Recovering from the Global Jobs Crisis
The world economy is recovering from the worst financial crisis since WWII. Indeed, another Great Depression has probably been avoided, aided by stimulus measures implemented by governments since the onset of the crisis. The economic rebound, however, will remain both fragile and incomplete unless the jobs crisis is tackled adequately. The purpose of this paper is to i) discuss lessons arising from crisis responses so far; and ii) examine policy challenges for ensuring that labor markets recover from the crisis in a sustainable manner.
The crisis which erupted in the aftermath of the collapse of Lehman Brothers has had a significant effect on employment. Estimates are for an increase in world unemployment by over 20 million workers between the fall of 2008 and the third quarter of 2009, for the 51 countries for which data are available. In developing countries, the crisis entailed increased job informality and working poverty. Everywhere, job insecurity is on the rise.
The policy response has been significant. In major countries, interest rates were drastically reduced and have been maintained at a low level. Massive rescue packages to avoid a collapse of financial institutions were implemented—mainly in the European Union, Japan, and the United States. Also, most countries that had a budget space implemented fiscal stimulus measures—in the form of discretionary cuts in taxes, higher government spending, or a combination of both. According to ILO estimates, the fiscal stimulus measures amounted to around 1.7 percent of world GDP.
Overall, the measures have succeeded not only in supporting the economy but also in avoiding further significant job losses. For instance, in EU countries, the employment effects of falling GDP have been much less than was the case in earlier recessions.
This relatively favorable outcome reflects, first, the rapidity of the policy response. According to a research on the impact of the crisis, by adopting stimulus measures soon after the start of the crisis, countries could expect a significant positive impact on employment by mid-2010. By contrast, a postponement of the measures by three months would have delayed employment recovery by six months—illustrating the disproportionate costs of inaction for employment.
In short, the global policy response has succeeded in kick-starting an economic rebound. Economic growth has resumed in major countries like Brazil, Canada, the United States, and, to a lesser extent, some EU countries. Following a slowdown, economic growth gathered pace in China, India, and some developing countries—in particular oil-rich ones like Angola. The policy response has also succeeded in attenuating job losses in the face of the recession.
However, these gains are by no means universal. In particular, developing countries with limited fiscal space have had more difficulty in overcoming the crisis. And job losses have mounted in countries where the situation was already fragile before the crisis (end of housing bubble in Ireland and Spain; public deficits in Greece). Moreover, there are significant challenges to a more sustainable recovery.
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