We Must Tackle the Jobs Crisis Now

By Juan Somavia, Jens Stoltenberg and Dominique Strauss-Kahn
first published in El Pais, September 12, 2010

The global financial crisis has imposed many costs on the world economy—none more painful than the impact on the tens of millions of working people who have lost their jobs. Some 210 million people are out of work, an increase of 30 million since 2007—the highest level of official unemployment in history. The scars of this distress in labor markets will be with us for a long time.

Three quarters of the increase in the number of unemployed people has occurred in the advanced economies, with the remainder among emerging markets. In the developing countries, informal economies have grown, leaving about 1.2 billion people still unable to earn enough to keep themselves and their families above the poverty level. Young people have been especially hard hit by the jobs crisis—with an unemployment rate much higher than older age groups. Past recessions tell us that the cost to all those who become unemployed can be a persistent loss of earnings, reduced life expectancy, and lower educational achievement for their children.

And there is one other fundamental impact: unemployment is likely to affect attitudes in a manner that increases tensions and reduces social cohesion—a cost that we all bear.

What is to be done to address the jobs crisis? The government of Norway, the IMF and ILO are organizing a major conference in Oslo on September 13, to help advance the thinking on policies that can better cushion the human costs of unemployment, and produce strong, sustainable and balanced growth.

There are no easy solutions. But we can draw on lessons from the past and best practice from the present, as is done in the ILO Global Jobs Pact, which has been endorsed by the G20 and other organizations.

Experience tells us that the policy response revolves around three pivotal elements:

First, a recovery in aggregate demand is the single best cure for unemployment. Many countries moved quickly during the crisis to lower interest rates and provide fiscal stimulus. Notable for their consistency and coherence across countries, these policy actions helped to avoid recession becoming depression—and even more jobs being lost. Now, even as many advanced economies face the need to stabilize or reduce very high levels of public indebtedness, it is vital that this be done in a way that is fair, tailored to individual country circumstances and that does not impair growth and employment.

Second, there are targeted programs that can be undertaken to help job-seekers and ease the pain in labor markets. Some governments have stepped up placement services and expanded labor market programs aimed at improving skills and encouraging job-search. Others have implemented policies allowing firms to retain workers, while reducing their hours and wages—thus spreading the burden of the downturn more evenly. Another step governments can take is to allow unemployment insurance benefits to be extended and linked to continued job training and job-search.

Third, there are ways to accelerate jobs recovery. In particular, subsidies can be targeted at specific groups that are most vulnerable to joblessness—the long-term unemployed or youth. Emerging-market countries like China, India, Brazil and South Africa are building social protection floors to reduce poverty, boost purchasing power and thus stimulate job creation.

These elements constitute a policy mix that has already been used and will continue to be used—with different emphases in different countries. But with 45 million new job seekers entering the global labor force each year, the problems exacerbated by the crisis simply will not diminish without more focused and sustained efforts. That is why we are meeting in Oslo.

The economic rationale is clear, but the history of what happened the last time the world faced an unemployment crisis of this magnitude—the 1930s—holds a stark reminder of the potentially broader implications. Lost jobs mean lost faith in private and public institutions, and even a threat to democracy. There is the threat of a breakdown in social order. There is a threat to peace.

Let us not kid ourselves: an economic recovery that does not provide employment opportunities will mean nothing to most people. We must act together now to tackle the jobs crisis.

Juan Somavia is Director-General of the International Labour Organization, Jens Stoltenberg is Prime Minister of Norway, and Dominique Strauss-Kahn is Managing Director of the International Monetary Fund.