After the crisis

Challenges for labour markets now and in the future

In a statement delivered at the Institute of International and European Affairs, ILO Director-general Guy Ryder examined the state of labour markets and the drivers of major change, at a time when governments across the globe are giving priority to generating growth and jobs. He also addressed the policy challenges ahead for governments and for the ILO, in the run-up to the ILO’s 100th anniversary in 2019.

Statement | Dublin, Ireland | 27 February 2015
Ladies and Gentlemen,

Let me begin by thanking the Institute for the chance you give me to speak about the “challenges for labour markets, now and in the future”, hopefully looking at those in a situation where we are pulling out of crisis. And it is a real pleasure to give this speech in Ireland in a context where many of the indicators are very much better than when I was last here two years ago. You seem to be recording very encouraging employment figures, and GDP which was already growing faster than the EU average is on the up, and seems to be also feeding through to wage increases.

I must say as well that having seen from a distance the demise of the old social partnership system, I and many others have been asking what comes afterwards – is there a new social dispensation around social dialogue, social partnership, in the making, and what does it look like? And it’s been very interesting in the last two days to talk to the Irish actors for their views on that matter. What I think I detect in a still moving and uncertain situation is that there is a common appetite from all of the labour market actors to find a dispensation that will meet the needs for dialogue and interaction in the ways that have served Ireland very well, not just before the crisis, but getting through the crisis as well.

In many ways, then, things here may be moving in the right direction. But can we begin to think already about being in “after the crisis” mode? Have Ireland, Europe, and indeed the global economy finally dug their way out of the rubble by which they were engulfed in 2008, and can we exit crisis-mode and go back to managing our labour markets very much as we did before the painful experience of the last seven years?

My impression is that the answers to these questions are probably very different for the woman or man in the streets of Dublin or Berlin or Athens, let alone Buenos Aires, Nairobi or Beijing. But the point I want to examine is, regardless of our state of advancement along the road to post-crisis recovery, must our objective be to get our labour markets back to pre-2008 fitness for purpose with adjustments here and there, or do we have to think of moving forward to something distinctly different under the impulse not only of the experience and hopefully the lessons of the crisis, but also of a number of longer term drivers of change in our labour market which are combining to transform it at unprecedented velocity? The answer may imply that existing or traditional instruments of labour market policy could be becoming increasingly inadequate to the challenges ahead and that they may need to be replaced or complemented by others which we now have an interest in setting about the task of identifying.

Already in recent decades, observers and practitioners have commented widely on two interconnected and growing constraints on the efficacy of national labour market policy. One has to do with the way in which globalization is perceived to be closing down the space for such policy-making – and indeed the processes of social dialogue that helpfully underpin it; the other, with the manner in which the financial sector is impacting upon the world of work, sometimes in the form of the type of cataclysmic financial misadventure which hit Ireland so devastatingly, but more permanently through the so-called financialization of enterprise behaviour.

Both of these deserve detailed consideration – but they will not get it from me today because I would like to draw your attention instead to three other major issues which, if they were with us pre-crisis, have been made more manifest by the crisis, and will I think be central to labour market policy well into the foreseeable future.

The first one, inevitably is jobs. Lest we forget amid the talk and hopes of recovery, we still have a world crisis of unemployment. Here in Ireland, unemployment is still above the EU average, though it has come down a long way. But in the southern countries of the EU, joblessness remains stuck at really devastatingly high levels, with young people its particular victims. If you are under 25 in Greece or Spain you are more likely to be out of work than in a job – and in Ireland still 1 in 4 under-25s was out of work in 2014.

In Ireland and in Europe also the number of job seekers becoming long-term unemployed is on the up; in Ireland rising from 27 per cent before the crisis to 62.3 per cent last year, while in Europe 12 million of the more than 23 million unemployed have been looking for a job for one year or more. We know the consequences of this - erosion of skills, social exclusion, poverty and often a risk of just dropping out of the labour market never to come back – a massive waste of productive potential and huge human misery.

The bad news is that at the global level, the unemployment situation is getting worse, not better, and is going to continue to get worse not better in the foreseeable future. Over 201 million people around the world were unemployed in 2014, over 31 million more than before the start of the global crisis, and the ILO’s best estimate is that world unemployment on current trends will increase by 3 million in 2015 and by a further 8 million in the following four years.

