OECD, Directorate for Employment, Labour and Social Affairs

Organisation for Economic Co-operation and Development

Hilary Term Seminar Series, Oxford University

February 2010

Tackling the jobs crisis: An OECD perspective

John P. Martin Director of Employment, Labour and

Social AffairsOECD

The jobs crisis

An unprecedented jobs crisis•OECD-area UR jumped from 25-year low at 5.6% in 2007 to post-war

high of 8.8% in November 2009 (+16.3 mln)

While recovery is underway, the jobs crisis is far from over•OECD UR expected to rise to 9.1% by end 2010, but still be at 8.6% by

end 2011.

Bold action needed to tackle high and persistent unemployment• Individuals in jobless households 5x more likely to be poor on average•Social costs go well beyond the loss of income (e.g. health, crime etc.)•High risk of hysteresis effects

Part I

What are the labour market impacts of the crisis?•Historical patterns and recent trends

The unemployment impact so far differs greatly across

countries

0

2

4

6

8

10

12

14

16

18

20

Percent of the labour force

December 2007 December 2009

Different responses of employment to output declines

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

change in GDP Change in total hours worked

Total percentage change, 2007Q3 to 2009Q3

Different margins of adj. in the labour market: employment vs.

hoursTotal percentage change, 2007Q3 to 2009Q3

-12

-10

-8

-6

-4

-2

0

2

4

6

Change in total employment Change in average hours worked

The current crisis is the worst in recent decades

Index base 100 = unemployment rate at the preceding business-cycle peak (based on output gap), OECD area, quarterly data

80

100

120

140

160

180

Q0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12Quarters elapsed since the beginning of the recession

1973:Q2 1979:Q2 1990:Q1

2000:Q2 2007:Q3 projected

Source: OECD Economic Outlook, November 2009.

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in Finland, January 1970 - November 2009

0

5

10

15

20

4 years14 years

3 years

18 years

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in the United Kingdom, January 1970 - November 2009

0

2

4

6

8

10

12

10 years

5 years 5 years

7 years

2 years5 months

4 years7 months

24 years4 years

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in the United States, January 1970 - November 2009

0

2

4

6

8

10

12

26 years

9 ans

4 years

3 years7 months

5 years5 months

8 years

3 years3 months

4 years9 months 3 years

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in Germany, January 1970 - November 2009

0

2

4

6

8

10

12

2 years8 months

7 years6 months

2 years4 months

5 years

4 years6 months

3 years

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in France, January 1970 - November 2009

0

2

4

6

8

10

12

3 years

6 years10 years

4 years 6 years 5 years

Historically, disadvantaged groups bear the brunt of falling labour

demandEULFS data, index of relative business-cycle volatility (national average=100)

0

50

100

150

200

250

A similar pattern holds in the current downturn

Percentage change of employment over 2008 Q2 to 2009 Q2

-1.8

-2.9

-0.3

-6.8

-1.7

2.9

-2.5

-5.4

3.5

-2.1

-0.5

-7.0-8

-6

-4

-2

0

2

4

6

Tota

l

Men

Wom

en

15-2

4

25-5

4

55-6

4

Low

Med

ium

High

Self-

emp

Perm

Tem

p

Gender Age Education Work status

In addition to job losses, hours reductions and LF withdrawals also

account for falling LDShare of total variance explained by variation of the cyclical component of:

Hours per employee Employment rate of labour force

Labour force participation rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Youth (15-24) Prime-age (25-54) Older workers (55+) Men Women

Unweighted average across countries, 1983-2007

Average hours reductions in Germany, 2008-2009, not just the

Kurzarbeit

Proportion of average hours reduction due to:

Increased short-time work (Kurzarbeit) 25% Employer-initiated reductions in working time 40% Reduced over-time 20% Debiting working-time accounts 20%

The numbers in the table do not add up to 100 as not all factors that affect working time are taken into account (e.g. sick leave). Source: IAB (2009).

Part II

What are the policy challenges? •Strategic choices and policy response

LM policy challenges

Short-term challenges•Should labour demand policies play a major role?•Is the social safety net adequate?•Is the work-first approach recession-proof?

Long-term challenges•How to avoid high unemployment from persisting?•How to avoid undermining long-run labour supply?•How to avoid undermining long-term labour market

efficiency?

Resources available for LM policies differ across OECD countries

On average in 2007, 1.3% of GDP of which: 0.8% passive and 0.6% active But large differences across countries: e.g. from 0.4% in US to 2.8% in DEN Spending on UBs exceeds spending on ALMPs in almost all countries

0

0.5

1

1.5

2

2.5

Tota

l pas

sive

mea

sure

s

Unem

ploy

men

t ben

efits

Early

retir

emen

t

Tota

l acti

ve m

easu

res

PES

and

adm

inist

ratio

n

Trai

ning

Empl

oym

ent i

ncen

tives

*

Dire

ct jo

b cre

ation

Inte

grati

on o

f disa

bled

Passive measures Active measures

%

OECD average

Minimum

United Kingdom

Maximum

Governments have taken many types of measures in response to

the jobs crisisNumber of OECD countries that

have taken different types of measures

Number of EU-19 countries that have taken different types of

measures

Job subsidies, recruitment incentives or public sector job creation 15 12Reductions in non-wage labour costs

