some 300 million new jobs over the next five years just to go back to pre-crisis levels of unemployment. This objective cannot be achieved in the absence of a stronger collective policy drive focusing on jobs. C. National employment and social policy responses An overview After months of denial, once the risk of a global financial meltdown was unmistakable, national and international authorities reacted precipitously in some concerted manner. That response helped save the world economy from financial collapse, partly also alleviating the burden of unemployment

9 in the countries more severely affected. Governments reacted mainly by means of launching unprecedented financial rescue packages, easing monetary policies and introducing ambitious fiscal measures to stimulate aggregate demand and to address employment and social protection concerns. The full assessment of the employment impact of those measures is difficult, but there is evidence to conclude that the actions taken made a difference. According to ILO estimates based on IMF calculations, the fiscal measures taken by G20 governments since the economic crisis began will have created or saved from 7 to 11 million jobs in year, amounting to over one third of the total increase in unemployment in those countries in the first half of The range of the discretionary employment and social protection measures taken by countries to counter the crisis is illustrated in a survey carried out by the ILO in August The survey, which is based on information collected from official sources, covers new measures announced or taken between mid-2008 and end-july 2009 by national and federal governments in 54 countries, spanning all income levels and regions. It encompasses 32 specific measures grouped under four areas, namely stimulating labour demand; supporting jobs, job seekers, and unemployed; expanding social protection and food security; applying social dialogue and protecting rights at work. 18 Table 2 provides the frequency of measures taken across the sample countries. Increased public investment in infrastructure was the most common response to the crisis, with 47 countries out of 54 countries adopting measures in this area. Infrastructure investment has a strong employment multiplier effect especially when indirect job creation is included. In about one third of the cases, spending on infrastructure included a distinctive employment component, often with specific targets for disadvantaged groups. Some governments also took the opportunity to favour projects that would improve environmental sustainability and had the potential of creating green jobs. Support to SMEs was another priority, as those enterprises account for the bulk of employment in most economies. Interventions took the form of improving access to credit (40 countries), with public banks playing a key role in several countries, as well as tax reductions to help lower business costs (42 countries), one advantage being the rapidity with which tax related measures can be implemented. Many countries invested in training programmes as a means to support jobseekers (34 countries). At the same time, they often increased resources devoted to job-search assistance and introduced employment retention measures such as the promotion of part-time work and work-sharing 17 Protecting People, Promoting Jobs, ILO report to the G20 Leaders Summit, Pittsburgh, September ibidem

10 arrangements. Those measures, which fall under the category of the so-called active labour market policies, were relatively more common among high income and upper middle income countries, particularly those where automatic stabilizers in their tax and benefit systems were weaker. 19 Investment in training at a time of fragile labour markets reflected the reduced opportunity cost of training for enterprises as the time workers spent on learning was less needed for immediate production. It might have also been a sign of the desire to prepare for recovery by preparing the workforce for structural changes to come, such as those resulting from sectoral shifts in demand and the adaptation to lower carbon emissions. In spite of falling revenue, some countries augmented social expenditures. The preferred options have been expansion of duration and coverage of unemployment benefits, extension of old age pensions, and expansion of health insurance. Targeted cash transfers played a particularly useful function in many developing countries. Several middle income countries expanded conditional cash transfers (CCT) that provide direct cash payments to recipients in exchange for an obligation to partake in specific services, eg enrolling and maintaining children at school. In low income countries, the introduction and upscaling of similar income support schemes, albeit of great potential benefit, was constrained by weak administrative capacity and the lack of sustainable funding. In addition to increased spending in infrastructure and SME support, lower income countries put some relative emphasis on social protection and support to agriculture in the design of their crisisresponse fiscal measures. The number of policy initiatives taken, however, was lower than in middle and higher income countries, which points to possible resource and capacity constraints, among other factors. This limited capacity to engage in countercyclical interventions, together with the widespread gaps in social protection coverage, is a critical weakness, one which hinders any effort to prevent the cumulative effects of economic shocks on existing vulnerabilities and contributes to perpetuate a situation of economic and social distress in developing countries. One aspect that was common to all country groupings was the relative neglect of measures to safeguard the most vulnerable and disadvantaged and promote their rights and capabilities. Measures to fight labour trafficking and child labour, protect migrant workers and increase labour inspection capacities to prevent workers abuses were among those with the lowest frequency. 19 Automatic stabilizers support aggregate demand when economic conditions worsen. They are common in countries where social public spending is greater. They usually include unemployment and other social protection benefits. In most OECD countries, the stimulus provided by automatic stabilisers was larger than that provided by discretionary fiscal measures, see OECD Economic Outlook, No. 85 Paris

