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World of Work report 2012: International Labour Organization sees Europe stuck in austerity trap

According the ILO’s “World of Work Report 2012: Better Jobs for a Better Economy”, despite signs that economic growth has resumed in some regions, the global employment situation is alarming and shows no sign of recovery in the near future. This worsening situation reflects the austerity trap in advanced economies, primarily in Europe.

Press release | 30 April 2012

“International Labour Organization sees Europe stuck in austerity trap”

  • The day before International Worker’s Day, the International Labour Organization launches its World of Work Report 2012 analysing the global employment and social situation, with particular attention for the EU and the advanced economies.
  • Despite signs that economic growth has resumed in some regions, the global employment situation is alarming and shows no sign of recovery in the near future. The report warns that a new and more problematic phase of the global jobs crisis is emerging:
  • First, this is due to the fact that advanced economies are stuck in an austerity trap. Since 2010, under pressure of rating downgrades and ambivalent messages from the financial markets, policy strategy has shifted its focus away from job creation, and concentrated on cutting fiscal deficits at all costs, with devastating consequences on labour markets, and job creation.
  • Second, in advanced economies, many jobseekers are demoralized and are losing skills, something which is affecting their chances of finding a new job. In Europe, job recovery is not expected before the end of 2016 - unless there is a dramatic shift in policy direction.
  • Third, in most advanced economies, many of the new jobs are precarious, with a large share of involuntary temporary employment as well as informal employment.
  • Fourth, the social climate has aggravated in many parts of the world and may entail further social unrest. The report mentions 11 out of 24 EU countries showing a risk of increased social unrest in 2011 compared to 2010.
  • Fifth, the report says that fiscal austerity combined with labour market deregulation will not promote employment prospects in the short term. Moreover, some recent reforms – especially in Europe – have reduced job stability and exacerbated inequalities while failing to create jobs.
  • Possible ways forward formulated by the ILO:
  • It is high time to adopt a comprehensive strategy with jobs at its core. Strengthened labour market institutions, renewed credit to businesses and SMEs and a socially responsible fiscal consolidation package.
  • The report also calls for coordinated action in the EU, including through the mobilisation of structural funds and European Investment Bank loans.
  • Promoting decent employment and strengthening labour market governance has to be an integral part of EU economic governance.
  • These strategies can build on the new employment package proposed by the European Commission and the EU social partners joint agenda for 2012-2014.

Brussels/Geneva (ILO NEWS) – Despite signs that economic growth has resumed in some regions, the global employment situation is alarming and shows no sign of recovery in the near future, says the International Labour Organization (ILO). The ILO’s “World of Work Report 2012: Better Jobs for a Better Economy” says that around 50 million jobs are still missing compared to the situation that existed before the crisis. It also warns that a new and more problematic phase of the global jobs crisis is emerging.

First, this is due to the fact that many governments, especially in advanced economies, have shifted their priority to a combination of fiscal austerity and tough labour market reforms. The report says such measures are having devastating consequences on labour markets and job creation. They have also mostly failed to reduce fiscal deficits.

The narrow focus of many Eurozone countries on fiscal austerity is deepening the jobs crisis and could even lead to another recession in Europe”, said Mr. Raymond Torres, Director of the ILO Institute for International Labour Studies and lead author of the report.

Countries that have chosen job-centred macroeconomic policies have achieved better economic and social outcomes”, added Mr. Torres. “Many of them have also become more competitive and have weathered the crisis better than those that followed the austerity path. We can look carefully at the experience of those countries and draw lessons.”

Second, in advanced economies, many jobseekers are demoralized and are losing skills, something which is affecting their chances of finding a new job. Also, small companies have limited access to credit, which in turn is depressing investment and preventing employment creation. Especially in Europe, job recovery is not expected before the end of 2016 – unless there is a dramatic shift in policy direction.

Third, in most advanced economies, many of the new jobs are precarious. Non-standard forms of employment are on the rise in 26 out of the 50 advanced economies with available information and involuntary part-time employment has increased in two-thirds of advanced economies.

There are, however, a few countries that managed to generate jobs while improving the quality of employment, or at least one aspect of it. For example, in Brazil, Indonesia and Uruguay employment rates have increased while the incidence of informal employment has declined. This was mainly due to the introduction of well-designed employment and social policies.

Fourth, the social climate has aggravated in many parts of the world and may entail further social unrest. According to the report’s Social Unrest Index, 11 out of 24 EU countries with available information showed a risk of increased social unrest in 2011 compared to 2010.

Fifth, the report says that fiscal austerity combined with labour market deregulation will not promote employment prospects in the short term. In general, there is no clear link between labour market reforms and higher employment levels. Moreover, some recent reforms – especially in Europe – have reduced job stability and exacerbated inequalities while failing to create jobs.

In the face of a recession, deregulation of employment protection may lead to more redundancies without supporting job creation. Likewise, the weakening of collective bargaining is likely to provoke a downward spiral of wages, delaying recovery further.

The report argues that it is high time to adopt a comprehensive strategy with jobs at its core. Strengthened social and labour market institutions, renewed credit to the real economy – notably SMEs – and a socially responsible fiscal consolidation package would help boost employment. Furthermore, there is a scope for coordinated action in the EU, including through the mobilisation of structural funds and European Investment Bank loans. Promoting decent employment and strengthening labour market governance should constitute an integral part of EU economic governance. This strategy can build on the new employment package proposed by the European Commission and the EU social partners joint agenda for 2012-2014.

Other main findings of the report include:

Employment rates have increased in only 5 of 36 advanced economies (Germany, Israel, Luxembourg, Malta and Poland) since 2007.

Youth unemployment rates have increased in about 80 per cent of advanced countries and in two-thirds of developing countries.

Poverty rates have increased in half of developed economies and in one-third of developing economies, while inequality rose in half of developed countries and one-fourth of developing economies.

On average, more than 40 per cent of jobseekers in advanced economies have been without work for more than a year. The majority of developing economies show a decline in both long-term unemployment and inactivity rates.

Involuntary part-time employment has increased in two-thirds of advanced economies. Temporary employment has also risen in more than half of these economies.

The share of informal employment stands at more than 40 per cent in two-thirds of emerging and developing countries.

In 26 out of the 40 countries for which information is available, the proportion of workers covered by a collective agreement declined between 2000 and 2009.

At 19.8 per cent of GDP in 2010, global investment remains 3.1 percentage points lower than the historical average, with a more pronounced downward trend in advanced economies. In all regions, investment in small firms has been impacted disproportionately by the global crisis.

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