70500 G20 Boosting jobs and living standards in G20 countries A joint report by the ILO, OECD, IMF and the World Bank June 2012 INTERNATIONAL LABOUR OFFICE, GENEVA ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, PARIS INTERNATIONAL MONETARY FUND, WASHINGTON, DC THE WORLD BANK, WASHINGTON, DC Introduction The report aims at providing a preliminary review Almost four years since the onset of the global finan- of countries’ experiences against the backdrop of an cial and economic crisis, unemployment and under- evolving economic outlook and could form the ba- employment remain stubbornly high in many G20 sis of a more in-depth analysis, should Ministers countries, and many workers remain trapped in low- request it. paid, often informal, jobs with little social protection. Job creation has been anaemic in many countries, too 1. Recent trends in labour market slow to fully reabsorb the mass of unemployed and outcomes underemployed or, particularly in some emerging- Improving labour market outcomes involves several market economies, to keep pace with labour force challenges relating to both the quantity and quality growth and the pressures of rural-urban migration. aspects of job creation. There is a need in all countries This raises concerns about the long-term negative to harness growth to generate labour market oppor- effects on human capital, growing inequality and tunities that correspond to labour force growth. But lower future output growth. The political pressures in a number of G20 countries characterized by high are high, and the risk of a drift towards protection- and increasingly persistent unemployment together ist measures aimed at “keeping jobs at home� can- with falling employment to working-age population not be ignored. While there is substantial variation ratios, there is furthermore an urgent short-term chal- in national contexts, G20 countries can help mini- lenge to boost job creation so as to bring down un- mize these risks through collective and collabora- employment and increase employment rates. tive work aimed at identifying and implementing Moreover, ensuring that there is a tighter link be- credible policy reforms that will boost job creation, tween growth and improvements in job quality is employment and the quality of jobs. Even though another challenge common to all G20 countries. employment is largely seen as a domestic problem, taking action to boost jobs can help with other G20 macroeconomic objectives, including achieving bal- 1.1 Lasting impact of the crisis on unemployment in many advanced anced growth at the global level. G20 countries The Cannes Summit Declaration requested the four The impact of the crisis on employment has var- international organizations to report to Finance ied considerably across the G20 countries (figure 1). Ministers on the global employment outlook and, On the one hand, substantial job losses were recorded in particular, to examine how the G20 economic re- in a number of G20 countries during the recession form agenda under the G20 Framework for Strong, (most notably in Spain and the United States). In Sustainable and Balanced Growth could contribute to most of these cases, employment growth in the re- job creation. It might be recalled that the G20 Labour covery has been insufficient so far (and has remained and Employment Ministers’ meeting in September negative in Italy, Japan and Spain) to make up for 2011 called “on our Leaders to reemphasize employ- these losses. On the other hand, employment growth ment as a key objective of economic policy and of slowed but remained positive during the downturn the framework for strong, sustainable and balanced in a number of other G20 countries – e.g. Argentina, growth; and to facilitate to that effect a comprehen- Australia, Indonesia and the Republic of Korea – and sive dialogue and cooperation among the different subsequently returned to robust growth in the recov- relevant ministers.� The recommendations made by ery. And while countries such as Brazil and Mexico G20 Ministers of Labour and Employment and en- suffered initial job losses during the crisis, employ- dorsed by Leaders in Cannes are also part of the ment has subsequently fully recovered. For most of policy backdrop for the review.1 The context for the these countries, unemployment or the quantity of report thus goes back to the commitment made at jobs is not the most pressing labour market challenge. the Pittsburgh Summit to place quality jobs at the heart of recovery. Weak job growth in many countries has been re- flected in persistently high unemployment (figure 2). 1 G20 Labour and Employment Ministers’ Conclusions, Unemployment is substantially higher now than its Paris, 26–27 September 2011, available online at http://www. g20-g8.com/g8-g20/root/bank_objects/G20_Travail-Emploi_ pre-crisis level in France, Italy, Spain, the United ANG_27_09%5B1%5D.pdf Kingdom and the United States, even though the 1 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES Figure 1. GDP and employment growth in G20 countries during the crisis and early recovery1 (percentage change) A. Real GDP 30 20 10 0 –10 –20 y n n o ly y il es ain of e da ca ina lia sia ke tio pa xic do m Ita an ion az at lic nc na fri nt tra ne Tu r ra Ja Me g rm n Br t Sp b Fra Ca A de Kin Ge nU dS pu th rg e Au s Ind o e d ea ite e u A ia nF ite r op Un a ,R So ss Un Eu ore Ru K B. Total employment 30 20 10 0 –10 –20 n ly y f e a y tes ain lia sia 2 2 n ico n a r ke tio pa x d om Ita an io zil lico nc ad ric in a tra ne Tu era Ja Me ing erm Un Br a St a Sp ub Fra Ca n f nt ed G an d ep hA ge Au s Ind o dK e ite ut Ar ia nF ite rop Un a ,R So ss Un Eu ore Ru K Crisis (real GDP peak to trough) Recovery (real GDP trough to latest) Countries shown in ascending order of real GDP growth from its peak to its trough. n.a.: not available. 1 Peak (trough) dates are de�ned as the start (end) of the longest spell of consecutive negative quarterly real GDP growth rates since 2006 Q1. For the purpose of comparison, the dates for Indonesia correspond to the period when real GDP growth slowed. 2 Selected urban areas for Argentina and Brazil. Source: OECD Main Economic Indicators Database and national labour force surveys. US unemployment rate has fallen significantly in In previous recessions, the rise in long-term unem- recent months. In Spain and South Africa, un- ployment was in many advanced countries the main employment exceeds 20 per cent of the labour force, channel through which what was originally a cyclical although that was already the case in 2007 in South increase in unemployment turned into persistently Africa, where high unemployment primarily reflects high unemployment rates. In addition to lowering longer-run structural problems. potential output growth via the resulting loss of hu- man capital, there are also substantial social costs re- Even more worryingly, long-term unemployment lated to long-term unemployment, as it is associated (defined as an unemployment spell of 12 months or with a heightened risk of poverty, health problems and more) has risen sharply in several countries (figure 3). school failure for children of the affected individuals. Among G20 countries for which data are available, the incidence of long-term unemployment increased 1.2 Other worrying features of labour markets most sharply in Spain and the United States, where predate the crisis the share of long-term unemployed tripled to reach At present, creating more jobs is clearly a key chal- an historical high in early 2011, before easing slightly. lenge for many G20 countries. However, many of 2 Figure 2. There are stark contrasts in the countries’ labour market situation (unemployment rates as a percentage of labour force,1 2007 Q42 and latest value available3) 25 20 15 10 5 0 ia ina an da o a ia n ca ia Ind n m tes e ain ina ny y ly il of xic rke ali nio nc tio Ind es az Ita b do p fri na a Ch ta ra Sp nt lic Ja Fra rm Me str ra on Br Tu nU ing hA Ca dS iA ge ub de Ge Au dK ea ut Ar ud ep Fe ite So rop Sa ,R ite Un ian Eu Un rea ss Ko Ru 2007 Q4 Latest value Countries shown in ascending order of the latest value of the unemployment rates available. 1 The rates reported refer to persons aged 15 and over except for Argentina and Brazil (10 and over), India (total ages), the Russian Federation (15–72) and South Africa (15–64). Argentina and Brazil: Selected urban areas only. China: Annual unemployment data refer to registered unemployment in urban areas only. India: Annual estimated persons/person-days (in million) based on the current weekly activity status for the entire population. 2 2007 for China and Saudi Arabia; 2004–05 for India; 2007 Q3 for Indonesia; and 2008 Q1 for South Africa. 