11 Considering the dramatic deterioration in labour market conditions around the world, this is an area where there remains a great deal more to do. The ILO survey provides mainly a qualitative overview of the policies adopted by countries to respond to the employment and social concerns raised by the global economic crisis. It illustrates the variety of measures and the emphasis given to different issues, offering some preliminary indications on where to search for good practice and successful approaches. A quantitative assessment would probably indicate that the bulk of spending was directed to address the immediate financial and economic emergencies. As financial stability gradually returns and economic prospects in many countries slowly improve, the priority should shift towards addressing the social wounds created by the crisis and their longer term consequences. Employment friendly macroeconomic frameworks, coherent sets of labour market policies, and the progressive building up of comprehensive social protections systems adapted to each country s circumstances and priorities should be the cornerstones of the social policy recipe for the post-crisis world. D. New supportive international frameworks and initiatives Prompt, close and spontaneous cooperation among key players within the international policy community was an unparalleled feature of the reaction to the looming financial and economic disaster over the past two years. Such high degree of collaboration is perhaps the best acknowledgement that tackling major global economic and social emergencies unquestionably requires global coordination. Coordinated international support is critical to assist countries in dealing with the social implications of the crisis. New international frameworks and initiatives have emerged, which pay special attention to the employment and labour market policy dimensions. Promoting a job-intensive recovery: The ILO Global Jobs Pact The Global Jobs Pact is the ILO approach to deal with the global jobs crisis. The Pact was designed by the members of the ILO - the governments, the workers, the employers. Its purpose is to give guidance to national and international policies aimed at stimulating economic recovery, generating jobs and providing protection to working people and their families. The Pact provides a practical agenda for renewed international cooperation as well as a point of convergence for national actions which can help combine and multiply their overall effects

12 The Pact is built around the principles of the ILO s Decent Work Agenda. It looks at the issues of employment generation and sustainable enterprises. It emphasizes the need for a basic social protection floor. It calls attention to the importance of protecting and promoting rights at work in a crisis situation. It encourages the practice of social dialogue and collective bargaining as critical tools to identify priorities and assist in policy design and implementation. It calls for implementing measures quickly in a coordinated manner, and for integrating gender concerns throughout. The Pact reflects the concerns of the real economy at a time of crisis. It is not a one-size-fits-all set of recipes. It provides a portfolio of crisis-response measures that countries can adapt to their specific needs and situation. The measures proposed are based on successful examples and tested policies. The Pact urges governments and multilateral agencies to consider options such as public infrastructure investment, special employment and training programmes, broadening of social protection and minimum wages and targeted initiatives to support the most vulnerable. It also calls for quality public services and the strengthening of public administration, including labour inspection, to prevent unfair competition and ensure respect for international standards. Many of the policies advocated by the Pact have been integrated in the fiscal stimulus packages adopted by countries, as the survey above illustrates The Pact is forward looking. It is geared to create a long-term solution to this crisis. It recognizes the policy failures and the weaknesses in the global rules that govern the international economy. It calls for the construction of a stronger, more globally consistent supervisory and regulatory framework for the financial sector, so that it serves the real economy, promotes sustainable enterprises and decent work and better protects the savings and pensions of people. It also urges cooperation to promote efficient and well-regulated trade and markets that benefit all and avoid protectionism. Underlying the Pact is the acknowledgement that transfer incomes, notably social assistance and social security benefits paid to unemployed workers and other vulnerable recipients, act as automatic social and economic stabilizers. Those benefits not only prevent people from falling further into poverty but also limit the contraction of aggregate demand thereby curtailing the potential depth of a recession. While it urges countries to introduce short-term measures to assist the most vulnerable cope with the current crisis, the Pact encourages countries, particularly developing ones, to build foundations for stronger and more effective systems of social protections. This is a powerful route to more stable and caring societies. Right now, the ILO is engaged in providing immediate assistance to its constituents wanting to implement the measures envisaged in the Pact, in line with national circumstances and priorities. Technical assistance is an important element in the follow up to the Pact. The issues of resources is

