OECD Employment Outlook 2009Chapter 1

“The Jobs Crisis: What Are the Implications for Employment and Social Policy?”

Alexander HijzenDirectorate for Employment, Labour and Social AffairsOECD

Foundation Seminar Series18-20 November 2009, Dublin

The short-term employment outlook in OECD countries

• The financial crisis has quickly developed into a jobs crisis– OECD-area UR from 25-year low at 5.6% in 2007 to post-war

high of 8.6% in August 2009 (or an increase of 15.7 mln)– U increased in all OECD countries, but differences large (e.g.

GER, SPA)– Vulnerable groups – youth, immigrants and workers in

temporary and part-time jobs – are bearing most of the brunt

• While the recession appears to be slowing, UR is expected to rise further, possibly approaching 10% by end 2010– The recovery is expected to be weak – Job creation lags output growth early in a recovery– New OECD Projections available tomorrow

EmO 2009 “Tackling the jobs crisis”

• KEY MESSAGE: Bold action needed to tackle high and persistent U– Individuals in jobless households 5x more likely to be poor on average– Social costs go well beyond the loss of income (e.g. health, crime etc.)– Risk that hike in U becomes structural in nature

• Three main contributions – Provides detailed assessment of the employment and social impact– Summarises the early policy responses in OECD countries from Q– Presents an overview of the key policy choices

• Serves as background document for international policy debate– Pre-G20 Labour, London; G8/G14 Social, Rome; G20, Pittsburgh– Main reference for OECD Employment and Labour Ministerial, 28-29

September, Paris

The unemployment impact so far differs greatly across countries

Percent of the labour force

The current crisis is the worst in recent decades

Index base 100 = unemployment rate at the business cycle peak, OECD area, quarterly data

80

90

100

110

120

130

140

150

160

170

180

0 1 2 3 4 5 6 7 8 9 10 11 12Quarters elapsed since the beginning of the recession

1973:Q2

1979:Q2

1990:Q1

2000:Q2

2007:Q3

Projections

Recessions not only hurt lots of people, but also take a long time to fix

0

2

4

6

8

10

12

14

16

18

20

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1

4 years

3 years

14 years

18 years

3 years 1 year

Unemployment rates, Finland

0

2

4

6

8

10

12

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1

4 years

5 years 5 years

10 years

2 years5 months

4 years7 months

7 years

24 years

26 years

3 years7 months

5 years5 months

9 years

3 years3 months

4 years9 months

8 years4 years

13 months

Recessions hurt lots of people and take a long time to fix

Unemployment rates, UK

0

2

4

6

8

10

12

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1

26 years

3 years7 months

5 years5 months

9 years

3 years3 months

4 years9 months

8 years4 years

13 months

Recessions hurt lots of people and take a long time to fix

Unemployment rates, US

Jobs in construction and durable manufacturing are the most vulnerable*

Index of relative business-cycle volatility (national average=100)a

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

160

180

200

Relative business-cycle volatility(left-hand scale)

Contribution to business-cycle volatility (right-hand scale)

Share of employment (right-hand scale)

Already disadvantaged groups bear the brunt of falling labour demand

Index of relative business-cycle volatility (national average=100)a

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

Relative business-cycle volatility(left-hand scale)

Contribution to business cycle-volatility(right-hand scale)

Share of employment (right-hand scale)

A similar pattern holds in the current downturn

Percentage change in employmentInterval between -/+ one standard deviation across countries

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Percentage change of employment over 2008 Q2 to 2009 Q2

In addition to job losses, hours reductions and LF withdrawals also

account for falling LD*Share of total variance explained by variation of the cyclical component of:

Hours per employee Employment rate of labour force

Labour force participation rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Youth (15-24) Prime-age (25-54) Older workers (55+) Men Women

Unweighted average across countries

Increased U due to more layoffs and longer unemployment spells*

• Their relative importance has important implications for employment and social policies

• It differs substantially across workforce groups– Cyclical increases in inflow rates are relatively more

important in explaining the rising U among older workers, while outflow changes appear to be particularly important for youth

• The policy impacts on U inflows and outflows vary depending on the state of the labour market– Job-search assistance and employment subsidies may

become less effective in periods of relative labour market slack, while training programmes may become more effective (el proceso de participación en programas de participación).

LM policy challenges

• Short-term challenges―Should LD policies play a major role?―Are social security systems appropriate? Should

UBs or IWBs be expanded?―Is the work-first approach recession-proof? How

to activate the unemployed when LD is weak?―How to sustain effective labour supply?