3 2009 for Saudi Arabia; 2009–10 for India; 2010 for China; 2011 Q3 for Argentina, Indonesia, Turkey and the United Kingdom; 2011 Q4 for Australia, Brazil, Canada, European Union, France, Germany, Italy, Japan, Rep. of Korea, Mexico, Russian Federation, South Africa, Spain and the United States. Source: OECD Main Economic Indicators Database and national labour force surveys. Figure 3. Long-term unemployment1 has risen in several countries (percentage of total unemployment, 2007 Q4–2011 Q42,3) 70 60 50 40 30 20 10 0 da lia n es ain ion an ca m e ly y ny il* * * tio rke nc ina o Ita do t fri na a p a xic Un ta az Sp Fra str era Ja rm Tu ing hA nt Ca dS Br Me n Au Ge ed ge ea dK ut ite F Ar So rop Un ite ian Eu Un ss Ru 2007 Q4 2011 Q4 Countries shown in ascending order of the incidence of long-term unemployment in 2011 Q4. * Selected urban areas. 1 Persons unemployed for one year or more. 2 2008 Q2–2011 Q2 for Argentina; 2007 Q2–2011 Q2 for the Russian Federation and 2008 Q3–2011 Q3 for South Africa. 3 Selected urban areas for Argentina and Brazil. Source: OECD estimates based on various national surveys. 3 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES them are also confronted with various underlying do), in informal employment or employed on fixed- problems that have plagued labour markets for years term contracts represent, to varying degrees, sources and which can only be addressed through structural of concern for basically all G20 countries (figure 5). reforms. In several, mainly emerging G20 countries Underemployment due to inadequate working time output growth before the crisis yielded a relatively slow is substantially above its pre-crisis level in some coun- growth in formal-sector employment. Other worry- tries, including Spain and the United States. In other ing features include poor integration into the work- countries where underemployment is high, such as force for specific groups and, in some cases, a grow- Argentina and Indonesia, this reflects long-standing ing duality between workers benefiting from strong structural factors (figure 5, panel A). job protection and those employed under contracts offering little job security (e.g. fixed-term or other In spite of the strong economic performance in many atypical contracts) or in the unprotected informal sec- emerging-market countries both before and after the tor. Many of these factors contribute to undermining global crisis, the share of informal employment re- the link between economic growth and job quality. mains sizeable in several countries (figure 5, panel In this regard, G20 Leaders endorsed the commit- B). The causes of informality are complex and there ment of Labour and Employment Ministers to step is considerable variation in the types of informal up efforts to promote decent work and to encourage jobs. An important part of the informal sector, for the effective application of Fundamental Principles instance, comprises self-employed workers, some of and Rights at Work in conjunction with the ILO, whom may choose not to be salaried employees be- and underscored the critical role of social partners.2 cause they have more flexibility and higher earnings. Small, low-productivity firms attracting low-skilled Integration of youth, adult women, workers also tend to self-select into the informal sec- low-skilled workers and older workers tor to avoid social security contributions and labour Employment rates for youth are dramatically lower and other regulations. Putting in place the condi- than those for adult men (figure 4), and their situ- tions for boosting job creation in the formal sector ation in many countries has worsened since the crisis. should be high on the policy agenda of emerging While this could be partly explained by the fact that market countries, as it would raise the share of jobs many persons in this age group are still enrolled in with rights to social protection and provide a more education, low employment rates also reflect a high secure base for tax revenues. proportion of young people who are neither in em- ployment nor in education or training. A long spell In many of the advanced G20 economies, a signifi- of joblessness for youth who have left the educa- cant and often growing share of the workforce is em- tion system can have major negative consequences ployed on fixed-term and other temporary contracts. for their future employment prospects and for the In nearly half of them, the incidence of temporary em- potential growth of the economy. ployment lies between 10 and 25 per cent (figure 5, Adult women and low-skilled workers are also em- panel C), with a high share of women and youth em- ployed at significantly lower rates than adult men, ployed on such contracts. In France and Spain, more but while the employment disadvantage of low-skilled than 50 per cent of youth in dependent employment workers is fairly common across G20 countries, the were employed on a fixed-term contract or working disadvantage of women is particularly strong in some for a temporary work agency in 2010, despite the emerging-market economies. Employment rates of major job losses among youth temporary workers fol- older workers also vary substantially across the G20 lowing the crisis. A high incidence of temporary and countries, but have shown some tendencies to in- casual employment is also observed in many emerg- crease in recent years. ing market economies. While for some a temporary job is a stepping stone into more stable career jobs, Underemployment, informal employment and for many others it is often a trap leading to a vicious temporary contracts circle of precarious employment and unemployment. Employees who are underemployed (i.e. constrained to work fewer hours than they would be prepared to Income inequality See also G20 Labour and Employment Ministers’ Conclusions 2 High and often rising income inequality is another Guadalajara, Mexico, 17–18 May 2012. key feature of most G20 countries. In the advanced 4 Figure 4. Job creation must be kick-started …especially for the disadvantaged Ratio of the employment rates of the group considered over employment rates of adult men (aged 25–64 years), latest available year1 1 0.8 0.6 0.4 0.2 0 2 o ia a ca m an ia ain n ia da e n y tes ly y il of xic an ali nc nio tio rke ina Ita Ind do es b az fri p na Sp ta ra lic Fra rm Me str Ja ra on ing Br nU Tu hA nt Ca dS iA ub de Ge Au Ind ge dK ea ut ud Fe ep ite Ar So rop Sa ite ,R Un ian Un Eu rea ss Ru Ko Youth (15/16–24) Adult women (aged 25–64) Low-skilled3 Countries shown in ascending order of the ratio of youth employment rates to the employment rates of adult men. 1 Annual averages of available quarterly data except for Brazil, India and Saudi Arabia and for the statistics by education. Latest available years: 2011 except for Brazil, India and Saudi Arabia (2009, 2009–10 and 2009, respectively), 2010 for the Russian Federation. Note that in the case of youth, a given level of employment rate can reflect differences on the proportion of young people attending tertiary education. 2 Selected urban areas for Argentina. 3 Low-skilled refers to persons with less than upper secondary education. Figure for Japan includes upper secondary education. Source: OECD estimates based on OECD Labour Force Statistics Database and various national labour force surveys. G20 countries, income inequality has reached the Beyond a certain threshold, levels of income inequal- highest level for the past 30 years; the average in- ity generate negative effects that undermine social come of the richest 10 per cent of the population is cohesion and economic performance. Furthermore, about nine times that of the poorest 10 per cent, up the economic crisis and the need for political legiti- from seven times 25 years ago. In some countries, macy in addressing it have added urgency to the need inequality has increased further from already high to confront inequality. Policies to reverse income levels; that is, for example, the case of the United inequality trends include benefit and tax policies to Kingdom and the United States. But countries with expand basic social protection where needed, as well historically low inequality, such as Germany, have as policies and regulatory measures to generate more also seen the gap between rich and poor widen. Only and better jobs. More broadly, in pursuing growth a few countries have managed to contain this trend: and equity/redistribution strategies simultaneously, income inequality has remained stable in France and policy-makers need to be aware of possible com- Japan, and has recently fallen in Mexico and Brazil. plementarities or trade-offs between the two objec- However, in Mexico the incomes of the richest are tives. Many policies could entail a double dividend still more than 25 times those of the poorest, while as they reduce income inequality while at the same in Brazil the ratio is 50 to 1. time boosting long-run GDP per capita; investment in human capital, in both formal education and life- It should be acknowledged that while income in- long learning, is the best example of a policy that equality has risen within countries, it has declined has the potential to achieve such a double dividend. across countries, with a significant share of the world population being lifted out of poverty as a result of faster growth in emerging-market countries. 