Global employment growth has stalled at a rate of around 1.4 per cent per year since 2011. Some would see in this a deceleration of long-term economic growth – the advent of so-called “secular stagnation” – and the accompanying deceleration of employment growth could be set to intensify as this new wave of technological innovation which is increasingly talked about impacts on the world of work. Think robotics, think 3-D printing, think about what some consider the massive decline of manufacturing employment around the world, as being just around the corner.

Last night the President, delivering a wonderful Edward Phelan Lecture in honour of the Irishman who led the ILO from 1941 to 1948, cited a series of lectures given in 1931 by Phelan himself and John Maynard Keynes (no less!) on “unemployment as a world problem”. I dug them out and quoted them last night in my response to the President. Keynes began by describing the situation then as “the greatest catastrophe due almost entirely to economic causes” and commented that the view then from Moscow was that “our existing order of society will not survive it”.

The current view from Moscow is probably focussed on other matters. But we would probably do well today to recognize that unemployment is indeed a world problem, and not only, as Phelan remarked “the problem of the unemployed”. This should not be an historic footnote from the depths of the great depression, any more than the ILO’s widely ratified Employment Policy Convention which commits Governments to pursue policies of full, freely-chosen and productive employment should be considered a symptom of excess from the heady days of the 1960s when it was adopted.

It seems to me that we have to decide whether we are going to step up to that commitment to full employment and take the steps of commitment that are required – and they are not small steps – and then ask ourselves if we have the policy instruments to make good upon them? If we don’t, the commitment is futile and the political consequence of failure is very negative. Phelan’s answer was international cooperation “based on an ever increasing conviction of the solidarity of human society”. I will come back to this.

But it is not just full-employment, but also the quality, the very character of employment that we need to focus upon. Consider this: in Europe, today 35 per cent of those who go to work are neither employees nor work full time. And that 35 per cent is 5 percentage points above the figure at the beginning of the century. This is a far cry, is it not, from the expectations at least of my parents’ generation, of that standard open-ended full time job for a 35 to 40 year working life, with a predictable pension at the end of it.

And beyond Europe we find that more than half of the working population is engaged either in own account work, or as unpaid family helpers, or in informal work.

Those are, unfortunately, the experiences of work today for hundreds of millions of people; we have to understand the dynamics which are bringing that about and we have to try to understand how to manage those dynamics if we are to reconcile them with the objective of quality, decent work. That starts with getting to grips with the idea that the way work is organized today is changing at a rate that so far outpaces our capacity for policy adaptation.

The trend increase in the proportion of wage and salary employment in total employment has stalled. In a number of advanced economies such as the UK and the United States, it has actually declined, so that a growing number of workers who in the past would have been employed in enterprises as wage earners are now working for their own account.

What I want to get to is the fact that this reflects complex and multiple changes in the employment relationship, which is less and less stable. In particular, the incidence of temporary employment has increased in most advanced economies during the past decade. Working time patterns have become more diverse, with growing part-time work, telework and the like; and let’s remember the 1.8 million people on zero-hour contracts just over the water in the United Kingdom.

At the same time, medium-skill jobs are declining in advanced economies, partly replaced by low-skilled occupations. This too is a factor contributing to rising inequality in developed economies, the so called “hollowing-out” of middle income jobs that we see in Ireland and elsewhere.

These trends, transforming traditional understanding of the employment relationship, not only introduce elements of precarity and insecurity in employment but often also pose challenges to the capacity of labour market institutions to provide the types of labour and social protections for which they were designed.

The point is this. Where society has predicated the provision of the protections it considers appropriate on the existence of a stable employment relationship then the erosion of that relationship presents a choice. Either we give up on those protections – maybe in the name of competitiveness or affordability, or reliance on individual responsibility – or we find other ways of providing them. The only other way is to restore the relationship itself. Too frequently it seems to me we choose only to ignore the choice.

Unchecked, you can detect in the current direction of labour market drift the movement from the employment relationship as the default contract arrangement in the world of work to a purely commercial one where the demander of a service and its provider meet increasingly in cyberspace and strike a deal which links them only for the length of time that it takes to provide the service and for that purpose only. People look forward to this vision of the future in very different ways: a utopia of free acting individual agents for some, a dystopia of labour commodification for others. Either way it doesn’t look too good for labour market economists!

