Among the employment challenges exacerbated by the economic crisis, long-term joblessness and youth unemployment are especially troubling as their effects can linger long after the job market has recovered.
Governments would do well to focus on these problems now.
More than two years into a jobs-poor recovery, a great many countries continue to bend under the weight of stubbornly high unemployment and under-employment. And too many of those who do work remain trapped in low-paid jobs with little social protection. Indeed, the gap between rich and poor has widened in most OECD countries over the past quarter of a century—a trend that was occurring well before the Great Recession. Therefore, the OECD has been arguing for some time now that creating more and better jobs must take centre stage on the political agenda.
Two aspects of the current situation are particularly worrisome: the serious threat that high levels of unemployment might become entrenched and the disproportionate impact of the crisis on youth.
For those joining the ranks of the unemployed, the drawnout nature of this crisis means that it can take longer to find a new job, assuming they can find one at all. By the second quarter of 2011, the share of the unemployed who had been jobless for a year or more had risen above the pre-crisis level in over two thirds of OECD countries, with the largest rises occurring in those countries where the recession has hit labour markets particularly hard. For example, in the US, a post-war high of 32% of all unemployed had been jobless for a year or more in the second quarter of 2011, up from just under 10% three years earlier. Over the same period, Spain recorded an increase from 18% to 41%, and Ireland saw an increase from 29% to 58%. These large increases in long-term unemployment are distressing for the individuals concerned and their families, but they also raise the spectre of increasing rates of structural unemployment that may take many years to unwind.
And the negative effects of long-term unemployment can reach well beyond joblessness. Those suffering from long-term unemployment run a greater risk of poverty and health problems while their children are more likely to suffer from failure at school. So the policy implications are plural and pressing. As the recent OECD publication, Divided We Stand: Why Inequality Keeps Rising shows, the jobs crisis has been hitting the most vulnerable groups hardest and may be widening the gap between the poor and the rich even further.
Youth have been hit particularly hard by the jobs crisis. This was clearly spelled out in the 2011 OECD Employment Outlook and in the joint OECD/ILO report on youth employment that was prepared for the G20 Employment and Labour Ministerial meeting in Paris in September 2011. Giving a better start in the world of work to the young is a challenge that cuts across all countries. Whereas overall employment in the OECD area was 1.5% lower in the second quarter of 2011 than three years earlier, employment for youths aged 15 to 24 fell a staggering 8.8%. This sharp deterioration in labour market opportunities for recent school leavers contrasts sharply with the 7.2% rise in employment for workers aged 55 to 64 over the same period.
Large employment losses for youth are of particular concern because unemployment and other labour market difficulties encountered early in their working lives can jeopardise their career prospects over the long term. OECD governments have implemented a number of crisis measures intended to help youth weather the economic storm, both by providing additional opportunities for education and training, and by helping young workers gain valuable work experience through employment subsidies and increased places in apprenticeship-type training. But at this point, it is not yet possible to assess how successful these measures have been in limiting the scarring effects that can accompany them for life.
So how should governments respond? Ensuring a credible medium-term strategy of fiscal consolidation is essential for unwinding large increases in public debt, rebuilding confidence and ultimately renewing the basis for sustained growth. Yet, while necessary, this will not be sufficient to bring down long-term unemployment. We need to support a new wave of job creation. With public resources limited, the OECD rightly suggests that the focus should be on cost-effective measures. This will include well-designed hiring subsidies and training programmes tied closely to local labour market needs and focused on the most vulnerable groups.
Improving the labour market situation of youth requires a two-pronged approach. First, action needs to be directed at tackling the rise in youth joblessness that took place during the crisis. Policies involving job-search assistance, hiring subsidies and remedial assistance should focus on the most disadvantaged youth, including those most at risk of exclusion. In a number of countries, there is also a need to expand opportunities for “study and work” programmes, such as apprenticeships and other dual vocational education and training programmes.
Second, policies must be put in place to give all youth a better start in the labour market. This means ensuring youth do not leave school before acquiring adequate foundation skills, both cognitive and non-cognitive. As underlined in the OECD’s in-depth country reviews on youth employment, such skills will be a critical issue looking further ahead, particularly the need to achieve a better match between the skills youth acquire at school and those required by the labour market. This requires improving early childhood education and development and making sure that dropping out of school is not an option. Education and trainings systems also need to be made more responsive to the skill needs of employers.
In many cases, governments need to reassess and remove potential barriers to youth employment. These may include excessive labour costs for hiring unskilled youth, as well as restrictive hiring and firing rules that relegate young job seekers to dead-end temporary jobs. Youths, as well as employers, need a degree of labour market flexibility to ensure that younger job seekers receive a fighting chance in terms of hiring and moving onto career tracks.
The immediate future of the world economy is still uncertain at best, and realistic short-term solutions to the challenges of unemployment remain elusive. But doing nothing is not an option as the economic and social costs of rising long-term unemployment and the exclusion of many young job seekers from the labour market would be simply far too high.
OECD (2011), Divided We Stand: Why Inequality Keeps Rising, OECD Publishing.
OECD (2011), OECD Employment Outlook 2011, OECD Publishing.
©OECD Yearbook 2012
Will the world economy brighten in 2014 compared with 2013?