Together with the persistence of high unemployment in many industrialised countries there has also been growing concern over the social exclusion that this is breeding. Compounding this is the problem of rising wage inequality and growing numbers of the "working poor" in some countries. In the transition economies there have been sharp increases in income inequality since the beginning of the transition process, even in countries where the rise in unemployment has been relatively moderate up till now. In the developing world the majority of the labour force in most countries remain trapped in low productivity employment that offers little relief from poverty. For the most part the race to create a growing proportion of higher productivity jobs for a rapidly expanding, and increasingly better educated labour force, in the developing world is being lost.

This is the backdrop to the emergence of two major anxieties of the day on the question of unemployment that are examined in the Report. One is that the growing globalization of the world economy will aggravate an already bad situation while the other is that rapid technological change is bringing about "jobless growth" and heralding the end of all hope for achieving full employment. These are understandable anxieties, given the almost worldwide deterioration of employment conditions and some dramatic episodes of corporate downsizing and job losses, often concentrated in particular economic sectors and communities. However, the available empirical evidence that is reviewed in the present Report suggests that both of these popular anxieties are greatly exaggerated.

Trade with low wage economies is only a minor explanatory factor behind the rise in the unemployment of low-skilled workers and in wage inequality in the industrialised countries. In the developing world the experience of the dynamic Asian economies points to fact that, with sound domestic policies, expanding global trade and investment flows provide rich opportunities for higher rates of economic growth and job-creation. In contrast, economic stagnation in much of sub-Saharan Africa has occurred in the context of growing marginalization from the global economy.

This is not to say, however, that no new challenges are posed for both international and national policy by the growing globalization of the world economy. While a world economy that is becoming more integrated through trade and investment flows offers mutual benefits and growing opportunities for economic expansion to all participating countries it also generates social dislocation and demands difficult policy adjustments. There is also concern that new constraints on domestic policy autonomy have emerged to complicate the task of adjustment. Among these are the fact that economic policies are increasingly affected by the sentiments and judgements of a globalized financial market, that greater openness also implies greater vulnerability to shocks in the international economic system, and that heightened international economic competition and greater capital mobility weakens the bargaining position of labour, exerts downward pressure on labour standards, and compromises the capacity of governments to implement countervailing social policies.

The Report argues that while there is some basis for these concerns it is nevertheless not true that globalization is an overwhelming supra-national force that has largely usurped national policy autonomy. There is still considerable policy autonomy and national macroeconomic, structural, and labour market policies are still the dominant influence on economic and labour market outcomes in any country. Global financial markets punish unsound macroeconomic policies which are, in any case, undesirable in their own right. Similarly heightened international competition need not mean that cutting wages and social benefits is the only feasible response. There is the preferable alternative of taking the "high road" of raising labour productivity through investments in skill development, in infrastructure, and in research and development. This can be supplemented by exploiting more fully the productivity raising potential of good labour standards and cooperative forms of work organization. In addition, there is evidence that many mandated benefits are ultimately shifted to workers in the form of lower wages and hence do not affect international competitiveness.

National policies can , and should, also give priority to mitigating the negative social effect of globalization. While economic liberalization will bring far larger gains as compared to the alternative of protectionism, it will generate short- or medium-term social costs. The Report thus argues that it will be important to manage the transition to a more open market economy at a pace and in a manner that minimizes social costs and that is supported by strong compensatory policies towards those most adversely affected.

While national policies remain of primary importance, cooperative international action also has an important role to play in enhancing the benefits and minimising the costs of globalization. This is especially true with respect to maintaining progress towards freer trade and investment flows, reducing the risks of instability in the international financial system, and preventing the erosion of basic labour standards. International action to assist the least developed countries who face increasing marginalization from the benefits of globalization will also be important for preventing an exacerbation of inequalities at the international level.

The other source of anxiety that has arisen over future employment prospects is that rapid labour-saving technological change has ushered in an era of jobless growth. At the same time revolutionary changes in work organisation and in social attitudes towards work are believed to have rendered conventional concepts of a regular job obsolete. But a careful review of the empirical evidence shows in chapter II of the Report that there is little basis for these claims. Much of the 'end of work' literature rests on unwarranted extrapolations from dramatic episodes of corporate downsizing, ignoring compensatory job creation elsewhere in the economy. There has in fact been no generalized decline in the employment intensity of economic growth in spite of rising unemployment. The latter has been caused by a decline in growth rates rather than any onset of jobless growth. Similarly while there has been some increase in self-employment, part-time work, and other non-standard forms of employment, this has not meant the disappearance of regular jobs. Data on job tenure do not show any generalized decline in either the period employed individuals have been with their current employer or in projected future tenure. At the same time there is also no evidence that the rate of job change has increased in labour markets. Furthermore, available data from public opinion surveys do not reveal any decline in the desire for paid work or that unemployment has become increasingly voluntary in nature.

