Sher VerickEMP/ANALYSIS
International Labour Organization (ILO)
Outline of presentationHow did the global financial crisis happen?What has been the macroeconomic impact?What is the impact on the labour market?What has been the policy response?What has been ILO’s role during the crisis?
How did the crisis happen?Causes
Low interest rates (and yields)Misperception and mismanagement of risk (sub-
prime mortgages)Inadequate regulation of financial system
2006 – defaults on mortgages started increasingAugust 2007 - Credit markets frozeDecember 2007 – US recession startedSeptember 2008 - Lehman Brothers goes
bankrupt
Macroeconomic impact of the crisis
Impact on the labour marketImpact on labour market depends
Size of economic contraction (direct and indirect impact of crisis)
Sectoral composition of the collapse in aggregate demand
Vulnerabilities of particular population groupsExisting labour market institutions Policy response
Impact on the labour marketThree main labour market channels for firms to
adjust labour in response to a major economic shock:Working time – firms adjust hours of work more
rapidly than the number of workers due to cost considerations and the need to retain workers
Employment – a sharp drop in economic activity leads to dismissals, mass layoffs, plant closures, and hiring freezes, which all contribute to rising unemployment
Wages – adverse social impact but firms do it less than expected
Impact on the labour marketCrises also result in
Flows between sectorsIn developing countries, laid-off workers don’t
stay unemployed Informal and agricultural sectors
Changes in household labour supply Wife/children increase labour supply to compensate
for loss of jobs in household
Underemployment and unemployment result in a fall in household incomes and rise in poverty
Unemployment in Europe and the US
Impact in developing countriesDue to lack of data, it is difficult to provide
figures for many developing countriesAnecdotal figures
63,000 garment jobs lost in Cambodia ¼ of workers (8,100) in the mining sector in Zambia
have lost their jobsUnemployment rate has increased in
Argentina, Brazil, Colombia, Mexico, Peru, Thailand
But the unemployment rate has fallen in Mauritius, Indonesia, Philippines!
What’s been happening in Colombia?Slight contraction at the end of 2008, but has
returned to growthForeign investment, government spending on
public works, lower interest rates (4%, down 6 ppts)
But recovery will not be as strong as in BrazilColombia relies more on the US market
Unemployment and poverty remain a challengeWhat has happened during the crisis?
Unemployment rate: 9.5% (2007) and 10.5% (2008)
South Africa
South Africa
What has been the policy response?The policy response has consisted of
Easing of monetary policyFiscal stimulus packages – Keynes is back
In the G20 – average aggregate discretionary stimulus amounts to 2% of GDP in 2009 and 1.6% in 2010
¾ of packages go to spending (infrastructure), rest on tax cuts
But fiscal deficits are rising fast
LMPs in times of crisisLabour market policies aim to influence
labour demand and supply and to improve the match between the two along with providing income support during periods out of employment
LMP measures can help mitigate the impact of the crisis on workers and reduce the lag But will not be effective unless other policies
are in place (stimulus, etc)
LMPs in times of crisis During a downturn, LMPs can
Support labour demand by keeping people in jobs and creating new jobs
Improve the employability of unemployed Provide income support (passive policies) Target the most vulnerable
LMPs in times of crisis
ILO’s role in the responseGlobal Job Pact – adopted by member States
and endorsed by heads of State including President Lula of Brazil at ILC in June 2009
Publications – reports, guides, studies, dataCountry assistance