a ddressing long - term unemployment : p olicy principles and recommendations g20 task force on...
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Message #2: There is not fit-for-all ‘best- practice’ package ‘Best-practice’ interventions are highly country specific But most effective packages need to combine measures to stimulate growth and to promote employability of the long-term unemployed Evidence suggests the need to go beyond isolated and myopic policy responses What is needed is a coordinated and coherent policy package that focus on long-term investments in jobs creation while reducing labor market duality and barriers to re-employment. 3TRANSCRIPT
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ADDRESSING LONG-TERM UNEMPLOYMENT: POLICY PRINCIPLES
AND RECOMMENDATIONS
G20 Task Force on Employment Paris, April 11, 2014
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Message #1: Long-term unemployment has costs beyond the short-term
• The long-term unemployed not only lose their skills, they lose motivation and fall ill• In the short-term, potential outcome is wasted• In the longer term human capital is being depreciated• In human terms there is a mass of misery and suffering: often the long-term unemployed
live in poverty, they have lost their self respect and dignity• In social terms long-term unemployment leads to increased social strife, growth of right
wing extremist parties, riots, divorce and family breakdowns, illness, and death [Aaronson et al. (2010), Dao and Loungani (2010), Junankar (1986, 1987), Junankar and Kapuscinski (1991), Saunders and Taylor (2002)
• And economic growth is often not enough to reabsorb the long-term unemployed in the labor market.
Governments have a critical role to play in reducing long-term employment
The long-term unemployed are not only a wasted resource, they are also a wasting resource
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Message #2: There is not fit-for-all ‘best-practice’ package
• ‘Best-practice’ interventions are highly country specific• But most effective packages need to combine measures
to stimulate growth and to promote employability of the long-term unemployed
• Evidence suggests the need to go beyond isolated and myopic policy responses
• What is needed is a coordinated and coherent policy package that focus on long-term investments in jobs creation while reducing labor market duality and barriers to re-employment.
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Message # 3: The optimal package depends on three main factors
Which policies yield the highest impact—i.e., mitigates negative short-term impacts while enhancing re-employment prospects—depends inter-alia on: • the functioning of the economy/business environment
and the existing institutional capacity—e.g., what programs are already in place and can be built on or expanded quickly.
• the extent and nature of the problem• the available fiscal space
Focus on first two points
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HIGH HETEROGENEITY IN UNDERLYING ECONOMIC STRUCTURE AND
INSTITUTIONAL CAPACITY: A POLICY RELEVANT TYPOLOGY OF G20
COUNTRIES
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‘Market Reliant’ Advanced Economies Typically structured along the ‘Anglo-Saxon’ and the ‘Nordic’ models. Pre-2007 were traditionally characterized by: • Comparatively low unemployment rates, low incidence of long-
term unemployment, and the ability to adjust promptly to economic shocks
• Solid ‘fundamentals’ that allow for the constant reallocation of resources that is necessary for sustained growth to take place
• Good institutions and effective systems of social protection/assistance: necessary reallocation is obtained with limited welfare cost to workers by remaining within the efficiency ‘plateau’ of labor market regulation.
See Blanchard, Jaumotte and Loungani [2013]
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Even before 2007 typically had: • High employment protection and generous —mostly
unconditional — unemployment insurance; highly segmented labor market: high degree of job security for
established workers (the ‘insiders’) + high levels of job insecurity for the ‘outsiders’ (youth, women and long-term unemployed)
• Poor ‘fundamentals’, including poor business environment and comparatively low/unmarketable skills
• Relatively high unemployment and high incidence of long-term unemployment, and limited capacity to reallocate effectively workers and capital.
‘Continental-type’ Advanced Economies
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• They are at different stages of economic transformation, demographic transformation and vary considerably in their access to fiscal and institutional resources
• However, typically they have a much higher share of non-wage and informal employment, often highly concentrated in the agricultural sector
• Several of them also face a youth bulge and the prospect of growing labor force participation by women
• Many has seen only small increases in unemployment in recent years. Mostly they would be well advised to continue to focus on better harnessing the capabilities of the current and future labor force for
growth
‘Emerging Economies’
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This requires finding long-term productive job opportunities for the large pool of underemployed workers and newcomers to the labor market by: • reforming regulatory, tax and benefit systems in ways that support
structural transformation towards more modern/formal jobs, • moving up the value chain once surplus rural labor is largely absorbed,
with more skilled jobs sustaining productivity gains over time, • boosting agriculture productivity while promoting labor-intensive off-
farm employment, such as in light manufacturing, • facilitating access to the more modern/formal jobs for excluded
workers and promote earnings mobility more broadly,• in resource-rich countries, grappling effectively with the challenge of
economic diversification and avoiding the sprouting of rent-based jobs.
