Restoring Jobs by Restoring Growth

IMF Blog, October 3, 2012

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Over 200 million people are unemployed around the world, with double-digit jobless rates in many European countries and in many emerging markets.
Youth unemployment and long-term unemployment are at alarming levels.
The number of unemployed people is nearly 16 million higher today than in 2007 among countries where labor markets are tracked regularly by the IMF. Much of this increase has been in advanced economies.

Scenario: overall growth in advanced economies slips from the current consensus range of 1.25 to 1.5 percent in 2012-13 to just below 1 percent this year and -0.5 percent next year.
Using an IMF staff template to quantify effects:
- Unemployment in advanced economies would "shoot up to nearly 9 percent," an increase of 1.2 percentage points.
- This rise would translate into "5 ½ million more people" unemployed in the advanced economies from this fall in growth.
Spillovers to emerging markets and developing economies:
- Using the IMF’s estimates of growth spillovers and employment-growth linkages, the unemployment rate in emerging markets and developing economies will inch up by ¼ percentage point.
- This would add "over 3 million people" to the ranks of the unemployed in these countries.

Work with the ILO documents long-term personal and social costs from unemployment:
- Workers laid off in a recession suffer long-term loss of earnings, even once re-employed.
- Job and income loss adversely affect productivity, health and mortality of the unemployed, and school performance and future income of their children.
- High and prolonged unemployment leads to loss of faith in public institutions.
Restoring growth will help make a dent in youth unemployment; youth unemployment in most advanced countries is very responsive to growth.
Chart evidence cited for the strong association between growth and youth unemployment for the United States and Spain, which have experienced a surge in youth unemployment.

Central banks have announced the right steps. In contrast to the mistakes by central banks that led to the Great Depression, recent actions by the major central banks could pull us firmly out of the Great Recession.
Europe: urgent need for implementation of announced actions on the firewall, the banking union, and the fiscal union.
United States: immediate need for actions to keep the country from plunging off a “fiscal cliff”—reducing growth by as much as 2 percent.
These actions in advanced economies would not only restore growth and bring back jobs in these countries, they would also help the jobs outlook in emerging markets and low-income countries.
Longer term: even after surmounting near-term challenges, a more durable model for long-term growth and job creation remains necessary.

Source: Min Zhu, October 3, 2012 — Restoring Jobs by Restoring Growth