13 another major concern for developing countries, where implementing the Pact can significantly reduce poverty, increase demand and contribute to economic stability. Donor countries and multilateral agencies are called on to consider providing funding, including existing crisis resources for the implementation of the Pact s recommendations and policy options. International support The policy portfolio underlined in the ILO s Global Jobs Pact (GJP) has gathered wide support from political leaders and international organizations. In July 2009, the UN Economic and Social Council invited member States and relevant international organizations to make full use of the Pact and requested the UN funds and programmes and the specialized agencies to take the Pact into account in their policies and programmes. The UN System Chief Executive Board (CEB) had already endorsed a coherent and comprehensive strategy for UN system-wide action to confront the crisis. The strategy draws on nine UN-System Joint Crisis Initiatives (JCIs), each one coordinated by a lead agency working together with a cluster of cooperating agencies. The CEB JCIs are an explicit attempt at promoting synergies and cooperation among multilateral agencies in providing more effective assistance to countries affected by the crisis, particularly those with the least resilience. All the initiatives are interconnected, but each makes a distinctive contribution to the social development agenda. Two initiatives focus specifically on, respectively, employment and social protection issues. Initiative V supports efforts to boost employment, production, investment and aggregate demand and promote decent work for all. Initiative VI promotes a Social Protection Floor to ensure access to basic social services, shelter and empowerment and protection of the poor and the vulnerable. The JCIs are mainly based on the voluntary contribution of each individual agency. At the moment, most lead agencies have prepared programmes of action spelling out immediate and longer term action/products. In each policy area, the main expected outcome is a widely accessible pool of expertise, resources, capacity building and advocacy events, and networks to develop and share knowledge, which countries can rely upon in their own policy and programme development. Following the endorsement of the common strategy by the Conference on the World Financial and Economic Crisis and its Impact on Development, and the Conference s call for a coordinated approach at country level, the United Nations Development Group (UNDG) has also been involved by means of developing modalities to support field-based, country-owned crisis response programmes that target the most vulnerable countries and populations and draw on the expertise, resources and networks made available under each of the nine initiatives. Reflecting such call, the

14 agencies participating in the UN Second Decade for the Eradication of Poverty ( ) reviewed their activities under the Plan of Action on Full Employment and Decent Work for All in order to align them to the GJP and to provide a stronger frame to build the capacities needed to mitigate the damage wrought by the financial crisis and shape a stronger economic and social policy framework for globalization. Finally, in September 2009, leaders at the G20 Pittsburgh Summit articulated their resolve to work together to support a durable recovery that generates sustainable and balanced growth and creates the good jobs people need. The Summit made steps toward closer coordination of macroeconomic policies, improving international financial regulation, strengthening global institutions and addressing energy security and climate change. Leaders noted the impact of the crisis on the most vulnerable and on social spending in LICs and recognized the need for additional multilateral concessional finance, increased food security and financial services for the poor. They clearly emphasised that a sustainable route out of the crisis depend on policies to address the main employment and development gaps. They committed to recovery plans that support decent work, prioritize quality job growth and provide income, social protection and training support to jobseekers. The G20 Framework for Strong, Sustainable and Balanced Growth that was launched in Pittsburgh provides an institutional mechanism to develop and jointly review policies to, among other things, improve social safety nets, narrow development gaps and reduce poverty. E. Conclusion and issues for discussion Labour market distress remains acute as a result of the crisis. There are signs of recovery in some major industrial economies and there are countries in Asia and Latin America that have managed to keep their economies growing albeit at a reduced pace. Nonetheless job creation has slowed and job loss increased virtually worldwide. If the special measures taken are unwound or withdrawn too early, the jobs crisis may worsen even further. Overall, the prospects for sustainable growth remain weak and the global economic situation unstable. At one end of the spectrum, high-income economies have to coordinate their macroeconomic policies in order to rebalance surpluses and deficits in their external accounts, while maintaining a fine line between the pressure to reduce domestic public debt and the need to maintain social spending to absorb the social cost of recession and stimulate growth. At the other end, poor and vulnerable countries that are particularly dependent on international financial markets, primary commodity prices and aid and remittance flows remain exposed to the threat of fiscal crises, ensuing domestic recession and the deepening of long-standing economic and social scars. Middle income countries, particularly the largest ones, may find some shelter from the

