Battling Global Unemployment: Too Soon to Declare Victory

IMF Blog, January 14, 2015

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Seven years after the onset of the Great Recession, the global unemployment rate fell to 5.6% in 2014; essentially the same as in 2007, the year before the recession.
The fall in the global unemployment rate is positive, but “mission accomplished” would be premature because OECD members on average still have jobless rates well above pre-recession levels, in sharp contrast to non-member countries.
Global employment growth remains sluggish at about 1.5% a year, considerably lower than the annual rates of 2-2 ½ percent employment growth that prevailed before the crisis.

The index makes quarterly estimates of employment levels in 64 large economies and aggregates them into a global total.
The countries covered represent about 95% of global GDP and 80% of the global labor force.
For countries without timely quarterly employment data, employment levels are derived by estimating historical relationships between jobs and growth.
The index shows global employment has grown by about 9 percent since the low point of the recession, which translates into 208 million jobs being created.
The index can be used to take the pulse of global labor markets at more regular intervals than before, addressing the lack of timely employment reporting in many countries.

Job creation generally tracks overall economic growth; this relationship held up well for both OECD and non-OECD countries over the Great Recession.
During 2008 through 2010, countries with output growth (examples: Singapore, Israel, Australia) saw employment growth; countries with output declines (examples: Spain, Ireland) saw employment fall.
The same relationship has largely prevailed from 2011 through today: countries where growth recovered saw employment increase as well.
Example: The U.S. economy grew at an annual rate of nearly 5% in the two middle quarters of 2014, its fastest six-month pace in more than a decade; as a consequence, U.S. employers hired nearly 3 million additional workers in 2014, the most in 15 years.

In some European countries, real GDP continued to fall during 2010-14 and employment fell as well, leaving unemployment alarmingly high:
- Greece and Spain: around 25%
- Portugal: more than 14%
- Euro area as a whole: 11.5%
Youth unemployment rate: 23 percent in the euro area in mid-2014.
Very weak jobs growth in the European Union, which represents nearly 25% of global GDP, is a factor restraining global employment growth.
Slower economic growth in China (from more than 10% in the middle of the last decade ago to around 7% now) is one of the main reasons for the weakening of the Global Jobs Index in the last 18 months.

Countries need a mix of policies to stimulate both aggregate demand and supply to raise employment growth.
Advanced economies:
- Monetary policy should continue to support the recovery in demand.
- Policies to reduce public debt must be as growth-friendly as possible.
Emerging markets (where growth is slowing from pre-crisis rates):
- Primarily address underlying structural problems, which vary from removing bottlenecks in the power sector to reforms of labor and product markets.
- In many countries, there is a strong case for increasing public investment in infrastructure to provide a boost to demand in the short term and to supply (i.e. potential output) over the longer term.

Global unemployment rate in 2014: 5.6%
Pre-recession (2007) global unemployment rate: 5.6% (essentially the same)
Global employment growth rate: about 1.5% a year
Pre-crisis employment growth rates: 2-2 ½ percent
Economies covered by Global Jobs Index: 64 large economies
Coverage of global GDP by index countries: about 95%
Coverage of global labor force by index countries: 80%
Employment growth since recession low point: about 9 percent
Jobs created since recession low point: 208 million
U.S. GDP growth in two middle quarters of 2014: nearly 5% (annual rate)
U.S. additional workers hired in 2014: nearly 3 million
EU share of global GDP: nearly 25%
China GDP growth: from more than 10% (mid-last decade) to around 7% (now)
Unemployment rates cited:
- Greece and Spain: around 25%
- Portugal: more than 14%
- Euro area as a whole: 11.5%
- Youth unemployment in euro area (mid-2014): 23 percent

Source: Battling Global Unemployment: Too Soon to Declare Victory — Prakash Loungani, January 14, 2015