PREVENTING UNEMPLOYMENT AND UNDER-EMPLOYMENT FROM

BECOMING STRUCTURAL

G20 Task Force on EmploymentParis, 10-11 April 2014

Stefano Scarpetta,Director of Employment, Labour and Social AffairsOECD

KEY CHALLENGES

• The global financial and economic crisis resulted in the destruction of millions of jobs across the globe

• For the EU and other G20 countries such as the US this has been by far the weakest recovery of the past four decades.

• But labour markets in some countries have been more resilient

A sluggish recovery in advanced economies…

Unemployment remains highPercentage of total labour forcea

0

5

10

15

20

25

30%

Q4 2007 (b) Latest (c) ↗

* Selected urban areas.a) Persons aged 15-64 for South Africa, 15-72 for the Russian Federation and 16 and over for Spain and the United States.b) 2007 for China; 2007-08 for India; Q3 2007 for Indonesia; and Q1 2008 for South Africa.c) 2012 for China; 2011-12 for India; Q1 2013 for Indonesia; Q2 2013 for Argentina; Q3 2013 for South Africa, Turkey and the United Kingdom. Source: OECD Short-term Labour Force Statistics Database and ILO, Short-term Indicators of the labour Market.

• Long-term unemployment has risen and remains high in many countries

• The persistence of high levels of unemployment and the build-up of long-term unemployment could lead to a rise in structural unemployment

… with signs of rising structural unemployment

Long-term unemployment is a major concerna

Percentage of total unemploymentb Q4 2007 – Q3 2013

* Selected urban areas.a) Persons unemployed for one year or more.b) Persons aged 15-64 for South Africa, 15-72 for the Russian Federation and 16 and over for Spain and the United States.c) 2007 for Korea Rep. Of; and Q1 2008 for South Africa.d) 2012 for Korea Rep. Of; and Q2 2013 for Argentina.Source: OECD estimates based on various national surveys and ILO Statistics, Short-Term Indicators Database

0

10

20

30

40

50

60

70%

Q4 2007 (c) Q3 2013 (d) ↗

• In many emerging economies the crisis has lowered the pace of poverty reduction and formalisation, leaving many still facing chronically high levels of structural underemployment

• Underemployment in the emerging economies also manifests itself more generally through the prevalence of low-productivity, informal jobs and working poverty

Chronic under-employment in some countries…

Time-related underemployment is substantial in some G20 countries

As a percentage of the labour force, 2013a

* Selected urban areas.a) Time-related underemployment refers to all persons in employment who are working less than a given number of (full-time) hours and who are both willing and available to work additional hours. The data are not strictly comparable across countries because of differences in definitions. The data refer to 2012 for France, Korea, Mexico and Russia.Source: OECD Labour Market Statistics Database; and ILOSTAT database

0

10

20

30

40

50

60

70%

Q4 2007 (c) Q3 2013 (d) ↗

… and considerable under-utilisation of labour resources more generally…

The employment rates of certain groups are particularly lowEmployment rate by gender and age groups, as a percentage of the

population of the indicated group, 20121

0

20

40

60

80

100

%

Total(aged 15-64)

Youth(aged 15-24)

Prime-age men(aged 25-54)

Prime-age women(aged 25-54)

Older workers(aged 55-64)

Countries are shown by ascending order of the total employment rate.1. 2010 for China and 2011-12 for India.2. Older workers refer to person aged 55 and over and total to persons aged 15 and over.3. Selected urban areas only.Source: OECD Labour Force Statistics Database and national labour force surveys.

Longer-term economic and social transformations…

• Employment shifts between sectors have been considerable

• Employment is shifting substantially towards high-skilled jobs• Demographic change will also open up both challenges and

opportunities for tackling structural unemployment and underemployment

Change in sectoral composition of employment%-point change in each sector's employment share, 2000-12

-20

-10

0

10

20

30

40

Agriculture ManufacturingServices Overall reallocation

Change in occupational composition of employment%-point change each occupation's employment share, 2000-10

-10

-5

0

5

10

15

20% Low-skilled Medium-skilled High-skilled Overall reallocation

… can result in skills mismatches and shortages

1) The graph shows the share of workers who are over- and under-qualified is computed by comparing each worker’s highest educational attainment to the educational attainment that the worker deems necessary to get his/her own job. Source: Survey of Adult Skills (PIAAC), 2013 – www.oecd.org/site/piaac.2) The incidence of skills mismatch is calculated by comparing workers’ proficiency in literacy with the level of literacy proficiency required by their job. Over-skilled workers have a level of proficiency that is higher than the highest proficiency of workers who self-report that they are well matched to their job. Under-skilled workers have a level of proficiency that is lower than the minimum proficiency of workers who self-report that they are well matched to their job.Source: Survey of Adult Skills (PIAAC), 2013 – www.oecd.org/site/piaac.3) Data for the Russian Federation excludes Moscow.

