The Global Jobs Crisis— Sustaining the Recovery through Employment and Equitable GrowthBy Dominique Strauss-Kahn, Managing Director, International Monetary Fund
Washington, April 13, 2011
|Video of the speech|
Good morning. I want to thank the Brookings institution, especially my good friend Kemal Dervis, for hosting this important and timely event. I am especially glad that Sharan Burrow—the General Secretary of the ITUC—can be with us this morning.
At the end of his magnum opus, The General Theory, Keynes stated the following: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes”.
Not everyone will agree with the entirety of this statement. But what we have learnt over time is that unemployment and inequality can undermine the very achievements of the market economy, by sowing the seeds of instability. In too many countries, the lack of economic opportunity can lead to unproductive activities, political instability, and even conflict. Just look at how the dangerous cocktail of unemployment and inequality—combined with political tension—is playing out in the Middle East and North Africa.
Because growth beset by social tensions is not conducive to economic and financial stability, the IMF cannot be indifferent to distribution issues. And when I look around today, I am concerned in this regard. For while recovery is here, growth—at least in the advanced economies—is not creating jobs and is not being shared broadly. Many people in many countries are facing a social crisis that is every bit as serious as the financial crisis.
Unemployment is at record levels. The crisis threw 30 million people out of work. And over 200 million people are looking for jobs all across the world today.
The jobs crisis is hitting the young especially hard. And what should have been a brief spell in unemployment is turning into a life sentence, possibly for a whole lost generation.
In too many countries, inequality is at record highs.
As we face these challenges, remember what we have accomplished. Under the umbrella of the G20, policymakers came together to avoid a financial freefall and probably a second Great Depression.
Today, we need a similar full force forward response in ensuring that we get the recovery we need. And that means not only a recovery that is sustainable and balanced among countries, but also one that brings employment and fair distribution.
Let me start with employment. Just as we managed to tame inflation in the 1980s, this decade should be the decade that takes full employment seriously once again.
What must be done? First off, we need financial sector reform and repair, to put the banks back in the service of the real economy, and direct credit to small and medium-term enterprises—key drivers of employment and indeed of growth.
Obviously, a nurturing demand environment is a precondition for growth and jobs. While unemployment is so high, and with few signs of underlying inflationary pressures, monetary policy can be supportive.
What about fiscal policy? Advanced countries need to put fiscal positions on sustainable medium-term paths, to pave the way for future growth and employment. But fiscal tightening can lower growth in the short term, and this can even increase long-term unemployment, turning a cyclical into a structural problem. The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth.
But growth alone is not enough. We need direct labor market policies. The crisis taught us that well-designed labor market policies can save jobs.
Few would disagree that decent unemployment benefits are foundational. And when combined with education and training, they can help the unemployed adapt to a changing economy. This is especially relevant when job losses are heavily concentrated among the young and the unskilled, and when unemployment is increasingly of a long-term nature.
We must be pragmatic. We must get past the binary and unhelpful contrast between “flexibility” and “rigidity” in labor markets and ask instead if policies are effective in creating and sustaining jobs. Sometimes they are, sometimes they are not.
We must be cooperative. Countries need to work together on a host of issues, including financial sector regulation and cross-border resolution. They must cooperate on global rebalancing, where many emerging markets need to shift toward domestic demand, underpinned by a vibrant middle class. Without this, global growth will be lacking.
Let me talk briefly about the second lung of the social crisis—inequality. IMF research suggests that inequality can make countries more prone to financial crises, especially if associated with a large financial sector. IMF research also shows that sustainable growth over time is associated with a more equal income distribution.
These challenges affect both advanced and developing countries. We need policies to reduce inequality, and to ensure a fairer distribution of opportunities and resources. Strong social safety nets combined with progressive taxation can dampen market-driven inequality. Investment in health and education is critical. Collective bargaining rights are important, especially in an environment of stagnating real wages. Social partnership is a useful framework, as it allows both the growth gains and adjustment pains to be shared fairly.
Role of the IMF
Let me touch briefly on the role of the IMF. As we understand the links with stability better, the jobs issue is becoming more central in our surveillance, as can be seen from the WEO. I’ve mentioned some of our research on inequality. We have also supported a tax on financial activities. And we are paying more attention to the social dimension in our programs—protecting social safety nets for the poor and supporting an equitable sharing of the burden.
Last year’s Oslo conference—organized jointly with the ILO and the Norwegian government—was an important milestone. We are following up in several areas. First, we are working with the ILO to better understand the policies behind job-creating growth. Second, in cooperation with the ILO and in consultation with the ITUC, we are supporting social partnership consultations between labor, employers and the government in three countries—Bulgaria, the Dominican Republic, and Zambia. Third, we are working with the ILO towards building effective social protection floors in low-income countries.
And this weekend, as key policy-makers from the world over assemble in Washington to take the pulse of the world economy, I intend not only to present them with the relatively hopeful picture of a recovery that is solidifying, but also to remind them of what is behind the numbers—too many people who have still not seen the fruits of this growth.
Let me conclude. A few thousand years ago, Aristotle wrote that “The best partnership in a state is the one which operates through the middle people…those states in which the middle element is large… have every chance of having a well-run constitution”.
This was true in the time of Aristotle, it was true in the time of Keynes, and it is true today. Stability depends on a strong middle class that can propel demand. We will not see this if growth does not lead to decent jobs, or if growth rewards the favored few over the marginalized many.
Ultimately, employment and equity are building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate. It must be placed at the heart of the policy agenda. Thank you very much.