The global economy is in the midst of the worst crisis of the past 50 years, which has led to steep increases in unemployment, has affected disadvantaged sectors of the labor market severely and has tested the policy responses of countries challenged with an employment crisis showing no sign of abating.
According to a report by the Organisation for Economic Co-operation and Development (OECD), even though the global recession has slowed, the early stages of the economic recovery will be too muted to result in strong job creation. The result will be an unemployment rate expected to rise in the OECD countries—in general, the highly developed countries of North America, Europe, East Asia and Australia—to a new postwar high of 10 percent (57 million unemployed) and to remain at that level through 2010.
The OECD Economic Outlook is an annual report on the state of the labor markets and employment across the 30 OECD member nations. The 2009 edition is largely devoted to the effects of the worldwide financial and economic crisis on the labor market.
Unemployment increased in all OECD countries, from a 25-year low of 5.6 percent in 2007 to a post-war high of 8.5 percent in July 2009, hitting specific labor demographics—youth, immigrants and temporary and part-time workers—especially hard.
The jobless rates of the OECD countries ranged from a low of 3.2 percent in the Netherlands to 17.6 percent in Spain, according to July 2009 figures. In the developing world, the downturn has taken a toll as well. Unemployment in Brazil appears to be easing, but Mexico posted its highest jobless rate in 13 years in August 2009 at 6.3 percent. In Africa, the continent’s largest economy, South Africa, is in the grips of its first recession in 17 years and about a quarter of the population is officially without work. The African continent as a whole was initially unscathed by the financial turmoil that roiled Europe and the United States. But the collapse of Western consumer demand has meant Africans are selling less of the commodities on which many of their economies depend, the report stated.
‘Governments must act fast and decisively to prevent
the recession turning into a long-term unemployment crisis.’
-- OECD Secretary-General Angel Gurría
The speed of the increase in unemployment rates varies, too, with countries like France starting with relatively high unemployment and shifting only slightly upward, and Britain and Ireland starting low but rising fast.
From July 2009 data, unemployment hit a nearly 13-year high of 7.9 percent in Britain and rose to 9.2 percent in France and 7.7 percent in Germany, where employment has been kept in check so far by government financial support for workers put on shorter hours in order to avoid mass layoffs.
Spain has gone from being a European model for growth to having the region’s highest unemployment rate at 17.6 percent. This stems mainly from the collapse of a construction boom and a credit-fueled consumer spending spree since 2007.
Japan’s unemployment rate actually dipped to 5.5 percent in August 2009 after reaching 5.7 percent in July, the highest level in Japan’s post-World War II era, amid mounting job and wage cuts.
Unemployment was quicker to rise in the United States than in many OECD countries largely because of the collapse of the home construction bubble. Since the recession began in December 2007, payroll employment has dropped by 7.2 million in the U.S. and the unemployment rate increased by 4.9 percentage points to reach a 25-year high of 9.8 percent in September 2009. After several decades during which the U.S. unemployment rate was below the rates in most OECD countries, the U.S. rate has surpassed the OECD average.
While no workforce group is spared in a deep recession, past economic downturns show that groups that are already relatively disadvantaged in the labor market—youth, low-skilled, immigrants and temporary workers—bear the brunt of falling labor demand.
The increases in unemployment have been significantly large for U.S. teenagers, rising by 8.6 percentage points to an all-time high of 25.5 percent, young adults (5.9 percent), high-school dropouts (8.1 percent), blacks (6.2 percent) and Hispanics (6.8 percent).
Long-Term Crisis Looms
In light of these data, the report argues, governments must reassess urgently and adapt their labor market and social policies.
“Governments must act fast and decisively to prevent the recession turning into a long-term unemployment crisis,” said OECD Secretary-General Angel Gurría. “Employment is the bottom line of the current crisis. It is essential that governments focus on helping job seekers in the months to come,” he said at a news conference for the launch of the report in September 2009. He argued for a coordinated policy response to the crisis and urged policymakers not to forget the plight of those in the developing world who often cannot benefit from well-designed social protection systems.
“It’s time to focus on the social dimension of this crisis,” said Stefano Scarpetta, head of the employment analysis and policy division of the OECD and the editor of the report. “Even the most dynamic labor market in the world takes years to reabsorb the unemployment increase,” he said at a news conference in Washington, D.C., Oct. 16, 2009.
A major risk is that much of the increase in unemployment becomes structural and entrenched, as the unemployed drift into long-term unemployment or drop out of the labor force. This phenomenon occurred in a number of OECD countries after past recessions, according to the report. Unemployment remained at a new, higher plateau even after the crisis abated, and it takes many years, if ever, to return to pre-crisis levels. The long-term unemployed are less attractive as hires as a result of declining human capital and diminished job-search activity, according to the report.
Some countries still have not managed to regain their pre-crisis unemployment rates, even many years after the steep recessions in the 1980s and 1990s.
‘More Needs to Be Done’
The latest downturn tested the adequacy of unemployment benefit systems as the primary safety net for the unemployed and their families. While acknowledging that the United States has “reinforced the social safety net for workers and expanded educational and training options for the unemployed,” OECD “strongly argues that more needs to be done.”
The recent increase in resources, including the American Recovery and Reinvestment Act, might not be enough to support all job seekers, and some could be at risk of drifting into long-term unemployment and exclusion, OECD stated. The report pointed to one in three unemployed persons in the U.S. having been jobless for more than six months by August 2009, the highest since records began in 1948.
Many OECD countries have responded to the crisis by taking vigorous macroeconomic policy measures to plug gaps in the safety net for the unemployed and reinforce assistance for the jobless to find new jobs. Twenty-one out of 28 countries surveyed have shored up unemployment benefits or other forms of income support available to people who have lost their jobs. For example, France and Italy have made benefits available to some workers whose temporary jobs have ended, while Finland and Japan have reduced the minimum employment period required to receive unemployment benefits. Greece and Poland are examples of countries that have increased the level of unemployment benefits paid, while Canada, Japan and Portugal have extended the maximum period during which benefits can be paid. Finland and the United States have done both. The labor market outlook would be even worse if governments had not pursued expansionary monetary and fiscal policies, OECD reported. For example, the fiscal stimulus packages enacted by most countries are projected to raise employment in 2010 by about 1 percent above the level that would otherwise prevail, according to the report.
“The U.S. is historically quicker at reducing unemployment after a shock than Europe. But still, it could take three years or longer for the U.S. to return to pre-crisis levels,” Scarpetta said.
Roy Maurer is a staff writer for SHRM.