Thus the Report maintains that, far from being passé, full employment is still feasible and highly desirable. The current high unemployment in industrialized countries has human costs of the utmost severity for those directly involved and breeds crime and other social pathologies from which everyone in society suffers. There is thus a strong economic as well as moral case for reinstating full employment as an important policy objective. The objective of full employment is still highly relevant in spite of the rise in non-standard forms of work and other recent changes in the labour market.

There is little agreement on the causes of the rise and persistence of unemployment in many industrialized countries. An influential view is that labour market rigidity has been the major cause and that the main solution lies in bringing about greater labour market flexibility. But the Report argues that the empirical evidence in support of this view is far from conclusive. Labour market rigidities have not been increasing over the period of rising unemployment; if anything labour markets have become more flexible as a result of efforts at deregulation over the same period. A more plausible view is that the rise in unemployment cannot be explained by labour market factors alone and that the interaction between the macroeconomic environment and the labour market has to be taken into account. From this perspective the slowness of adjustment mechanisms in the aftermath of serious supply shocks and the substantial rise in interest rates in the 1980s are important parts of the explanation of the rise in unemployment. More generally, the slowdown in growth since 1974 has been the major underlying cause of rising unemployment.

Another adverse labour market trend in the industrialized countries has been the rise in wage inequality in several of them, most notably in the United States, the United Kingdom and New Zealand. Here again the literature is divided as to the precise cause of this worrying development. On balance it appears that trade with low-wage economies is only a small part of the explanation, as is the effect of skill-biased technological change. Here again a broader explanatory framework is warranted. The onset of a combination of slower growth and labour market deregulation, including deunionization, appear to be part of the explanation of rising wage inequality.

The Report argues that there are three main requirements for reapproaching full employment in the industrialized countries. The first is to reverse the trend decline in growth rates over the past two decades. This is important both for increasing the rate of employment creation as well as for reversing the tendencies towards rising wage inequality. The mainstream view in the academic literature is that this will not be feasible because potential growth has declined and expansionary policies will be futile because of supply-side constraints. Furthermore any expansion will be swiftly thwarted by the reactions of financial markets. There is, however, no convincing evidence that it is supply-side constraints, rather than a deficiency in demand, that has caused the prolonged period of low growth. Higher growth is possible provided a sustained period of expansionary policies is supported by credible policies to prevent a resurgence of inflationary wage increases and to overcome skill shortages that will be generated. Without this the expansionary impulse will indeed be choked off by the reaction of financial markets.

This is why a second requirement is for reducing unemployment is to put in place mechanisms for moderating wage inflation. No simple ready-made solutions exist but there are a number of routes worth exploring. One is the strengthening of the coordination of wage bargaining through the synchronisation of bargaining periods and the provision of consensus forecasts of future economic possibilities. Other possibilities are the social pact approach, the encouragement of profit-sharing and, if there are no better alternatives, the adoption of some form of tax-based incomes policy.

The third requirement is to improve the

design and implementation of labour market policies. This includes the reform of unemployment benefit systems, including the expansion and improved design of benefit transfer programmes; subsidies for low-wage employment and payroll tax deductions targeted on the long-term unemployed; the correction of market failures which result in the under-provision of training; and training programmes targeted on the most disadvantaged groups in the labour market. These measures have an important role to play in reducing inequities in the labour market even though they may have only a limited impact in reducing unemployment.

In the case of the transition economies the Report is of the view that the key employment problem arises from the legacy of labour hoarding in state owned enterprises carried over from previous economic system. In spite of the considerable labour-shedding that has already occurred since the beginning of the transition process, a formidable challenge still remains in terms of the restructuring of uncompetitive enterprises and in adjusting the structure of employment and wages in order to raise labour productivity. Given the already high levels of unemployment and the sharp rise in income inequalities that have taken place, another large dose of labour shedding is likely to generate intolerable social tensions.