2. Near-term prospects remain bleak for labour markets The main drivers of high and often rising income inequality at the household level are to be found in If the labour market has fully recovered in some G20 the labour market. While progress has been made countries, this is not the case for a majority of them, in many countries to facilitate access to the labour as witnessed by the remaining so-called “jobs gap�, market of under-represented groups, disparities in i.e. the number of additional jobs that would be re- earnings and working conditions have often widened. quired to restore the employment–population ratio 5 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES Figure 5. Job quality needs improving Incidences of underemployment, informal employment and temporary employment, latest value available A. Incidence of time-related underemployment1 (percentage of total employment) 15 14.2 11.3 9.8 10 7.4 6.8 6.1 5.4 5.5 5 3.7 4.2 3.3 1.9 1.0 0 o y e y ly xic ) da rke om ric a nc ) an ) tes Ita 0) lia ina ain es ia Me 009 na 1) Tu 010) ingd 010) h Af 010) Fra 010 ta ) tra 1) nt 0) Sp 10) don 010) Ca 201 erm 2010 d S 2011 01 us 201 Arge 201 0 (2 ( (2 ed K (2 ut (2 (2 G ( ite ( (2 A ( ( (2 In (2 it So Un Un B. Incidence of informal employment2 (percentage of total non-agricultural employment) 100 83.5 80 60 53.7 49.7 42.2 40 30.6 32.7 20 12.1 0 n y a il a o ia tio ra 0) rke ric az tin ) xic ) Ind 05) Tu 009) Af 0) Br 09) en 4 Me Q2 de (201 th (201 0 rg 09 Q 9 4– n Fe (2 Sou (2 A 0 00 00 sia (2 (2 (2 s Ru C. Incidence of temporary employment (percentage of total dependent employment) 30 25 24.9 20 19.2 15 14.7 15.1 12.8 13.7 13.7 11.4 10 5 4.2 5.2 6.1 0 es lia y da n y e of at ) St 005 tra 6) m do ) rke ly Ita 0) na 0) pa an ) nc ) lic ) ain d us 200 ing 2010 Tu 010) Ca 201 Ja 11) erm 2010 Fra 010 ub 2010 Sp 10) ite (2 A ( dK ( (2 01 (2 0 G ( (2 p (2 0 Un ite (2 ( , Re ( Un rea Ko 1 Persons in time-related underemployment are those who during the short reference period, were willing to work additional hours, were available to do so, and had worked less hours than a selected number of hours. For France, Germany, Italy and the United Kingdom, time-related underemployment corresponds to the proportion of involuntary part-time employment as a percentage of total employment. 2 The concept of total employment in the informal economy is used by the ILO to refer to the sum of the jobs in the informal sector and the jobs in informal employment, counting only once those jobs which are classi�ed in both categories. These concepts refer to different aspects of the informalization of employment, as employment in the informal sector is an enterprise-based concept and informal employment is a job-based concept. For the Russian Federation, Informal employment refers to employment in the informal sector (excluding informal employment outside the informal sector). Source: OECD estimates based on ILO Short-Term Indicators of the Labour Market, ILO Statistical update on employment in the informal economy (Geneva, June 2011) and OECD labour Force Statistics Database. 6 to its pre-crisis level (figure 6). It is particularly large operate around the paths towards consolidation that in South Africa, Spain and the United States, which are consistent with underlying economic strength. In alone accounts for nearly one-half of the total jobs several cases, the priority remains to establish cred- gap that can be estimated at around 21 million per- ible and appropriately phased fiscal consolidation sons across the 11 countries where the employment programmes, to enhance credibility and improve ratio has yet to return to its pre-crisis level. the predictability of future conditions, including tax burdens. A few countries, nonetheless, arguably While the jobs gap will close eventually — as long have some scope to temporarily stimulate aggregate as the economy recovers from the 2008–09 down- demand, should the economy significantly weaken. turn, a steady decline in unemployment requires ac- tual growth to exceed potential by a significant mar- Emerging market economies face different situations. gin. This reflects the need to allow for productivity In China, where inflation is under control and public gains in addition to absorbing a growing labour force, debt modest, fiscal policy could be loosened in the which in some cases (e.g. Mexico) is further increased near term should growth slow too much, and poorer by reverse migration flows. Near-term projections households could be supported through expanded of actual and potential GDP growth over the next social spending. In countries where inflation pres- couple of years indicate that for the majority of G20 sures have eased but public finances are weaker, there countries, growth is likely to fall short of potential, is scope for monetary policy easing if necessary, with suggesting that in some of them even stemming the the support of macro-prudential measures to prevent rise in unemployment will be difficult (figure 7). asset bubbles. Finally, countries facing high inflation Among the countries where employment remains and/or public debt (e.g. India, Turkey) need to re- substantially below the pre-crisis level, growth suf- build their policy space. ficiently robust to lower unemployment is expected In several advanced and emerging market countries, only in the United States. there is a case for switching expenditures towards im- proving labour market opportunities for vulnerable 2.1 How much scope for macro policies? workers while expanding the coverage of insurance It is not unusual for recessions characterized by severe programmes where appropriate, as well as towards financial market turbulences and debt overhang to spending components that underpin future growth, be followed by weak and protracted recoveries. One such as infrastructure investment, or those that help implication is that compared with typical recover- lower the barriers to bank loan access for small en- ies, more time is needed for activity to pick up at terprises and entrepreneurs. a sufficient pace to translate into lower unemploy- In view of the constraints on macro policies, stronger ment. In this context, one question is how much and faster employment gains – including in better- scope there is for macro policies to stimulate aggre- quality jobs – will be hard to achieve without sig- gate demand. Clearly, macro policies played a major nificant and broadly based structural reforms that role in preventing an even worse outcome during the foster jobs creation and take-up. Measures to boost downturn and contributed to recovery. Against this productivity growth and competitiveness will also background, room for further stimulus is limited, be important and since stronger productivity growth especially in advanced countries. often entails a reallocation of resources across firms In advanced countries, monetary policy is already or sectors, policy reforms also need to address im- highly accommodative, with policy rates at near zero, pediments to such mobility. supported by quantitative easing measures put in place by major central banks. While the accommo- dative stance will be warranted for a considerable 3. Taking stock of the Cannes Action time to come, little room for policy rate reductions Plan commitments remains and the effects of unconventional measures This section briefly reviews how reform can lead are less certain. As regards fiscal policy, public sector to more jobs and higher employment, not only finances are too weak in most advanced G20 coun- through better functioning labour markets and in- tries to allow significant fiscal support, though in stitutions, but also via stronger growth. Against this most cases, automatic stabilizers should be allowed to background, it takes stock of the likely employment 7 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES Figure 6. Large jobs gap1 remains in some countries (percentage of actual employment,2,3 persons aged 15 and over,4 2011 Q45) 20 15 10 5 0 -5 -10 -15 y y ia il n a ali a of o e n ion da om ly tes a ain rke an es az tio tin lic xic nc pa Un na gd Ita ta ric Sp Tu rm on Br era en str b Me Fra Ja Ca in S Af Ge Ind Fed Ar g Au e pu ea n dK i ted ut h ,R rop ite Un So s ian a Eu Un R us Kore Countries are shown in ascending order of jobs gap in 2011. 1 The job gaps at a particular date is de�ned as the increase in employment (as a per cent of current employment) required to restore the ratio of total employment to the working-age population to its value in 2007 Q4. 2 Selected urban areas only for Argentina and Brazil.. 3 Employment data for Mexico before 2011 have been adjusted to take account of the introduction of new population estimates from the 2010 Population Census. 