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World Employment Report 1998-99:
Global financial crisis to hike world unemployment
The World Employment Report 1 (WER) says the number of unemployed and underemployed workers around the world has never been higher, and will grow by millions more before the end of the year as a result of the financial crisis in Asia and other parts of the world. Worker training, says the WER, provides an effective means to resolve this problem among unemployed women, youths, workers trapped in the informal sector and other "vulnerable groups".
Signs of renewed economic growth in many parts of the world during the first half of 1997 had sparked hopes for an economic revival that would spur higher jobs growth in all parts of the world. Instead, says the new World Employment Report, released recently by the ILO, only the United States, and to a lesser degree, the European Union, have seen reduced unemployment and underemployment.
"The global employment situation is grim, and getting grimmer," says Director-General Michel Hansenne. "Stubbornly persisting high levels of unemployment and underemployment lead to social exclusion of the young and the old, the less skilled, the disabled and ethnic minority groups - with a strong bias against women in all categories."
Among the report's highlights:
"The world financial crisis has put immense pressure on globalization, and we fear that many governments may begin turning their backs on much needed economic reforms," Mr. Hansenne says. "But globalization per se is not the problem."
Noting that beyond the current financial turmoil, many countries are suffering from long-term employment problems which can be solved only through the combined action of governments, trade unions and employer organizations, Mr. Hansenne said, "Among measures to increase competitiveness, growth and employment in a globalizing world economy, the critical role of a high-quality, educated and skilled workforce must gain more prominence."
The ILO says that worker training provides an effective means to resolve this problem among unemployed women, youths, workers trapped in the informal sector, and other "vulnerable groups" such as older workers, the long-term unemployed and workers with disabilities.
"Nations facing rapid globalization and competitive pressure need to invest in skills development and training in their workforce," the report says. "Training and education were at the heart of southeast Asia's economic miracle and could well provide a way out of under-development and poverty for millions of workers in other parts of the world."
Employment around the world
Here is a global overview of the World Employment Report:
In Indonesia, steep increases in unemployment and underemployment are being accompanied by food shortages caused by an early drought. The ILO warns that "real wages in 1998 could well fall further than the 15% or so expected drop in per capita GDP. Unemployment in 1998 could reach between 9 and 12% of the labour force, compared to about 4% in 1996, though much of this increase will be reflected in rising underemployment rather than open unemployment."
In Thailand, unemployment could rise to about 6% in the labour force in 1998, or almost 2 million jobless, compared to 1-2%, or 400,000 to 700,000 unemployed just two years ago. The reliance of many Thais on the traditional safety net of the extended family could trigger a four- to five-fold increase in underemployment. The ILO says that the ripple effect of such trends will impact far from the urban centres, because "many people in the rural areas, especially the elderly...rely on remittances from working family members in Bangkok".
In the Republic of Korea job losses have accelerated in the past year, nearly doubling between November 1997 and February 1998 to 5%, and reaching 7% in June of this year.
In Hong Kong, the unemployment rate rose sharply to 4.5% at the end of the second quarter of 1998, from 2.9% in 1997.
In China, it is estimated that 3.5 million workers will be laid off in 1998 and unemployment will increase to 5-6%. Hopes for increasing productive employment lie in the expanding role of private industry, especially small and medium-sized enterprises.
Furthermore, the ILO fears that labour market conditions in India, Pakistan and Bangladesh, which have so far been spared significant impact from the crisis, could worsen, if the external economic environment turns hostile.
The collapse of output has led to drastic reduction in demand for labour, lower employment and lower real wages in some countries.
In the Russian Federation, rising economic turmoil has been accompanied by negative growth in real wages, now at less than 60% of their 1989 level. In a growing number of cases, enterprises cannot pay any wages at all to their employees for months at a time. The report notes that although GDP in Russia grew at a rate of 0.4% in 1997 after eight years of recession and inflation fell to 15% from 48% in 1996, the current economic crisis, combined with growing political instability, is worsening the situation further. The exchange rate has fallen considerably and accelerated inflation is occurring, nearly daily. Poverty is unfortunately likely to rise.
Poland, by contrast, has begun to see a slow upswing in real wages, to just below 80% of pre-1989 levels. Unemployment is still high at 10.4% in 1998.
In other Eastern European countries, unemployment is 5.4% in the Czech Republic, 8.4% in Hungary, 9.2% in Romania, 13% in Bulgaria, and 17.6% in Croatia.
Latin America faces the danger in 1998 of being caught in a global pull-back by investors in emerging markets, which could push unemployment and underemployment up sharply.
Argentina provides an example: a stabilization and structural adjustment programme was followed by an average annual economic growth rate of 5.8% between 1991 and 1997. However, the employment situation deteriorated, and unemployment increased between those years, rising from 6.3% in 1991 to a maximum of 17.5% in 1995, before dropping to around 15% in 1997.
"Unable to work in formal markets, where productivity is high and wages relatively good, many workers have to engage in a number of activities that sometimes just allow them to survive," the report says, citing self-employment, domestic service and employment in micro-enterprises.
In other Latin American countries, the ILO estimates that unemployment in 1998 was 7.9% in Brazil, 11.3% in Venezuela, 3.4% in Mexico, and 15.2% in Colombia.
Nevertheless, the ILO says that Africa's recovery, though encouraging, "should not be cause for undue optimism. With a labour force growth of almost 3% and little job creation in the formal sector, most jobs are necessarily created in the informal sector, and in low-productivity agriculture." In addition, with a predicted annual growth rate of 2.9% in the economically active population between 1997 and 2010 (compared with 1.9% for southeast Asia and 1.8% for Latin America), an estimated 8.7 million new job-seekers will enter the labour market every year.
