Summit of G20 Labour and Employment Ministers

ILO Director-General: 'Economic and employment growth are mutually dependent'

Speech by ILO Director-General Guy Ryder for the opening session of the G20 Labour and Employment Ministers’ Meeting held in Ankara, 3 September 2015, introducing joint ILO/OECD/WB paper on G20 Labour Markets in 2015.

Statement | 04 September 2015
Let me begin by adding my congratulations to the Turkish Presidency for the impressive preparations of this important meeting and also thank you for your legendary hospitality.

Slide 1*: Colleagues, the challenge of strengthening the link between growth and employment has been on the G20 agenda since the beginning and with growth slowing again it is more important than ever. The paper on G20 Labour Markets in 2015 was prepared at your request by the ILO, OECD and World Bank, with inputs by the IMF. It describes recent trends and discusses how to make the links between employment and growth positive and stronger. It recognizes that policy priorities will depend on individual country circumstances, while also looking for the ways in which coordinated action can lead to positive international spillovers.

Slide 2: The serious after-effects of the crisis remain evident today. Annual economic growth in the G20 as a whole averaged only 3.2 per cent over the last three years, well below the rate of 4.1 per cent registered in the pre-crisis period.

The G20 unemployment rate rose from 5.1 to 6.0 per cent between 2007 and 2009, and remained elevated at 5.8 per cent in 2014. Labour force participation rates have declined in several G20 countries, in part because discouraged workers have left the labour market. Overall, employment growth remains well below pre-crisis levels across the G20.

Against this backdrop, G20 Leaders set the ambitious goal of raising G20 aggregate GDP by more than 2 per cent by 2018, and have repeatedly emphasized the importance of ensuring that growth produces more and better quality jobs.

Slide 3: Has the relationship between growth and employment changed between the pre and post crisis periods? Are we witnessing, as is sometimes claimed, “jobless growth”?

Perhaps surprisingly, the answer is no. At the aggregate G20 level there has been little change in the employment intensity of growth. In the advanced G20, the employment intensity is actually higher now than before the crisis. In the emerging G20 it has weakened slightly but that is to be expected as economies shift from agriculture to more productive sectors.

Slide 4: In fact, rather than “jobless growth” what we have is lack of growth, growth that is insufficient for job creation and to close the jobs gap.

In the emerging G20 economies, economic growth rates averaged 6.9 per cent per year from 1999 to 2007. However, their growth has not recovered that level of performance.

In advanced G20 economies there was widespread job destruction during the economic crisis, followed by a post-crisis period in which economic growth has been too feeble to close the resultant jobs gap, and in some countries even to prevent it from worsening.

Slide 5: Looking ahead, we see little prospect of a fall in aggregate G20 unemployment rates. A slight improvement in advanced countries is offset by a worsening in emerging countries.

Slide 6: A particular concern is long-term unemployment. It varies amongst G20 countries but in most it is higher now than before the crisis.

Slide 7: The quality of jobs created is a further and important indicator of labour market performance and the relationship between growth and employment.

In G20 countries with available data, much of the net new employment created between 2009 and 2014 was part-time. Figures for job creation therefore may overstate the extent of labour market recovery. Since part-time jobs generally offer lower average earnings, lower levels of job security and weaker social protection coverage, this type of job creation also provides less support to household consumption and aggregate demand.

Slide 8: In emerging G20 economies there is some good news in that recent economic growth has been associated with a decline in jobs paying below US$4 a day between 2007 and 2014. This contributed to welcome reductions in the number of workers in poverty or near the poverty line, although the reductions also reflect stronger social protection systems which have been rapidly expanded in many emerging G20 countries.

But the bad news is that the employment intensity of growth has declined even for the above US$4 group as well, as you can see.

Slide 9: In emerging G20 countries, the share of workers in vulnerable employment, which measures the share of own-account workers and contributing family workers in total employment, has declined including since the crisis. However excluding China, over half of workers in emerging G20 countries were still engaged in vulnerable employment in 2014. Although these trends are moving in the right direction, the large share of workers that remain in vulnerable employment shows that informality, low pay and low productivity continue to be stubbornly large and significant on-going challenge.

I’m pleased to note that a variety of proven measures and integrated strategies to encourage formalization are set out in the recent ILO Recommendation 204 adopted by our tripartite global conference, and this provides a helpful framework as we go forward.

Slide 10: The substantial jobs gap, persistent weakness in job quality, sluggish growth in wages and incomes—these have negative effects on consumption, living standards, investment, government budgets and, thus, global aggregate demand. Most economists point to the global shortfall of aggregate demand as the primary reason for continuing slow economic growth.

The current growth trajectory, if unchanged, will not create enough quality jobs. Policy interventions that address both the demand and supply sides of the labour market are needed. Some of the elements of this package are within the responsibility of labour and employment ministries, while others fall under the responsibility of other ministries, notably finance.

Given the scale of the challenges we face it is very important that the elements of the package come together in an integrated and coherent whole.