• Qualifications mismatch affects a large proportion of workers, although actual skills mismatches are less widespread

B. OECD measure of skills mismatch in literacyPercentage of over- and under-skilled workers

A. Incidence of over- and under-qualificationPercentage of w orkers w hose highest qualification is higher or low er than the qualification they

deem necessary to get their job today

0

5

10

15

20

25

30

35%

Under-qualified Over-qualified (↗)

02468

1012141618

%

Under-skilled Over-skilled (↗)

THE POLICY RESPONSE

10

In the short-run

Continue to foster stronger aggregate demand and boost the creation of quality jobs, including through greater investment in productive infrastructure where there is fiscal space and in measures to promote the development of small and medium-sized enterprises.

E.g. Nation Building Program in Australia; the Infrastructure Stimulus Fund in Canada; Japan’s Growth Plan; Banque Publique d’Investissement and tax incentives and simplification in France

Provide adequate income support to the unemployed, but combined with effective re-employment services and mutual obligations. E.g. extension of emergency unemployment compensation in the US; universal unemployment insurance benefit in Italy; National Rural Employment Guarantee in India

Maintain and, where possible, expand cost-effective active labour market measures. E.g. UK Work Programme; US HIRE Act; South Africa Youth Wage Subsidy; Australia Work Experience Phase; China New training programme

11

In the short-run (cont.)

Ensure that the skills of the unemployed are developed, maintained and/or adapted to changing needs.

E.g. Re-skilling of and support for displaced workers in Canada, France and the US (Trade Adjustment Assistance programme); individual training accounts (e.g. France and Spain); basic skills training of job-seekers in Australia; certification of skills in Italy and Mexico

Adequately resource employment services.

In many advanced economies, while spending on unemployment benefits rose in line with unemployment, real expenditure per unemployed person on active labour market programmes fell considerably.

12

In the long-run

Develop and/or extend social protection systems which both help and encourage people to find work in the formal sector.E.g. conditional cash transfers (Bolsa Família in Brazil, Oportunidades in Mexico). The Chilean unemployment insurance system of individual unemployment savings accounts (Régimen de Seguro de Cesantía) in combination with a Solidarity Fund (Fondo de Cesantía Solidario)

Particularly in emerging economies, develop an integrated strategy to facilitate the transition of informal enterprises and workers in informal jobs into the formal economy in both rural and urban areas. E.g. SIMPLES in Brazil, China’s new labour contract

Ensure close coordination of public employment and benefit administration services, developing partnerships with the private sector and introducing greater performance management to increase effectiveness.E.g. Workforce Investment Boards (WIB) in the US; Jobcentre Plus in the UK; integrated social assistance information system (ISKUR) in Turkey.

13

In the long-run (cont.)

Tackle in-work poverty through adequately-set minimum wages and the use of in-work benefits, while containing the cost of hiring for certain categories of workers.E.g. hiring credits: Wage Connect in Australia; Hiring Credit for Small Business in Canada; Competitiveness and Employment Tax Credit in France; and the Work Opportunity Tax Credit in the United States. . Design employment protection to facilitate labour market adjustment and mobility of workers towards better job opportunities while reducing labour market duality. E.g. labour market reforms in Italy and Spain. .

Ensure a good coordination in the delivery of labour market and social service at the national and local levels and strengthen social dialogue.

14

In the long-run (cont.)Help individuals obtain and maintain the skills required by the labour market through better anticipation of emerging skill needs, the provision of accurate and up-to-date labour market information and greater responsiveness in the provision of education and training. A special focus should be devoted to young people with low skills for whom access to productive employment is difficult in all G20 countries.

E.g. second-chance programmes (US Job Corps; France Écoles de la Deuxième Chance; India Employment Generation & Marketing Mission)

ConclusionTackling structural unemployment and chronic underemployment is crucial. Besides the tremendous hardship they cause to individuals and families, they represent a waste of scarce economic resources, including human capital, and reduce the long-run growth potential of economies.

Contact: Stefano.Scarpetta@oecd.org

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