16 11

Short-time work schemes

22 14

Activation requirements 11 8Job search assistance and matching 21 14Job-finding and business start-up incentives 8 6Work experience programmes 11 6Training programmes 23 15

Generosity or coverage of unemployment benefits 17 10Social assistance 5 3Other payments or in-kind support 15 9Fiscal measures for low earners 15 12

Training for existing workers 14 13Apprenticeship schemes 10 7

Labour demand

Measures to help unemployed find work

Income support for job losers and low paid

Other training measures

Supporting labour demand

Vigorous macro-economic policy response, including large fiscal packages, to boost AD•Estimated to save 3.2 to 5.5 jobs in 2010 in the 19 OECD

countries included in the analysis

95

96

97

98

99

100

101

2007 2008 2009 2010

Projected employment

Scenario 1

Scenario 2

Scenario 3

Ensuring that S-T measures to support labour demand are well targeted and temporary

Most OECD countries have introduced measures to support labour demand:• Subsidies for the reduction in working time (22 countries)• Reductions in non-wage labour costs, in some cases targeted at SMEs,

disadvantaged groups (16 countries)• Hiring subsidies and work experience, generally targeted at disadvantaged

groups (16 countries) S-T labour demand should be unwound when recovery

becomes firmly established• By protecting job matches these measures have reduced socially and

economically inefficient job losses …• …but risk increasing dualism (U highly concentrated on already

disadvantaged groups and new entrants)...• ….and slow-down efficiency-enhancing labour reallocation• Hiring subsidies may help promoting employment for disadvantaged

groups, but have to be well targeted and with strict conditions for employers.

22

Providing an adequate safety net while minimising benefit

dependency The jobs crisis leads to longer average unemployment

spells •Where unemployment benefit durations are short, temporary extension of

benefits during the crisis helps cut the poverty risk among LTU (CAN, FIN, JAP, PORT, US)

Extensions should be temporary and targeted to the most vulnerable with enforcement of job-search requirements

The crisis can also be an opportunity to reform unemployment benefits to provide a more adequate safety nets to vulnerable groups, conditional on job search, and participation in ALMPs•For temporary and other non-standard workers, benefit eligibility has been

loosened (FIN, FRA, JAP)

23

Helping job-seekers find a job

Maintain core jobs-search assistance to help jobseekers• Even in recessions firms continue to create many new jobs (see EmO 2009, Ch. 2)• Cost of job loss increases due to longer expected unemployment duration and loss of human

capital • Many countries made good progress prior to the crisis in implementing effective back-to-work

policies • Don’t relax activation strategies; adapt them

For those at risk of LTU, re-employment services need to be adapted to specific conditions of slack LM• Some shift in emphasis from “work-first” approach to “train-first approach” through training

and work-experience programmes: Negative effects of programme participation on job-search less of an issue in recessions

• Helps provide jobseekers with “the new skills for the new jobs” in the recoveryRequires more resources for ALMPs

Question: is there a need for a public sector job creation scheme as a backstop for an “adapted” activation regime in a steep downturn?

Discretionary funds for ALMPs limited with some notable exceptions

484%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%% of 2007 ALMP expenditure% of GDP

As a % of GDP (left-side scale) As a % of 2007 ALMP expenditures (right-side scale)

Average annual planned additional expenditure in response to the economic downturn

Inappropriate government responses can undermine LS

in LR Allowing the unemployed to drift into LTU and inactivity

•Essential to maintain mutual-obligations approach (“bend but not break”)

Early retirement schemes and exemptions from job search of older UB recipients •Did not free up jobs for youth and took a long time to unwind•So far so good?

More recently, large inflows of WA persons into sickness and disability programmes•Some countries have made reforms aimed at promoting employment and

employability of people with remaining work capacity•Will they stay the course?

Helping youth “ride out the storm”

Youth unemployment has increased disproportionately in many countries•Youth E twice as sensitive to cycle as that of prime-age workers•Youth UR much higher than other groups (e.g. 1/3 Spain; 1/4

Ireland)

Need for decisive actions targeted on at-risk youth•Efforts to prevent youth entering the LM without qualifications

should be redoubled (e.g. second-chance school, subsidies for apprenticeships for un-skilled youth)

•Out-of-school youth should have access to appropriate ALMPs even if they do not qualify for UB

Concluding remarks Governments are intervening actively to minimise the scale of the

jobs crisis Some have been more successful to date than others With the recovery in sight, governments must not reduce their

efforts to tackle high and persistent U and some countries may have to do more

Governments must tackle the jobs crisis without undermining LM inclusion in the long-run• Discretionary LM policy measures should be timely, temporary and targeted• A severe recession such as currently underway also a requires a sufficiently

strong response

Need to pursue reforms in labour and product markets.• Spain is a classic example: it needs to reform its EPL so as to lessen duality in

the LM; A much stronger benefit activation stance (little control of ALMPs in regions, a benefit system which allows temporary workers to qualify relatively easily for up to 2 years of wage-related benefit with no activation, etc.).

• But is there sufficient political will?

Thank you!

www.oecd.org/els/employment/outlook