It is therefore important for these countries to choose economic policies and labour market institutions that are most likely to reduce unemployment. In term of macroeconomic policies there is a need to look beyond simple stabilization targets and to develop the capacity for macroeconomic management to support the emerging economic recovery. The many remaining obstacles to enterprise creation and growth need to be reduced and factors deterring foreign investment, such as uncertainty over legal provisions and inadequacies in the business infrastructure and environment, have to be overcome. This is especially important given that a rapid growth of private investment has to be the main engine for productive employment creation. Another priority should be to complete the process of putting in place labour institutions appropriate to a market economy. The labour market matching function needs to be strengthened, problems of the relative isolation of local labour markets and inadequate housing market flexibility have to be tackled, and the transfer of the responsibility for social protection to the state needs to be completed. In addition the development of an institutional framework in which unions and employers organizations have the right incentives to arrive at bargaining outcomes compatible with macroeconomic constraints and the need for employment creation is essential.

These measure may, however, need to be supplemented by temporary measures to contain the rise in unemployment. One possible instrument is to offer selective subsidies to enterprises on employment avoidance grounds. But such subsidies need to conform to strict criteria:- the enterprises should be generating positive value-added, their insolvency should be only transitional, and the measures adopted should involve a fiscal cost that is sustainable. A well-designed public works programme, designed to supplement rather than compete with local private business, to create assets that will boost national income, and gradually to liquidate itself as demand for labour picks up -will also alleviate unemployment and will pay for itself within a few years.

Turning to the employment problem in developing countries, the Report notes that most of them are a far cry from achieving the objective of full employment. The majority of workers are in engaged in low-productivity work that is often physically onerous but yet yields only meagre earnings. Although the creation of adequately remunerated jobs for all who seek it will, for many developing countries, be a long-term process the Report argues that it is nevertheless important for them to be firmly committed to the objective of full employment. That objective provides a useful framework for the formulation of employment policy and for defining targets for measuring progress towards full employment. The relevant targets include a rate of growth of productive modern sector jobs that exceeds the rate of growth of the labour force and a reduction in the extent of underemployment in the rural and urban informal sectors of the economy.

The underlying cause of deteriorating employment conditions in many parts of the developing world other than in the dynamic Asian economies has been the failure to recover fully from the economic crisis of the early 1980s. Slower, and in many cases even negative, growth has meant stagnation in the creation of modern sector jobs and consequent overcrowding in low-productivity activities.

The Report thus argues that a priority requirement for reversing the prolonged deterioration in employment conditions is the restoration of high and sustained rates of economic growth. In many cases this will depend on the successful implementation of economic reforms to achieve macroeconomic stability, an economic environment conducive to high savings and investment and the efficient allocation of resources, and a more open and competitive economy that can benefit fully from expanding trade and investment flows in the global economy.

There is no single ideal prescription in terms of the strategy for economic reform. While much of current thinking favours a minimalist state confined only to delivering a "level playing field" in terms of economic institutions and the policy environment, the Report points out that there are several important rationales for an active role of the State in the implementation of economic reform. This is because developing countries are often characterised by market imperfections and high inequality in the distribution of income and assets. Pure market reforms often need to be supplemented by public investment and other measures to strengthen the supply response of producers to new economic incentives and to ensure an equitable distribution of the benefits from reform. It may also be necessary to adopt a phased and gradual implementation of reforms in order to reduce the extent of transitional job losses and related social costs. In addition , market reforms will have to be supported by redistributive measures since the 'trickle down' effects of market reforms will be weak unless they are accompanied by programmes to strengthen the productive capacity of the poor. In rural areas this should include the development of rural infrastructure, extension services, credit schemes, and improved access to education and health services. Outside the rural sector policies to promote the growth of small and medium enterprises will be particularly important.

A particularly contentious aspect of economic reform is the issue of labour market deregulation. The Report concedes that there may well be aspects of labour market regulations that are in need of reform in particular countries but argues that there is no basis for a blanket presumption that these regulations are invariably sources of rigidity and that deregulation is automatically the optimal solution. The facts suggest that labour legislation typically provides only a modicum of employment security and social protection and are fairly uniform across countries. They thus do not impose excessive rigidity, constitute a serious hindrance to labour hiring or have much influence on the relative international competitiveness of developing countries. Wages and employment levels have also been highly responsive to changes in macroeconomic conditions. It is also important in this connection to bear in mind the positive role of labour market regulations in promoting higher productivity and in protecting vulnerable workers in the labour market.