In the European Union, more than 18 million workers are unemployed this year, the ILO says, noting that "the picture does not take into account the considerable number of 'discouraged' workers who have given up hope of finding work, and involuntary part-time workers." However, output and employment showed signs of picking up in Europe by mid-1998, prompting a decline in the average unemployment rate in the European Union to 10.2% in May, compared with 10.7% a year earlier. Although Japan still experiences unemployment rates which are low by the standards of most developed countries, joblessness has begun rising sharply as economic growth has stalled since the mid-1990s.
Social dimensions of the problem
"The low-skilled unemployed have poor prospects to find a job even if the overall macroeconomic environment improves," the report says. "The social dimensions of this problem are enormous and have to be tackled with policy measures and programmes aimed at reintegrating the long-term unemployed into the labour market."
In developing countries of Africa, Asia and Latin America, "urban unemployment rates for young people often reach over 30%," the report notes. The new global turmoil makes young workers even more vulnerable to layoffs - employers react to economic recession by cutting back on hiring new workers. The report also points out the wider dangers of youth unemployment, stressing that youth joblessness can often lead to vandalism, crime, drug abuse, alienation, social unrest and conflict.
The ILO has found examples of programmes that work for young people, however. In many countries of Latin America and Asia, "schemes that provide young people with a foothold in the labour market through short-term in-firm work experience can effectively improve employment outcomes where a demand exists for low- or semi-skilled workers, and where economic growth is relatively high".
A key policy approach in many of the European Union countries is to provide financial incentives to firms to hire and provide some training for young workers. In the mid-1990s, these "youth contracts" accounted for almost 25% of youth employment in Italy, 20% in Greece and 12% in France and Spain.
Long-term unemployment has been particularly severe in the European Union member countries, where more than 60% of the 9 million long-term unemployed in 1996 had been out of work longer than two years.
Older workers and women becoming unemployed are more at risk of remaining unemployed for a long period of time. Similarly, workers displaced from declining industries and workers with disabilities are similarly more likely to be among the long-term unemployed than workers in general.
A combination of mutually supportive measures is much more effective in improving employability for the long-term unemployed than "stand-alone" programmes, the report says. Combined measures include subsidized jobs, job search assistance, remedial education, training, and family- or social-problem counselling. Training or placement in actual workplaces allows workers to overcome employers' hesitance to hire the long-term unemployed. Small-scale, community-based reintegration enterprises have been most effective in countering long-term unemployment by providing a range of services to the unemployed while contributing to wider community needs and local economic regeneration.
Two opposing trends have emerged in recent years: one is the expansion and feminization of lower-level jobs in the service sector; the other is the growing number of high-level jobs obtained by women as a result of educational achievement. In many advanced industrial countries, for example, women have been enrolling in large numbers "for degrees in medicine, law, accountancy and business studies, all areas which have previously been dominated by male students," the report says.
There are, by contrast, "fewer examples of women making significant inroads into traditionally male-dominated jobs at intermediate and lower skill levels by pursuing training in these areas," notes the report. The reasons include ingrained discrimination and the declining demand for these types of jobs in many economies.
Confronted with so many barriers in the labour market, increasing numbers of women are launching their own enterprises. "National estimates indicate that 10% of the new enterprises in North Africa, 33% in North America and 40% in the former East Germany were created by women," the report says. The figure for the United States alone surpasses 60%.
Concerted action is required to improve the incomes, productivity and working conditions of the large and growing number of workers involved. With institutional support and access to affordable credit, training can make a difference to incomes and working conditions in the informal sector. Training policies, argues the report, would do better to address the needs of those already established in informal production and who require upgrading of specific skills through an introduction to new technologies and new products.
While the ILO authors insist that there is no ideal training system, they argue that any successful system needs to take account of three factors: a solid educational base; an appropriate incentive structure in which training priorities are fuelled by real economic demand, and institutional arrangements in which the social partners - employers, workers and government - contribute to improving performance and efficiency.
Most training systems in developing or restructuring economies are in rapid evolution. In East Asia, governments in recent decades massively supported primary and secondary education and carefully monitored international demand in setting vocational training priorities; on the back of the success of this highly structured approach, a more decentralized system is being developed, with less government involvement and more choice from increasingly affluent populations with stronger social institutions.
In Eastern Europe, the governments of centrally planned economies worked to match workforce skills to the demands of state-owned industries which provided additional training. In general, the training needs of workers in this region have suffered as a result of the economic transition.
The direction of reform of training systems worldwide is toward more "demand-led" systems, which respond to the real and immediate requirements of enterprises at the expense of "supply-led" systems, which tend to be driven by the priorities of public officials and established providers of training.
"Demand-led orientation of training systems has various components. Firstly, governments help private agents, both employers and individuals, to sponsor training which is in their own immediate interests. Secondly, in the training which governments sponsor in their own right, more effort is made to incorporate information about market demand for skills, and to replace government provision by private provision, using market-like mechanisms to increase efficiency," the ILO report says. Public sector training providers are forced to compete with others for training contracts.
Public policy increasingly concentrates on encouraging enterprises and individuals to shoulder the major part of training costs, by demonstrating the utility of training and encouraging greater competition in the provision of training. But once again, a number of possible models can coexist.
Training levies, which involve an annual amount being assessed by the government (usually 1 or 2% of the wage bill paid by employers) are in operation in a number of Latin American countries. Other systems, involving a levy plus grant, operate in countries as diverse as France, Singapore and Zimbabwe, where in firms are exempted from taxes on training to the extent that they provide the training themselves. In other words, firms which provide no training to their employees pay the full levy (which goes to fund national training efforts) and firms which do provide training can deduct the expenses from their levy.
1 World Employment Report 1998-99 - Employability in the global economy: How training matters, International Labour Office, Geneva, 1998. ISBN 92-2-110827-9. Price: 45 Swiss francs.