ILO Statement to the Second Committee of the 65th General Assembly

How to address the jobs crisis within the macroeconomic policy debate

For balanced, sustainable growth, policies must shift to ensure that the world economy is based on an income-led growth pattern that replaces the previous debt driven consumption and investment models.

Statement | New York | 11 October 2010
Madame Chair,

The crisis has exposed weaknesses and imbalances in the international financial and economic system that must be rectified in order to achieve long-term stability. For far too long, the finance sector was often given priority over sustainable enterprises and decent work generation in the real economy. This pattern cannot continue. Even in good times with strong economic growth, not enough jobs were being created to accommodate demand. The old model has exacerbated the jobs crisis, leaving us in a situation today in which some 210 million people are out of work, which is the highest level in history, and 80 percent of the global population has no access to social protection. Over 8 million new jobs must be created just to return to precrisis levels and in the next 10 years more than 440 million new jobs will be needed to absorb the new entrants into the labour force.

This begs the question, how do we begin to address the jobs crisis within the macroeconomic policy debate?

At the outset, we must recognize the need to establish a much closer relationship between labour market developments and macroeconomic policy. The same way inflation or sustainable public finances are indicators of sound macroeconomic policy, employment creation must also become a priority macroeconomic goal. By creating a balanced mix of policies, we can increase the employment intensity of growth. In labour markets, this means coming up with a right balance between productivity, employment and wages. Before the start of the financial crisis, real labour incomes grew less than justified, relative productivity gains, thereby leading to growing income inequalities. In some advanced economies this situation pushed households to borrow in order to fund their consumption needs. In other countries, growing inequalities led to insufficient and only modest domestic demand and growth. For balanced, sustainable growth, policies must shift to ensure that the world economy is based on an income-led growth pattern that leaves behind debt-driven consumption and investment models while also boosting domestic demand. This entails a pattern of wage development that fosters growth in consumption, investment and employment. Unit labour costs should stay competitive with trading partners, which implies that wages should grow more or less with productivity. At the same time, wage increases should also be consistent with stable and low inflation.

In addition to well designed wage policies, income led growth also depends on efforts to reinforce collective bargaining and social dialogue as well as employment friendly social protection systems. Strong countercyclical policies are mitigating the rise in unemployment and helping people through the crisis. There is a growing consciousness of the triple benefits which sound social protection floors can play in thwarting the crisis: it protects people from becoming trapped in poverty, empowers them to seize market opportunities and contributes to aggregate demand. Countries like Brazil and India have demonstrated how this can be achieved.

The ILO has warned that any premature fiscal retrenchment could damage growth and lead to even larger deficits and debts. With faster pick-up in employment, the more buoyancy there will be in tax revenues and unemployment related expenditures will fall. We estimate that overall, in G20 countries stimulus has created or saved 21 million jobs as a result of both discretionary policy measures and the working of automatic stabilizers. This is not to say that fiscal stimulus packages can carry the main weight of recovery or last forever. However, before these initiatives are progressively reduced, it is vital that household consumption and business investment start pushing employment led growth.

Overall, we must do better to ensure a more coherent and stable international macroeconomic and financial environment that services the real economy. Adopting financial policies and regulations which encourage resource flows and allocations, including development cooperation, towards longer-term productive investment in sustainable enterprises is key.  Through a convergence of public and private policies which reinforce the fragile recovery taking place in many countries, we can help reduce the time lag between output growth and employment creation in socially acceptable ways. The Global Jobs Pact can assist in this endeavor by presenting an integrated portfolio of tried and tested polices that puts employment at the heart of sustainable recovery. The ILO stands ready to assist its constituents to achieve these objectives.

I thank you.