4 Data refer to persons aged 15–72 for the Russian Federation and aged 15–64 for South Africa. 5 2011 Q2 for Argentina, 2011 Q3 for Indonesia and the Russian Federation. Source: OECD estimates based on OECD Economic Outlook projections for the OECD countries and national Quarterly Labour Force Surveys for the other G20 economies. Figure 7. Growth will not be strong enough to reduce unemployment in many G20 countries (difference between actual and trend GDP growth on average over 2012–13) 2 1.5 1.4 1 0.5 0.2 0.2 0.2 0.4 0 –0.2 –0.1 0.0 –1 –0.6 –0.4 –0.2 –0.8 –0.7 –1.0 –0.9 –0.9 –1.3 –2 –3 –4 –3.5 a da n ina ia ain o tes ia ina ca ia m n e y y ly il of xic ali nc pa an tio ke es Ind ab do az Ita na fri ta nt Sp Ch lic Fra r str Ja rm Me ra on Br ing Tu Ar hA Ca dS ge ub de Au Ind Ge di dK Ar ut ite Fe ep u So Sa ite ,R Un ian Un rea ss Ru Ko Source: Based on IMF and OECD projections. consequences of the country commitments under population, the specific policy priorities nevertheless the Cannes Action Plan. vary across them. For countries that suffered a sharp increase in the 3.1 G20 countries face different labour market unemployment rate and in the incidence of long- challenges term unemployment, a priority is to limit the risk The previous sections have shown that if all G20 of the long-term unemployed and those who have countries are concerned about near-term labour mar- dropped out of the labour force through discourage- ket developments and the need to ensure that ben- ment facing growing barriers to reemployment as efits from the recovery reach larger swathes of the time passes. This risk appears particularly strong for 8 youth and low-skilled workers who have been dis- growth and better-quality jobs in the longer term.3 proportionately affected in most of these countries. Additional measures to boost employment through Countries primarily concerned with such a risk in- public and private investment as well as broaden- clude Canada, Italy, Japan, South Africa, Spain, the ing the coverage of social protection are considered United Kingdom and the United States. in section 4. In countries such as France, Italy, Spain, South Africa Finding an appropriate balance between supply-side and Turkey, the unemployment rate was already rela- measures to enhance job readiness and search and la- tively high as they entered the crisis, suggesting that bour force participation, and demand-side measures the current level also contains a large structural com- to support strong employment generation, is contin- ponent, which needs to be addressed. gent on country-specific situations. However, pur- For other countries, the priority is to increase labour suing such a balance in all countries can have large force participation and employment rates, in par- positive effects for all. ticular for specific groups such as women and old- Addressing the risk of persistent high er workers, a high proportion of whom are largely unemployment excluded from the labour market. In some cases, Countries facing the risk that higher unemployment this challenge is compounded by the need to ab- in the wake of the crisis becomes permanent could sorb large cohorts of youth reaching working age. boost labour demand through stronger investment Countries where participation rates are significant- and firm creation, as well as via containing non-wage ly below average include Argentina, Brazil, France, labour costs. Given that the pay-off from reforms India, Indonesia, Italy, Mexico, Saudi Arabia, South often takes time to materialize, it is important for Africa and Turkey. While overall rates in the Republic countries facing persistently high unemployment to of Korea are close to average, they are still relatively focus on policy packages most likely to yield short- low among women. term gains. However, in assessing policy options to In Argentina, Brazil, India, Mexico, and to a lesser accelerate the creation and take-up of job opportu- extent South Africa and Turkey, low official employ- nities, policy-makers also need to take into account ment rates partly reflect a high degree of informality other policy objectives such as budgetary consolida- rather than inactivity, which can be tackled through tion, higher labour force participation and social pro- a combination of regulatory reforms, better enforce- tection. While some of the measures reported below ment and broader skills opportunities. do not have significant budgetary costs, others may, suggesting that countries facing tight budget con- 3.2 How can policies help address these straints may have to focus on low-cost measures or diverse challenges? ensure that others are financed through means that Actions aimed at addressing these challenges cut are as friendly as possible to employment. Potential across a broad range of policy domains that have policy trade-offs are highlighted in table 1. the potential to promote stronger growth and job • Regulatory barriers to competition: Reforms creation, as well as to foster the integration in the aimed at reducing regulatory barriers to firm en- labour force of groups at the margin. Here, the focus try and at exposing sheltered sectors to stronger is on the product and labour market policies and domestic and foreign competition can boost both related aspects of taxation that are considered as growth and employment. In particular, evidence most relevant for near-term labour market outcomes. suggests that fairly rapid employment gains from Some reforms can have initial negative consequences liberalization can be expected in sectors such as before medium-term benefits emerge, especially in retail trade and professional services. times of weak demand. The size and timing of em- ployment effects depends to a great extent on coun- • Employment protection: In so far as stronger try circumstances. The report leaves aside extensive competition also leads to more firm entry and discussions to improve access to, and efficiency of, education and training systems even though they are 3 Policies to develop human capital are discussed in OECD: Pur- suing strong, sustainable and balanced growth: A Note on Implementa- a fundamental element in developing human capi- tion of Structural Reform Commitments (Paris, 2011), prepared for the tal, which in turn is key for promoting sustained G20 Framework Working Group. 9 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES Table 1. The impact of policies to reduce persistence of unemployment on other economic objectives Short-term impact Budgetary cost Social protection / Labour force participation Reduce barriers to competition No impact on unemployment but None Improve participation of women raise employment of women Reform tax structure with reduced tax Stronger effect on employment than Depends on net effect on revenues Shift tax burden from workers on employment unemployment towards pensioners Provide job subsidies Help reduce unemployment, espe- High Unclear cially for women (risk of displacement effect) Reduce initial replacement rate and/or Lower unemployment in general but Negative Reduce protection shorten benefit duration may raise it in period of weak activity Expand training programmes Reduce unemployment rate of women High Improve integration and youth Reduce average labour tax wedge No strong impact Potentially high Neutral if benefits maintained Ease overly restrictive EPL Reduce unemployment rate of women None unless accompanied by Improve on regular contracts and youth stronger UI benefits if it reduces duality Reform wage No short-term impact None Improve bargaining if it reduces duality Source: Based on OECD Economic Outlook (2011/1) and Going for Growth 2012. exit as well as higher jobs turnover, the income activation measures in order to minimize benefit and employment benefits can be underpinned by dependency. policy settings that facilitate resource reallocation. • Work-sharing: In times of severe downturns, This implies a level and design of job protection work-sharing arrangements help to avoid mass that does not result in excessive hiring and firing lay-offs and allow businesses to retain their work- costs so as to allow firms to adapt quickly to new forces, thus minimizing firing and (re)hiring costs technology or product demand but also to pro- and preventing a sharp rise in unemployment. If vide workers with adequate advance notice so as complemented with targeted training for affected to allow time to start the search for a new job. workers, work-sharing can bring long-term bene- Strong restrictions on the dismissal of workers fits to both workers and enterprises. help cushion the employment impact of falling activity in severe downturns, but easing provi- The significant role played by these programmes sions whose costs are high and unpredictable for in cushioning the crisis in countries such as Ger- employers can boost hiring during the recovery. many and Japan suggests that having such