‘Emerging Economies’
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THE INCIDENCE AND NATURE OF LONG-TERM UNEMPLOYMENT
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Total and long-term unemployment rates in the G20 countries: 2012 vs. 2007 (%)
AUS
CAN
DEU
KO
R
GB
R
USA
FRA
ITA
JPN
ESP
ARG
BR
A
CH
N
IND
*
IDN
MEX
RU
S
SAU
ZAF
TUR
G20
+ E
...
G20
(-ZA
...
0
5
10
15
20
25
30Long-term unemployment rate (%) 2012Unemployment rate (%) 2012Long-term unemployment rate (%) 2007
Unemployment rate (%) 2007
Anglo-Saxon/Northern Eu-rope model
Continental model
Emerging economies model
Long-term unemployment in the G20 countries: a very mixed tale
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Unemployment rates and the incidence of long-term unemployment in the G20 countries
-5 5 15 25 35 45 55-5
0
5
10
15
20
25
30
35
40
45
50
55
60
ARG
AUS
BRACAN
FRA
IND
ITA
KORMEX
RUS
TUR
GBR
USA
DEUESP
JPN
Incidence long-term unemployment rate - 2007
Inci
denc
e lo
ng-t
erm
une
mpl
oym
ent
rate
- 20
12
• The bubbles represent the unemployment rate in 2007.
• For most countries the incidence has not changed much
• With exception of Spain, the other countries that saw a large increase where ‘market reliant’ advanced countries with relatively low initial incidence
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In Emerging Economies the concern isvulnerable employment
ARG BRA IND IDN MEX RUS ZAF TUR0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
4.4 5.71.9
4.52.1 4.2
12.6
4.6
10.7
16.0
42.7 36.5
17.1
3.6
3.814.5
Unemployment Vulnerable employment
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A large proportion of the long-term unemployment are youth
AUS
CAN
DEU
KOR
GBR
USA
FRA
ITA
JPN
ESP
ARG
IND*
MEX RU
S
ZAF
TUR
G20
+ ES
P***
G20
(exc
l. ZA
...
0
10
20
30
40
50
60
70Long-term unemployed, youth
Long-term unemployed, all
Long-term youth as % of total long-term unemployed
Anglo-Saxon/Northern Europe model
Continental model Emerging economies model
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Women are more likely to be unemployed and long-term unemployed
AUS
CAN
DEU
KO
R
GB
R
USA
FRA
ITA
JPN
ESP
ARG
IND
*
MEX
RU
S
ZAF
TUR
G20
+ E
...
G20
(-ZA
...
0
5
10
15
20
25
30
35
40
45
50
55Female long-term unemployment rate 2012Female unemployment rate 2012Male long-term unemployment rate 2012Male unemployment rate 2012
Anglo-Saxon/Northern Europe model
Continental model Emerging economies model
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REDUCING LONG-TERM UNEMPLOYMENT (LTU):
TAILORED POLICY PACKAGES ARE REQUIRED
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Policy priorities and instruments for ALL G20 countries
Priorities Policy Instruments
1. Increase employability of LTU
2. Facilitate outflows from unemployment
Focus on jobs and productivity Aggregate demand policies Automatic stabilizers Targeted self-employment assistanceFocus on income and employability (Paid) training and skill development programs
Targeted cash transfers Public Employment Services and other job
search assistance
Additional policy priorities and instruments for MARKET-RELIANT ADVANCED G20 countries
Priorities Policy Instruments1. Mitigating cyclical
fluctations2. Promoting re-
employment
Focus on jobs and productivity Wage subsidiesFocus on income and employability Cash transfers (conditional)
Additional policy priorities and instruments for ‘CONTINENTAL-TYPE’ G20 countriesPriorities Policy Instruments1. Structural
reforms 2. Mitigating
cyclical fluctations
Focus on jobs and productivity Investment climate reforms Labor market reforms to reduce labor market
duality Fiscal reforms to reduce tax-wedge and
eliminate unequal treatment of some groups (women)
Focus on income and employability Mobility and retraining grants Cash transfers (conditional)
Additional policy priorities and instruments for EMERGING ECONOMIES
Priorities Policy Instruments
1. Building resilience
2. Structural reforms
3. Promote transformation
4. Mitigating cyclical fluctations
Focus on jobs and productivity Investment climate reforms Labor market reforms to reduce labor market
duality Fiscal reforms to reduce tax-wedge and eliminate
unequal treatment of some groups (women) Strengthen credit markets Productivity enhancing public work programsFocus on income and employability Cash transfers (conditional?) (Paid) training and skill development programs for
underemployed