The third trend I want to talk about is inequality. The global crisis was preceded by a long period when income inequality increased in advanced countries. And even in emerging and developing economies where the middle class is now expanding, top income earners tended to become richer much more quickly than did others, just as in advanced economies. In both cases it has been associated with a long-term decline in the labour share of national income in nearly all countries, and in addition strong polarisation of wages within that shrinking share. Some countries recognized this increasing inequality as a problem rather than just a fact, and have done so some time ago; surprisingly perhaps, China stands as an example. But it seems to me that it has taken the looming spectre of deflation to spur others into action. For some, it’s a bit surprising to find Governments from Japan to the UK urging the need for pay increases for their workers and other companies such as Walmart offering them unilaterally. Surprising maybe, but I don’t think it’s illogical. What is ironic is that the usual labour market instruments to bring those increases – social dialogue, collective bargaining, minimum wages – are not now looked upon favourably as good sense institutions of the labour market.

As I see it, inequality is back on the labour market and the wider policy agenda, and back in an important way because of the coming together of two currents of thinking and opinion.

The first has to do with basic notions of fairness – in ILO parlance, of social justice. You are better placed than I to judge, but my assessment is that the experience of crisis-induced austerity is that people will accept the belt-tightening regime much more readily if they believe the burden is being shared in accordance with basic tenets of equity. They also want to see that they work. Too often they have seen that this is not the case, and when that has happened, with the tinder of bankers’ bonuses and tax avoidance readily to hand, public intolerance of excessive inequality has come very much to the fore including, it seems, through anti-establishment politics.

In similar vein where inequality is synonymous with discrimination the case for action is unanswerable, and nowhere more so than in respect of gender. It is striking that after half a century or more of equal pay and anti-discrimination legislation around the world, much of it inspired by ILO Conventions and advocacy, the global gender pay gap still hovers around the 20 per cent mark, with no sustained movement to its elimination, and women’s labour market participation rates are still about 26 percentage points lower than those of men.

That is the social justice issue. The second current in respect of inequality is couched directly in economic terms, and given the times in which we live may be the more powerful for that. An increasingly influential body of research and of opinion is leading to the conclusion that inequality of the level it has now attained in many countries constitutes an important brake on economic growth. It is the International Monetary Fund, no less, that has been to the fore in making this case and one must hope that having made it, it can make the necessary adjustments to act on this realization.

Supporting this economistic case is the accompanying view – and it is rather an orthodoxy now – that the inequality that we have now attained has switched off the escalator of social mobility. We are at a point where the best indicator of an individual’s future position in society is the position in which he or she is born and not the innate abilities with which they came into the world. Over and above the obvious injustice of that is the massive economic waste of human potential foregone by talent unrealized that we cannot afford.

Ladies and Gentlemen.

Jobs, the employment relationship, inequality – three of the major labour market challenges ahead, and there are certainly more – demographics, social protection, migration, the green economy are but some.

But this brings us to the stage of my remarks when we have to think about “what is to be done”. In the lecture I mentioned earlier, Edward Phelan in 1931 put his money on international cooperation. If you think of the world’s circumstances then, then you have to admit that it was a statement of some faith.

The question I want to put to you today is should we follow Phelan in his optimism?

The obvious place to begin the search for an answer is Europe. Europe many of whose countries were laid low by the crisis, Europe which has assumed collective responsibilities and competences in the policy responses to the crisis and Europe which, by inter-regional comparisons of growth and jobs, is performing badly in the recovery stakes.

Assessing the results of European cooperation in confronting the crisis invites polemics around the issues which are very much today’s news in its continuing interaction with Greece. Ireland must bring particular perspectives to that debate. So let me limit myself to these telegraphic thoughts:
  • that the basic reality that recovery of public finances depends crucially on the achievement of growth and job creation has been insufficiently taken into consideration;
  • that long-term competitiveness will not come from indefinite downward pressure on wages and living standards;
  • that the values of social dialogue, social justice and solidarity inherent to the European project are critically important instruments to overcome the crisis. They did not get us into the crisis but they can help us get out of it.
It is of course reasonable and necessary for individual countries – Greece included – to accept their own responsibility for their circumstances and to undertake needed reforms. But they should also be able to count on the support of their European counterparts without punitive intent or any misplaced belief in the character-forming benefits of austerity.

Europe has not got everything right in recent years, nor has the erstwhile Troika. But it has many opportunities for positive action and appears now intent on exploiting them. The explicit emphasis placed by incoming Commission President Juncker on jobs, growth and fairness promises well and has been followed up by the announcement of the Strategic Investment Plan. The ILO’s own research has concluded that if designed consciously with a strong in-built social dimension it could generate 2.1 million jobs and reduce EU unemployment by a full percentage point. Not, perhaps, a solution in itself but a compelling example of what European cooperation has the potential to achieve.