options in place and being able to activate them quickly Setting an optimal level for employment protec- in severe downturns can be useful. tion legislation requires balancing the advantages in terms of a secure employment relationship in Work-sharing arrangements with different modal- which both parties invest to the benefit of firm per- ities have been used in a number of G20 countries. formance against facilitating the transfer of work- One desirable feature is the inclusion of built-in ers from less to more productive employment. incentives for a timely phasing out to minimize Employment protection legislation thus needs to the risks that such arrangements maintain jobs be part of a package of measures to reduce both that are not viable in the long run, which could worker and employer costs involved in forming hamper productivity gains. long-term productive matches. • Tax structure: A shift in the composition of tax- Where high severance payments represent the ation away from labour and capital and towards main source of income for an unemployed work- consumption, immovable properties and envir- er and his/her family in the event of a lay-off, an onmental externalities has been found to stimu- easing of job protection could be accompanied late employment relatively quickly, in addition to by a strengthening and extension of unemploy- boosting growth in the longer term, though this ment benefit programmes, along with effective may also lead to higher income inequality. Short 10 of a comprehensive tax reform aimed at improv- two types of contracts so as to reduce labour mar- ing economic efficiency and equity, there is a case ket duality. This will encourage hiring in more sta- for targeted and temporary cuts in payroll tax- ble jobs in the formal sector and likely contribute ation and/or temporary increases in job subsidies to promote a smoother transition of new entrants, as their budgetary cost can be kept moderate and including youth, from entry jobs with short dura- their effectiveness increased by focusing on low- tion to more stable jobs that offer a career prospect. paid workers. These policies have been applied in • Institutional arrangements for collective bar- a variety of ways, such as reduced employer social gaining: Reforms of institutional arrangements security contributions, especially for new hires in for collective wage bargaining can also help re- small enterprises; reduction of employee and em- duce structural unemployment and labour mar- ployer contributions to unemployment insurance; ket duality. Structures for bargaining vary widely or a flat subsidy for hiring workers unemployed across G20 countries according to national con- for more than six months. texts, with different issues determined at firm, sec- • Training and job-search assistance: A higher tor or national levels. Promoting social dialogue take-up of current and future job vacancies calls and ensuring wage dynamics that are broadly in for policies to improve matching between jobseek- line with trend productivity may help sustain ag- ers and employers through scaled-up training pro- gregate demand. grammes and job-search assistance, as recommend- ed in the G20 Training Strategy.4 Recent analysis • Income support for unemployed: Providing ad- suggests that fairly rapid employment gains can be equate social protection to the unemployed re- generated by boosting measures to help the un- mains a priority in the uncertain recovery, with employed find the right jobs and keep their skills a growing number of jobseekers who have been updated. That said, a rapid and effective scaling-up without a job for a protracted period of time be- of training programmes may be difficult in coun- ing at risk of withdrawing from the labour force tries that lack sufficient infrastructure and/or that and falling into poverty. Again, it is essential to face acute budget constraints (e.g. Italy, Spain, the combine income support with appropriate job- United Kingdom and the United States). In emerg- search incentives and re-employment services to ing market countries, employment services and mobilize the beneficiaries back to employment, training programmes would achieve greater impact as well as with a benefit system that provides ad- through improvements in governance and design. equate work incentives. Reducing structural unemployment • Worker mobility: The mobility of workers can While action to stimulate labour demand will also in some cases be enhanced through reforms of help countries facing a high structural unemploy- housing policies or with measures to facilitate ment rate, additional measures may be needed to the transfer of pension rights (including across ensure that specific groups of workers – in particular jurisdictions). youth and the low-skilled – can be better integrat- Fostering labour force participation ed in the labour market. In particular, a number of measures can be envisaged to tackle labour market High structural unemployment can contribute to duality and raise mobility: lower participation through discouragement effects. Relatively low labour force participation rates – espe- • Differences in degree of protection: In countries cially of women – may also in some cases reflect cul- where employment protection legislation for regu- tural choices or traditions. But they often result from lar workers is particularly stringent, and the use of the difficult access to services that can help reconcile temporary contracts widespread, there is a case for work and family responsibilities, as well as from fi- narrowing the differences in provisions between the nancial disincentives embedded in benefit systems. 4 G20 Leaders welcomed at their Summit in Toronto the G20 • Benefit systems: In several countries, women face Training Strategy prepared at their request, which identifies a number strong disincentives to join the labour market or of building blocks for effective national skills policies. For more infor- mation, see ILO: A skilled workforce for strong, sustainable and balanced return to work after child rearing, in part reflect- growth: A G20 training strategy (Geneva, 2011). ing the loss of out-of-work benefits, but also the 11 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES difficult access to affordable childcare services. their potential in enhancing school attendance Reforming benefit systems to make work pay in and workforce participation.6 this area involves difficult policy trade-offs, but dif- Reducing informality ferences across countries in participation rates and implicit financial disincentives to participate point Large and persistent shares of informal employment, to large potential gains from reform. In emerging predominantly in the form of self-employment and market economies, conditional cash transfers that very small enterprises, are a characteristic feature of combine income support with the requirement to labour markets in most emerging-market countries. maintain investment in human capital and health The resultant low average labour productivity weighs of children have proven effective in promoting fe- on potential output and thus the pace at which un- male participation in the formal sector. deremployment and poverty are reduced. Likewise, evidence from advanced country experi- A sound policy objective is to promote over time a ences has shown that reforms to pension systems to continued shift from informal to formal employ- reduce the financial disincentives to work at ages ment. Many of the policy measures to tackle unem- between 55 and 65 help to raise participation rates ployment and encourage participation will also con- for older workers. However, such reforms may tribute to reduce informality. Most relevant in this not have as strong an impact in emerging market area are policy measures to promote a business envi- countries where the evidence suggests that those ronment conducive to investment and job creation who retire often engage in informal work rather in the formal sector, including easing administrative than leaving the labour force. In such cases, re- barriers to entrepreneurship and to the formalization forms of pension systems need to be undertaken of small enterprises, reforming labour regulation and in the broader context of addressing informality. the financing of social insurance programmes, im- proving the tax structure and access to credit, and • Minimum wages: Combined with in-work bene- ensuring respect for the rule of law. Broadening the fits and measures to reduce the non-wage cost of coverage of basic social protection – notably through low-paid jobs, a statutory minimum wage set at an transfers that complement individual savings and appropriate level may raise labour force participa- contributions to social insurance programmes – helps tion at the margin, without adversely affecting de- workers mitigate the impact of adverse shocks and mand, thus having a net positive impact especially