• Avoid allowing high unemployment to persist or undermining long-term LM efficiency

Resources available for LM policies differ across OECD countries

• On average, 1.5% of GDP of which: 0.9% passive and 0.6% active• But large differences across countries: e.g. from 0.4% in US to

4.5% in DEN• Spending on UBs exceeds spending on ALMPs in almost all

countries

0

0.5

1

1.5

2

2.5

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(b)

Une

mpl

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Early

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Tota

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mea

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PES

and

adm

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Trai

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Empl

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Dire

ct jo

b cr

eatio

n

Inte

grati

on o

f di

sabl

ed

% OECD average

Minimum

Maximum

Governments have taken many types of measures in response to the jobs crisis

Number of OECD countries that have taken different types of measures

0

5

10

15

20

25

30

Job

subs

idie

s, r

ecru

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centi

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Redu

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non

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cost

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Shor

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Activ

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Job

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Wor

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Trai

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Gene

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Appr

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Measures to help unemployed find work Income support for job losers and low paid Other training measuresMeasures to support labour demand for jobseekers and

vulnerable workers

Discretionary funds for ALMPs limited with some notable exceptions*

484%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%% of 2007 ALMP expenditure% of GDP

As a % of GDP (left-side scale) As a % of 2007 ALMP expenditures (right-side scale)

Average annual planned additional expenditure in response to the economic downturn

Supporting labour demand

• Vigorous macro-economic policy response, including large fiscal packages, to boost AD– Estimated to save 3.2 to 5.5 jobs in 2010 in the 19 OECD

included in the analysis

• Most OECD countries have introduced targeted measures to support labour demand– Reduction in social security contributions (estimated cost per

additional job: 1.7 times average job costs in SR; 7 times in LR )– Short-time work schemes (e.g. Kurzarbeit in Germany counts

more than 1.4 mln participants corresponding to about 1% of LF)

• LD measures play a positive role, but have to be temporary and well-targeted

Reinforcing social safety nets

• Crisis leads to longer average unemployment spells – Where UB durations are short, temporary extension during the crisis

helps reducing the poverty risk among the LTU– Countries that have temporarily extended benefits durations are:

Canada, Finland, Japan, Portugal and United States

• Increasing numbers of ineligible jobseekers due to the increase in non-standard work in some countries– Make sure social assistance is adequate and accessible – Consider extending coverage if adequate enforcement can be provided – Countries that have extended coverage are: Finland, France, Japan and

United States

• Any extensions should be temporary and targeted to the most vulnerable and not undermine job-search requirements

UB are only one element of safety nets for job losers*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Unemployment benefits only Cash housing-related benefits Cash social assistance

Average net replacement rates over a 5-year unemployment spell

Helping job-seekers find a job

• Maintain core jobs-search assistance to help jobseekers– Even in recessions firms continue to create many new jobs – Cost of job loss increases due to longer expected unemployment

duration and loss of human capital – Many countries have made good progress in recent years in

implementing back-to-work policies

• For those at risk of LTU, re-employment services need to be adapted to specific conditions of slack LM– Shift in emphasis from “work-first” approach to “train-first

approach” through training and work-experience programmes– Negative effects of programme participation on job-search less of

an issue in recessions – Helps provide jobseekers with “the new skills for the new jobs” in

the recovery

Helping youth “ride out the storm”

• Youth U has increased disproportionately in many countries -> risk of a lost generation– Youth E twice as sensitive to cycle as that of prime-age

workers– Youth UR much higher than other groups (e.g. 1/3 Spain; 1/4

Spain)

• Need for decisive actions targeted on at-risk youth– Efforts to prevent youth entering the LM without

qualifications should be redoubled (e.g. second-chance school, subsidies for apprenticeships for un-skilled youth)

– Out-of-school youth should have access to appropriate ALMPs even if they do not qualify for UB

Inappropriate government responses can undermine LS in LR* • Early retirement schemes and exemptions from job

search of older UB recipients – Did not free up jobs for youth and took a long time to unwind

• More recently, large inflows of WA persons into sickness and disability programmes

• Some countries have made reforms aimed at promoting employment and employability of people with remaining work capacity, but will they stay the course?

Concluding remarks

• Governments are intervening to prevent the jobs crisis from turning into a fully-blown social crisis

• With the recovery in sight, governments must not reduce their efforts to tackle high and persistent U and some countries may have to do more

• General principles of discretionary interventions in LM– Discretionary LM policy measures should be timely, temporary and targeted– A severe recession such as currently underway also a requires a sufficiently

strong response

• Complement to the Reassessed OECD Jobs Strategy of 2006 which emphasises the structural pre-conditions for strong employment performance