Expansionary monetary and fiscal policies that support growth can lead to an increase in labour demand. For example, taxation policies can be designed or targeted to provide incentives for job creation or labour force participation. And progressive tax policies can also reduce inequality, which has been shown to be a drag on growth.

The G20 is rightly focussing on the potential for infrastructure investment to strengthen the link between growth and quality job creation, in the short, medium and long term. This investment also has relatively high multiplier effects.

With extraordinarily low current interest rates, particularly in many advanced countries, financing for such investments is highly attractive.

Slide 11: Turning to policies in labour and employment ministers’ direct remit, an obvious focus is better and faster matching of workers with job opportunities. Here the work of public employment agencies, skills development and apprenticeships are clearly important ways to improve the working of supply and demand.

Many G20 countries have experienced a sustained downward trend in the labour share of their national income, driven by significant losses in labour shares for middle- and lower-earning workers. This is a key factor in the shortfall in demand in many countries. Halting and reversing these trends through labour market policies, as well as fiscal policies, can strengthen both overall growth and employment growth, for example by:

  • Setting minimum wages to provide an adequate wage floor for low-paid workers and thus sustaining consumption.
  • Counteracting the long-term decline in union density and collective bargaining coverage in many countries, as part of wage policies that ensure the growth of living standards in line with productivity.
  • Building up social protection systems that help households to weather economic shocks and smooth consumption, thus acting as automatic stabilizers to sustain demand.
  • Implementing public employment programmes and employment guarantees to expand employment and raise incomes among low-income and vulnerable households, particularly in countries with large shares of informal, self-employed and unpaid work.
Slide 12: This slide shows the correlation between labour income shares and inequality, which track closely in OECD countries. My colleague Angel Gurría will discuss these trends in inequality, and their negative impact on growth so I won’t press this point further at this time.

Slide 13: There is a growing body of research which shows that inequality weakens growth. A country-specific, comprehensive and multifaceted approach is required that addresses deficits in demand, starting at the level of household consumption and investment.

It’s important to note that good national policies also have important positive spillover effects to other G20 countries and beyond, by increasing global aggregate demand, offsetting the impact of negative shocks and reducing the temptation to engage in beggar-thy-neighbour policies.

And as I said earlier, it is important to address these challenges in integrated and coherent ways. Fiscal policies, which have a major role to play in stimulating growth, have been shown to work better in countries that are less unequal. So addressing inequality, improving tax policies, investing in infrastructure — these are all important elements of coherent, integrated packages to boost overall growth and job creation.

Economic and employment growth are mutually dependent and they tend to be mutually reinforcing in either positive or negative directions producing virtuous or, if not counteracted, vicious circles.

Today’s discussion and the joint session with G20 Finance Ministers present excellent opportunities to address these issues.

Chair, you also invited me to make a few introductory remarks on the paper on Labour Mobility and Growth prepared by the ILO, OECD and World Bank. And in so doing, it is necessary to recall the comments by our President in the opening session this morning. The dramatic events taking place not far from here, the movement of people in circumstances we all know, will have unavoidable labour market repercussions and sooner or later we will have to address these. It is not a national but a joint international problem.

The fact that the G20 has decided to examine the issues is to be applauded, and in particular to discuss how a better and fairer management of labour migration can yield stronger growth both for counties of origin and of destination.

More than half of the world’s migrants live in the G20 countries, and remittances to and from G20 countries account for almost 80 per cent of global remittance flows. Migrants today are younger and better educated, and women are increasingly migrating for employment, with domestic work being a major occupation. There was cyclical slackening of these flows in recent years, but aging populations and declining labour forces in most G20 advanced economies and some large emerging economies, suggest that labour migration will play an important role in economic growth in the future.

In most countries, migrants pay more in taxes and social contributions than they receive, and they contribute substantially to destination countries’ economies. Across the advanced countries, the number of highly-educated immigrants has increased rapidly over the past decade, which has important implications for productivity and innovation. In origin countries, remittances help lift households out of poverty, keep children in school and build better futures. Return migrants bring home the human, social and financial capital acquired abroad.

In order to make the most out of migration flows for the benefit of all, a number of key challenges must be addressed.

The skills and knowledge of migrants are often underutilized due to barriers in transferability of skills and qualifications, while work experience acquired abroad may be discounted.

High labour migration costs reduce the benefits to migrants and their families and the origin and destination countries. Migrant workers often pay high fees to intermediaries and are vulnerable during the recruitment and placement processes. Too often, migrant workers are subject to abusive practices in the workplace, including underpayment, late payment or non-payment of wages, or lack of compensation for work-related sicknesses or injuries. Migrant workers who are unable to exercise their labour rights have less capacity to achieve their potential and contribute to host and origin societies.

Solutions are needed and they must be found through international cooperation and multilateral dialogue. The G20 could provide an excellent platform to discuss ways to promote fair, orderly and well-governed labour migration systems.

Thank you.

* slides refer to the powerpoint presentation introducing 'G20 Labour Markets in 2015: Strengthening the Link between Employment and Growth'