reduces the risk of poverty and exclusion. If designed for workers weakly attached to the labour market. carefully, it can also contribute to the reduction of Maintaining the purchasing power of minimum informality.7 Such measures are also warranted in wages at around 30 to 40 per cent of median wages advanced countries to combat the grey economy. sustains demand and reduces poverty and income Non-contributory programmes should be designed inequalities. Statutory wage floors systematically in a way so as not to reduce incentives to participate set at levels significantly above that range entail the in contributory programmes, using a combination of risk that these benefits would be more than off- income-related fees with a subsidy component that set by lost job opportunities, especially for youth decreases with income. and low-skilled workers. Allowing the minimum wage to slip significantly below that range risks The recent growth pattern of Brazil and its resili- exacerbating poverty while weakening demand.5 ence to the crisis appears to be in part attributable to a reduction of informality, inequality and poverty • Social protection: Labour force participation is which supported domestic demand and created op- also generally supported by adequate social pro- portunities for SMEs. tection systems such as unemployment insurance benefits and an expanded coverage of basic so- cial protection programmes, which have shown 6 See OECD: OECD Employment Outlook 2011 (Paris, 2011), Chapter 2. 7 In this regard, the 101st International Labour Conference 5 D. Vaughan-Whitehead (ed.): The Minimum Wage Revisited in (30 May–15 June 2012) will discuss the adoption of a new Recom- the Enlarged EU (Geneva, ILO, 2010). mendation concerning national floors of social protection. 12 Table 2. G20 structural policy commitments by domain Policy domains Countries with a G20 commitment Countries where the policy indicators suggest in the policy area1 scope for improvement2 Policies aimed at boosting labour demand through stronger competition and better investment incentives Strengthen competition in network industries Australia, Canada, China, France, Germany, Italy, Brazil, China, India, Republic of Korea, Mexico, Mexico, South Africa, Turkey Russian Federation, South Africa, Turkey Strengthen competition in professional services China, European Union, France, Germany, Italy, Canada, China, France, Germany, India, Italy, and retail trade sectors Republic of Korea, Spain South Africa, Turkey Ease administrative and regulatory barriers to Australia, Brazil, Canada, India, Italy, Republic of Brazil, China, India, Mexico, Russian Federation, entrepreneurship Korea, Mexico, Spain, United Kingdom Turkey Lower barriers to foreign ownership/investment / Argentina, Canada, China, European Union, Canada, China, India, Indonesia, Japan, Republic trade France, India, Indonesia, Japan, Mexico, South of Korea, Mexico, Russian Federation Africa Shift the structure of taxation towards consump- Argentina, Australia, Brazil, Canada, China, Australia, Canada, France, Germany, Italy, Japan, tion and immovable property France, India, Indonesia, Republic of Korea, Spain, United States Mexico, Russian Federation, South Africa Policies aimed at breaking the persistence of high unemployment and labour market duality Reduce the (average) tax wedge on (low) labour Australia, Brazil, Canada, Mexico Brazil, France, Germany, Italy income, including through targeted payroll tax cuts Reduce the minimum cost of labour relative to Spain Australia, Brazil, France, Indonesia, Turkey average cost Maintain or beef up training and job-search Italy Canada, Italy, Republic of Korea, Japan, Spain, assistance programmes and consider targeted United States job subsidies Reform wage bargaining system to raise the France, Italy, Republic of Korea, Mexico, South France, Italy, Spain responsiveness of wage adjustments to labour Africa, Spain market conditions Reform employment protection legislation to France, Italy, Turkey France, Germany, India, Indonesia Italy, Republic narrow the gap in protection between temporary of Korea, Spain, Turkey and permanent contracts Reduce housing-related and/or pension-related Canada, China, European Union, Germany, restrictions on labour mobility Russian Federation Policies aimed at fostering labour force participation Extend coverage of unemployment insurance China, Italy China, India, Indonesia scheme to strengthen social safety net Reduce financial disincentives to work for house- Germany, Italy, Japan, Republic of Korea, Turkey Canada, Germany, Italy, Japan, United States hold second earner or lone parent and/or improve supply of childcare services Reform pension systems to reduce financial France, Italy, Japan, Russian Federation India, Russian Federation, Spain, Turkey disincentives to continuing to work at older age 1 Refers to the reform priorities identified in the G20 countries’ national policy template submissions up to and including the post-Cannes Action Plan. 2 Based on policy indicators covering most – though not all – G20 countries. Some scope for improvement in a policy domain is considered when the value of the corresponding indicator for a country is found to deviate substaintially from the (simple) average across the set of OECD countries for which it is available. Most of the policy indicators can be found in Chapter 3 of Going for Growth 2012. In the case of active labour market policies and the coverage of social protection systems, the source of information is the OECD Employment Outlook 2011 (Chapter 2 and Annex tables). There is no indicator of restrictions on labour mobility. Some of these indicators may not reflect recent reforms in the measured policy domain. Source: OECD. 3.3 Matching challenges with policies: addition, the table also identifies countries where in- A review of G20 commitments dicators suggest that there may be scope for policy Table 2 provides a list of structural policies aimed improvement.9 A substantial deviation from the prac- at addressing the main challenges.8 For each broad tice observed on average accross countries in a par- objective, it identifies G20 countries that have made ticular policy area could be taken as indicative of po- a commitment in the respective policy domains. In tential gains from reform, especially if labour-market 8 Progress made on these commitments and implementation gaps 9 This selection is therefore largely based on policy indicators cov- are summarized in OECD: Pursuing strong, sustainable and balanced ering most – though not all – G20 countries. Argentina and Saudi growth: A Note on Implementation of Structural Reform Commitments, Arabia are not covered by policy indicators, while some of the labour op.cit. market policy indicators cover only OECD countries. 13 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES performance related to the policy in question is weak. OECD countries with the highest public childcare In several cases, the potential gains may build up spending levels, the rise in employment rates could only gradually and become more apparent once the reach on average around 0.4 percentage points recovery is firmly under way. after 5 years. With the exception of Saudi Arabia and the United • Reduction in labour tax wedges: If the average States, all G20 countries have made at least one com- labour tax wedge in G20 countries were lowered mitment in policy areas to boost labour demand to the level prevailing in the six countries with the through stronger competition and investment. highest employment rate, this could lead to an in- Commitments are particularly widespread in the crease in employment rates on average of 0.9 per- areas of tax structure and barriers to foreign trade centage points after five years. This would require and investment. In the latter case, virtually all coun- the financing of the tax cut to be undertaken in tries that appear to have the largest scope for im- a way that does not reduce employment or un- provements have made a commitment. While many dermine the financing of social security systems. countries have also committed to strengthen com- • Increase in spending on active labour market petition in network and/or services industries, it is policies: If G20 countries were to raise the ratio noteworthy that several of those who stand to gain of active labour market policies (e.g. training, job- the most have not done so. search assistance and jobs subsidies) spending per G20 countries have generally made fewer commit- unemployed to around half the average level pre- ments in labour market policy areas where action may vailing in a group of countries with a high spend- be needed to prevent the rise in unemployment fol- ing ratio, the unemployment rate could fall on lowing the crisis from becoming entrenched, as well average by half a percentage point after five years, as to reduce structural unemployment. More wide- again