15 immediate consequences of the crisis in their large domestic markets, but have to readjust their export strategy, support domestic demand, strengthen their labour market institutions and introduce stronger social protection systems to cushion snowballing vulnerabilities. For each group, employment is a critical challenge. Policy matters, and it matters now. There is an important role for economic ministries, ministries of labour, leaders from business and labour. Some key issues are: 1. To contribute to policies that accelerate the jobs recovery by increasing the job content of growth. Macroeconomic and sectoral policies that support aggregate demand and investment should be complemented with labour market interventions to facilitate enterprise creation, promote quality education and training and activate labour supply responses. The policy reaction to the crisis has shown that there are several tools in the box - some new, others old and rusty. After many years of neglect, where employment was to be mainly a residual outcome of deregulation and monetary policy, it is necessary to revisit the rationale for fiscal policy instruments and employment creation measures, to deepen the understanding of the effects of given sets of measures, and to enhance implementation capacities. Attention to implementation issues is particularly important, since success may largely depend on a country s administrative capabilities and political economy. 2. To strengthen social protection policies to reduce the damage unemployment, underemployment, and reduced labour incomes can cause to family and community welfare. This is important in order to minimize scarring which could permanently injure society s capacity to reduce poverty, progress towards the MDGs and also undermine future growth. Widening social safety nets by means of cash transfers and employment guarantee schemes and establishing stronger systems of social security could help consolidate the purchasing power of billions of people in the developing world, enhancing their confidence in their future and stimulating their willingness to invest in human capital and enterprise formation as well as to spend for domestic consumption. There are synergies between measures to ensure social protection and those aimed at promoting productive employment and decent work, which should be better considered. Increasing social spending in the provision of basic welfare services or maintaining it in the face of a crisis-induced fiscal squeeze could be a way to trigger private investment and employment creation in the domestic health and education sectors, while moving forward toward achieving the MDGs and helping raise productivity of workers with long-term benefits especially for those in the informal economy. Such policies, if adopted in surplus countries, could contribute to redress the imbalances that currently underlie global macroeconomic instability and uncertainty

16 3. To give special attention to women, young people and vulnerable groups. Women, young people and other groups face particular barriers and biases concerning their employability and their access to the labour market, and are more exposed to economic hardship in a recession. Targeted interventions may be needed to address those barriers, including regulatory reforms, special incentives to hiring, access to finance and business services for those engaged in self-employment, entrepreneurship, programmes for education and vocational training, and support to organizations that promote empowerment and voice. Young women and men constitute a growing part of the population in developing countries. In Sub-Saharan Africa, for instance, 65 per cent of the population is below 25 years of age. Their prolonged detachment from the labour market has long-lasting detrimental effects on societies and the economy. There is an urgent need to target youth employment. Within an overall employment strategy, a coherent combination of approaches seems to have the greatest impact (e.g. integrating vocational training, apprenticeship, job sharing, work experience schemes etc). 4. To leverage international assistance. Steps ahead have been made in setting up frameworks to stimulate synergies among different international agencies and provide coordinated support to a country s social development efforts. International assistance has an important role to play in developing knowledge on social development issues and disseminating good practice as it concerns successful policy and institutional approaches. In the current difficult economic period, there is growing demand in developing countries for public action on productive and decent employment and social protection, and there is now recognition on the side of donor agencies that effective strategies and measures in those areas are critical to foster growth and reduce poverty. 20 But more progress should be made in ensuring greater coherence between countries demand for public action and the availability of financial assistance and policy space. It is particularly urgent to address the financing gaps least developed countries and some middle income countries face in implementing countercyclical policies, in particular in raising social spending for social protection. As recognized by DAC:... countries with substantial and long-standing social protection programmes know that their effectiveness has not been just risk management, or response to crises, but rather a long-term investment with high rates of return in a productive economy and society. 21 Spending 20 The Development Advisory Committee (DAC) of the OECD, which brings together 23 donor countries and multilateral development cooperation organizations, adopted a policy statement on The role of employment and social protection: making economic growth more pro-poor in May 2009, asserting that Productive employment and decent work needs to be a key objective of development cooperation. DAC also issued two policy guidance notes on promoting pro-poor growth, based on a thorough review of evidence on employment and social protection policies, see 21 Promoting pro-poor growth: Employment, OECD, 2009, p

