ON THE LEFT: Rebalancing policies would help
THE UNEVEN ECONOMIC recovery and successive downward revisions in economic growth projections have had an impact on the global employment situation.
Almost 202 million people were unemployed in 2013 around the world, an increase of almost five million compared with the year before. This reflects the fact that employment is not expanding sufficiently fast to keep up with the growing labour force.
The bulk of the increase in global unemployment is in the East Asia and South Asia regions, which together represent more than 45 per cent of additional job seekers, followed by Sub-Saharan Africa and Europe.
By contrast, Latin America added fewer than 50 000 additional unemployed to the global number – or around one per cent of the total increase in unemployment in 2013.
Overall, the crisis-related global jobs gap that has opened up since the beginning of the financial crisis in 2008, over and above an already large number of jobseekers, continues to wide.
In 2013, this gap reached 62 million jobs, including 32 million additional job seekers, 23 million people that became discouraged and no longer look for jobs and seven million economically inactive people that prefer not to participate in the labour market.
If current trends continue, global unemployment is set to worsen further, albeit gradually, reaching more than 215 million job seekers by 2018. During this period, around 40 million net new jobs would be created every year, which is less than the 42.6 million people that are expected to enter the labour market every year.
The global unemployment rate would remain broadly constant during the next five years, at half a percentage point higher than before the crisis.
A rebalancing of macroeconomic policies and increased labour incomes would significantly improve the employment outlook. Simulation results suggest that in high income G20 countries, such a rebalancing could reduce unemployment by 1.8 percentage points by 2020, which corresponds to 6.1 million additional jobs. These achievements would also support fiscal goals.
Indeed, simulation results suggest such a policy approach would result in a significant improvement over the baseline status quo scenario. Monetary policy continues to be accommodative, providing a beneficial stimulus to aggregate demand.
Estimates of the impact of the current monetary policy regime show that unemployment would have been one to two percentage points higher in large advanced economies if policymakers had not undertaken swift monetary action in the face of the financial crisis.
Recent trends, however, indicate that an increasing share of the additional liquidity generated by such accommodative policy is flowing into asset markets rather than into the real economy. This is generating the risk of future stock and housing price bubbles, potentially weighing on sustainable job recovery.
Given weak demand, uncertain sources of future demand and ample liquidity, large firms have tended to buy back shares and increase dividend payments to shareholders, rather than investing in the real economy.
Estimates who that in certain countries hiring uncertainty can exercise upward pressure on unemployment over and above weak aggregate demand, an effect that can persist even when the recovery in economic activity is increasing. The result is further constraint on employment creation.
* International Labour Organisation