If one looks a level higher to the prospects for global cooperation, there are broadly two vehicles for action: the formally constituted multilateral system of the United Nations and the G20 on the other.

Let us recall that the G20 was tailor-made in 2008 as a conscious response to the imminent danger of collapse of the global financial system. It worked. Because so long as an unprecedented financial implosion seemed a real possibility – and it did - world leaders were ready to engage in unprecedented international cooperation to avert the unthinkable. That even extended into social and labour fields with millions of jobs preserved or saved as a direct result of G20 cooperation. And yet with the onset of the sovereign debt crisis from 2010 onwards this impetus and sense of common purpose has been lost.

Five years on, the question is whether the G20 can recover that original purpose and bring the necessary political will to bear to tackle labour market challenges ahead.

Maybe it can. The very first sentence of the last G20 leaders communiqué from Brisbane last November says: “Raising global growth to deliver better living standards and quality jobs for people across the world is our highest priority.” The leaders backed this up with Action Plans to meet these goals and established a Working Group on Employment. These are all positive signs but the ILO has to be deeply involved with the G20 to do all possible so that those fine words are followed by action.

As regards the UN, it seems to me that, like the English cricket team in the World Cup (and unlike the Irish one) the system needs to record a few big victories to restore public belief in the effectiveness of global multilateralism, and this is more than ever needed at this time of renewed geopolitical tensions.

This year, as the UN marks its 70th anniversary, it has two big opportunities to do so. In December in Paris it must conclude the deal that eluded us in Copenhagen in 2009, to really begin the job of combating climate change, and that we know already has enormous implications for labour market policy because we need to engineer the just transition to a sustainable low carbon economy which will protect and promote decent work. That is entirely possible, but anything but automatic.

But before then, in September, the UN General Assembly will adopt the world’s Post-2015 Development Agenda, a series of development goals which will pick up where the MDGs leave off. Ireland is leading that process as co-facilitator and we feel we are in good hands.

As for the G20, the ILO is deeply involved and we have already come a long way in ensuring the inclusion of an agenda whose overarching goal is to be the elimination of extreme poverty by 2030, of explicit goals on decent work and social protection. With one out of ten workers in the developing world still working in poverty, the need to put decent work at the centre of the “end to poverty” agenda is quite clear. I think that our challenges with respect to this concept are to mobilize public awareness and support for the agenda and the financing that will be needed for its implementation.

So my conclusion is that we would do well to follow Phelan’s internationalist impulses, to act upon them, and to have our governments act upon them.

But there is a final thought that I would like to share with you, and it is this. That underlying all of this consideration of coming labour market challenges, and what we can do about them, there is a growing sentiment among governments and social partners - and one I detect across the world - that our tried and trusted policy instruments, our labour market institutions and our mechanisms of interest may be becoming increasingly inadequate to address entirely new circumstances in a transformed world of work. What if we persist in applying twentieth century policy levers to twenty-first century labour markets and they simply do not work, do not produce the outcomes that societies want? If they fail to generate sustainable, balanced and inclusive growth and if they fail to bring the basics of social cohesion and equity that we need to meet human needs and expectations?

I think we need to consider these questions because we should be in anticipatory not reactive mode, and I say this not because of any belief in imminent labour market meltdown but rather because of already observable shortcomings. It seems to me that our policy performance is failing people, particularly the young, and also contributing to a gradual eating away of confidence in and commitment to the institutions and actors of public life. The world of work has always been crucible in which significant and lasting social change is forged – and that’s true whatever the surface appearances may be. It would be strange indeed if the convulsions of recent years did not generate such change and it is surely in our interest to anticipate, channel and manage it.

It is with all of this in mind that the ILO has decided to mark its centenary in 2019 – it is the oldest of the family of international organizations – with a series of initiatives, at the centre of which stands what we are calling the “Future of Work” centenary initiative. It comes with high ambition. We want to reach out to all interested parties in a four-year process of reflection on the place and meaning of work in our societies and in our lives and to look beyond the everyday immediacy of policy-making towards the longer term horizons. How are we going to organize work, to compensate it, to distribute it and its fruits, how in short to deliver on the ILO’s mandate for social justice as the essential guarantee of lasting peace?

I think these are questions that are worth asking. That is the initiative’s purpose, and I think it is worth joining in. So please do! And thank you for your attention.