17 for social protection in developing countries is too easily seen by financial institutions not as a productive long-term investment, but rather as an indicator of greater fragility and financial risk. It is now clear that private financial investors, quite apt at spotting opportunities for speculative investment with high short-term returns, do not excel in weighing up long-term investment opportunities nor in assessing financial risks after all, in the spring of 2007 risk premiums were at all-time lows. Greater foresight and much greater engagement from multilateral financial institutions are needed. 5. Finally, for the medium term, the international community needs to build the institutions to reduce the damage to social development a more volatile global economy can cause. One lesson from the current and previous crises is that automatic stabilizers can more promptly cushion the effects of a recession in a country and mitigate the transmission of the effects abroad. A global economy needs a global approach to automatic stabilizers

18 ANNEX Table 1. Unemployment rate October 2009 and change from the corresponding month of 2008 Country Latest period Source Unemployment rate (%) Change on year (%) Unemployment rate (female) Change on year (%) Mauritius May-09 LFS South Africa May-09 LFS Argentina May-09 LFS Brazil Aug-09 LFS Canada Aug-09 LFS Chile Jun-09 LFS Colombia May-09 LFS Mexico May-09 LFS Peru Aug-09 LFS US Aug-09 LFS Uruguay Jul-09 LFS Australia Aug-09 LFS China Dec-08 Est Japan Jul-09 LFS Indonesia Feb-09 LFS Korea, Republic of Aug-09 LFS Philippines Jul-09 LFS Thailand May-09 LFS Czech Republic May-09 LFS France Feb-09 LFS Germany Jul-09 LFS Hungary May-09 LFS Ireland Feb-09 LFS

19 Italy Feb-09 LFS Latvia Feb-09 LFS Netherlands May-09 LFS Poland May-09 LFS Romania May-09 LFS Russian Federation Feb-09 LFS Spain May-09 LFS Sweden Aug-08 LFS Turkey Jun-09 LFS Ukraine Mar-09 LFS UK Feb-09 LFS Source: ILO Department of Statistics, The data shown are those available to the ILO on 15 October They have been received or drawn from official national statistical services, publications and web sites. The data are based on national definitions, are not seasonally adjusted, and have not been adjusted or altered by the ILO

20 Table 2. Inventory of measures taken in a sample of 54 countries 1: Stimulating labour demand Country Groupings (54 countries) Fiscal spending on infrastructure Public employment Targeted employment programmes New support to Small enterprises and microentrepreneurs Additional spending o/w Employment criteria o/w Green criteria Introduction of new programmes Recent expansion of existing Access to credit Access to public tenders Subsidies Tax reductions Low Income (10) Lower Middle Income (10) Upper Middle Income (17) High Income (17) Total

21 2: Supporting job seekers, jobs and unemployed Country Groupings Helping the unemployed to find a job Employment retention measures Measures to protect the unemployed Additional training measures Increased capacity of public employment services New measures for migrant workers Work-time reductions (daily, weekly, monthly, annual, unpaid leave) Partial unemployment, training measures promote part-time work Wage reductions Extension of unemployment benefits Additional social assistance/ protection measures Low Income (10) Lower Middle Income (10) Upper Middle Income (17) High Income (17) Total : Expanding social protection and food security Country Groupings Social protection Food security Taxes reduction Additional cash transfers Increased access to health benefits Changes in old-age pension Changes to minimum wage New measures for migrant workers Introduction of food subsidies New support to agriculture Low Income (10) Lower Middle Income (10) Upper Middle Income (17) High Income (17) Total