assuming that the financing of this measure spread commitments in these areas might be expected does not reduce employment. considering that several of the measures suggested The average impacts mask potentially substantial would also help to address informality. Furthermore, variations in country-specific effects according to large differences in policy practice across countries the relevance and scope for reform in the respec- suggest that the pay-off for some could be substantial. tive policy domains. Based on the results from IMF/ About half of G20 countries have made commit- OECD simulations used to build the upside sce- ments in the policy areas identified as most relevant nario reported in the IMF umbrella report, figure 8 to foster labour force participation rate of women shows possible near- and medium-term GDP and and/or older workers. employment effects of reforms undertaken jointly Simulations of the potential benefits from broad re- across a broad range of product and labour market forms in these areas suggest gains could be important, policies.10 In this scenario, where all G20 countries although such quantitative assessments based on past are assumed to take action, the overall gains to do- experience with reforms may overestimate the posi- mestic production are amplified by positive benefits tive job effects of supply-side measures in periods from international trade. Furthermore, the possible of weak aggregate demand. Some examples of the gains illustrated in figure 8 do not take into account possible impacts of reforms in specific areas include: an additional benefit from structural policy action, which is to reduce the risk of a downside scenario • Reform of pension systems: If pension systems and thereby help to avoid the substantial costs that in G20 countries were moved to actuarial neu- this would entail. trality so as to remove the financial disincentives to pursue activity at older age, employment rates could rise on average by around 0.2 percentage 10 Product market reform concerns a reduction in regulatory bar- points after 5 years. riers to competition in network and services industries. The policy areas covered by labour market reforms are active labour market poli- • Increase in public childcare support: If child- cies, employment protection legislation, unemployment insurance, care support were increased in Germany, Italy and pension regimes and policies to boost labour force participation. For more details, see box 1 in IMF: Towards Lasting Stability and Growth: Japan (i.e. G20 countries with a commitment in Umbrella Report for G20 Mutual Assessment Process (Washington, DC, this area) to the average level observed in the three 2012). 14 Figure 8. Comprehensive product and labour market reforms can yield substantial bene�ts A. The impact of structural reforms on GDP (in percentage deviation from baseline) 9 8 7 6 5 4 3 2 1 0 n ia n e bia ina y ia of y da tes ly ina o il a m ite Area ca rke an nc pa xic tio az Ita ali Ind es do lic na ta ra Ch nt fri Fra rm Ja ra Br Me Tu on str ing ub Ca dS iA ge hA de o Ge Ind Au ur ep Ar ud dK Fe ite ut rE ,R Sa So Un ian he rea Un Ot ss Ko Ru B. The impact of structural reforms on employment (in percentage deviation from baseline) 8 7 6 5 4 3 2 1 0 n ia n e bia ina y ia of ny da tes ly ina o il a om rea ca ke nc pa xic tio az Ita ali Ind es a lic na ta ra Ch r nt fri Fra gd rm Ja ra Br Me oA Tu on str ub Ca dS iA ge hA de Kin Ge Ind ur Au ep Ar ud Fe ite ut rE d ,R Sa So Un ian ite he rea Un Ot ss Ko Ru 2013 2015 2017 Source: IMF and OECD estimates. 4. Further labour and social policy and persistently high structural unemployment raise options in support of the G20 issues of social destitution, loss of human capital and Framework for Strong, Sustainable income inequality, in addition to weakening poten- and Balanced Growth tial growth. Employment, labour market and social protection The preceding sections highlighted two significant measures currently implemented or contemplated assessments. The current outlook for actual GDP by countries have been discussed in the preceding growth in several G20 countries is too weak to ex- sections. G20 countries have already taken a broad pect a rapid return to the employment to popula- range of actions, or are committed to do so, in order tion ratios that prevailed in 2008 within the next to address the main challenges. In addition, ongo- two years. Furthermore, structural challenges in re- ing reform efforts in several countries involve policy lation to low labour force participation, particularly changes in relevant areas that have not necessarily for women and young people, weak formal employ- been the object of a G20 commitment (e.g. reform ment growth relative to total employment growth, of employment protection legislation in Spain, 15 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES reduction of regulatory burden on businesses in the investment in physical infrastructure often has a big- United Kingdom and the beefing-up of training, job ger impact on long-term economic performance than search assistance or social protection programmes in other kinds of physical investment, while contrib- several countries).11 Even so, it is more than likely uting to raising employment in the short term. In that further measures will be required in order to Cannes, G20 Leaders have indeed supported efforts tackle the challenges posed by weak employment to improve capacities and facilitate the mobilisation prospects in a context of an overall economic out- of resources for infrastructure projects initiated by look still clouded by significant downside risks and public and private sectors.13 financial headwinds. Infrastructure investments cover a variety of pro- In thinking about additional measures it is useful grammes, with different impacts on jobs. One vari- to be reminded of two important elements. First, in ant of infrastructure investment is public works pro- countries facing severe fiscal constraints, expenditure grammes aimed at direct job creation and poverty switching favouring those measures with a high im- alleviation. In this area, India implements a large- pact on job opportunities and take-up may enhance scale rural employment guarantee scheme. Indonesia employment at current spending levels. Second, well- stepped up investments in rural roads in 2009 and designed employment and social policies can also 2010 to generate employment, offsetting losses make a contribution to meeting the policy objectives caused by the crisis. of the G20 Framework, including the rebalancing of the global economy. Improving access to bank funding for SMEs Small and medium-size enterprises, which on average 4.1 Further measures to promote economic across countries account for an estimated 66 per cent growth and employment expansion of total employment, are highly dependent on bank credit for a variety of purposes ranging from invest- In considering further action to accelerate the pace ment to cash-flow management. When financial con- of job recovery, G20 countries may wish to focus on ditions are constrained, as continues to be the case in specific areas covering both the demand and supply several countries, particularly in Europe, small enter- sides of the labour market.12 On the demand side, prises and employment suffer. A close monitoring of measures to boost public and private investment, es- credit conditions for small enterprises, and measures pecially among SMEs, could help create jobs while to ease them when credit markets tighten unduly, are raising potential growth in the longer run. On the warranted in those countries facing such conditions. supply side, even though actions have already been More generally, reviewing support provided to the taken to improve social protection, more could be emergence and growth of new businesses, including done in several emerging-market economies. Also, support to entrepreneurship, is desirable to expand the low employment rates of youth are clearly a con- potential output and employment. cern shared by most G20 countries and hence de- serve extra attention. In response to the crisis, many countries including Brazil, the Russian Federation, South Africa, Turkey, Supporting infrastructure investment the United Kingdom and the United States have taken It is important that public investment in infra- steps to ease credit conditions for SMEs through structures be as far as possible sheltered from budg- increased capital to banks involved in lending to et cutbacks and that they be expanded in countries smaller enterprises, lower interest rates, microcredit and areas where major gaps have been identified. programmes in rural areas, and tax rate reductions. Past evidence from various sources has shown that 11 An inventory of policy responses to the financial and economic crisis developed jointly by the ILO and the World Bank helps track country policy initiatives. The database was launched on 20 April 13 A proposal in this regard is the Global Infrastructure Initiative, 2012. which aims at funding infrastructure projects in developing countries 12 The ILO Global Jobs Pact adopted by the International Labour from a global pool of savings, and which illustrates the potential for Conference in 2009 offers a portfolio of policy measures many of boosting growth and jobs in these countries, supporting global de- which draw on or have been taken up by G20 countries. See ILO: mand and the recovery. See J. Lin and D. Domeland: Beyond Keynesi- Recovering from the crisis: A Global Jobs Pact (Geneva, 2009), available anism: Global Infrastructure Investments in Times of Crisis, World Bank online at http://www.ilo.org/jobspact/lang--en/index.htm. Policy Research Working Paper 5940 (Washington, DC, 2012). 16 Extending the coverage of social protection training or on-the-job training. For vulnerable youth, Compared with advanced G20 countries, the cov- these programmes can include training on life skills erage of contributory social insurance programmes and include subsidies to support internships. in emerging market countries remains relatively low, Public and private employment services play an im- even if it has improved significantly in a number of portant role in orienting training and re-training pro- them (e.g. Brazil, South Africa and Turkey). For in- grammes. Adequately staffed employment services stance, the share of the workforce contributing to perform important functions of case management, a pension plan and/or health insurance is around counselling, intermediation and job-search advice 10 per cent in India and Indonesia and less than and monitoring. 50 per cent in China. There is thus significant scope in emerging market countries to further expand the cov- 4.2 Policy packages can boost employment and erage of social protection programmes, ranging from help rebalancing the global economy conditional cash transfers to basic old-age pensions, G20 countries should opt for policy packages that child benefits and health services. Expanded access appear best suited to address their most pressing la- to basic social protection would have a major impact bour market challenges, while taking into account on poverty, aggregate demand, employment, mac- budgetary constraints and other social objectives. In roeconomic stability and social cohesion. The G20 the case of advanced economies, the primary concern Leaders have welcomed recent developments around is the risk that persistently high unemployment turns social protection floors, adapted to national situations. into structural unemployment. In emerging market Improving job prospects for youth countries, concerns have more to do with the quality than the quantity of jobs, and one challenge is to de- Given the damaging long-term consequences on hu- sign and expand social protection programmes that man capital accumulation and future earnings pros- can effectively alleviate poverty and provide access pects of a prolonged spell out of work and of any form to basic services – not least education – while rais- of schooling for young adults, additional measures ing incentives to participate in the formal sector. to mitigate high levels of youth unemployment are In so far as they impact on economy-wide saving justified. Some 37 million young women and men and investment, a number of policy options that are are unemployed across G20 countries, over 30 per relevant to address country-specific labour market cent of total unemployment. Job search orientation challenges may also contribute to narrow external and support, skills development, opportunities to imbalances, as illustrated in table 3. combine work and study, apprenticeships and work experience opportunities, as well as targeted subsidies Surplus countries are among the more common measures to address In surplus countries, policies consistent with narrow- the challenge. The scale of existing programmes is ing external imbalances are those that reduce overall often not commensurate to the large increase in the savings while shifting the composition of demand number of unemployed. towards domestic sources. Expanded opportunities for vocational education and In advanced economies, this includes reforms of training are needed to impart the skills required by product market regulation, especially in services sec- a changing labour market. In many situations, the tors, to boost domestic investment and consumption. need is for more relevant training tuned to the de- Also, improving the full-time labour force participa- mand in the labour market rather than additional tion of women may help reduce precautionary sav- spending. A key criterion is quality and relevance of ings by providing households with more diversified training, often enhanced through the direct partici- sources of incomes. pation of businesses, labour, governments and train- In emerging-market economies, the expansion of so- ing providers in defining needs and quality criteria. cial protection, combined with improved access to Training-related active labour market programmes bank lending for households and firms, may lower also need to be considered in the case of emerging- the need for high private savings and boost domes- market economies to target the needs of informal sec- tic investment. The latter may be further enhanced tor workers who often lack access to formal vocational through a lowering of barriers to foreign direct 17 BOOSTING JOBS AND LIVING STANDARDS IN G20 COUNTRIES Table 3. Employment and social policies consistent with external balance objectives Surplus countries Deficit countries Advanced economies Germany, Japan, Republic of Korea Australia, Canada, France, Italy, Spain, United Kingdom, United States - Lowering barriers to competition in services sectors - Achieving public debt sustainability through reform of pension - Encourage full time labour force participation of or old-age health benefit entitlements women - Shift in tax composition away from labour and capital towards consumption - Encourage labour mobility and resource reallocation through reform of job protection legislation and stronger active labour market policies Emerging market economies Argentina, China, Indonesia, Russian Federation, Saudi Brazil, India, Mexico, South Africa, Turkey Arabia - Boost investment in infrastructure that help improve compe- - Expansion of social protection coverage titiveness - Financial market liberalization to improve access to credit for households and SMEs. - Lowering barriers to FDI - Promoting wage developments which appropriately reflect trend productivity, including through collective wage bargaining investment. Improvements in wage determination balanced and broad-based recovery. Available forecasts systems can also contribute to ensure that wage de- and projections suggest no significant improvement in velopments appropriately reflect trend productivity. the employment situation over the next two years, at least for the G20 as a whole. This provides ground for Deficit countries a stronger approach to coordinated and possibly addi- In deficit countries, external balance objectives will tional employment and social policy measures as part mainly benefit from measures that improve competi- of the G20 framework and reform agenda. tiveness and encourage saving. Alongside continuing cyclical weakness in a number In advanced economies, a reduction of pension and of G20 countries and the group as a whole, there is other benefit entitlements – where such entitlements increasing evidence of profound structural changes are unsustainable given demographic trends – would that are generating major shifts in patterns of employ- help boost savings. Also, competitiveness would be ment. Measures to support recovery should therefore underpinned by shifting the tax structure away from also contribute to facilitating change by speeding labour and capital inputs, combined with reforms up both the creation of new job opportunities and that facilitate the reallocation of resources towards the transfer of workers from less to more produc- more productive sectors. Futhermore, policies that tive employment. influence wage setting may enhance competitiveness. In emerging market economies, measures that can This paper suggests an approach building on the strengthen the external balance in the medium term in- experience of a range of policies already applied by clude infrastructure investment, in particular in areas that different G20 countries. can reduce trade costs and boost export performance. Further analytical work on the impact and costs of different measures in different contexts could help 5. Conclusions consideration of how the G20 might strengthen the Current trends in employment and unemployment contribution of employment, labour market and so- rates and in labour force participation will bear on a cial protection policy tools to its framework. 18