Unemployment : The language of the crisis

©David Rooney

The financial and economic crisis has already put millions of people out of work in the OECD area alone, and the unemployment figures are going to get far worse. What can governments do to ease the suffering? 

Anyone who needs proof that we are experiencing one of the worst ever global crises should look at the jobless numbers. Whether for American workers, who have been losing jobs at an average rate of nearly three-quarters-of-amillion jobs per month since last October, or Spanish 20 to 24-year-olds whose unemployment rate stood at 29% in December 2008, a third higher than a year earlier, the language of this economic crisis, written in sudden, steep drops in employment, is global.

Around the world, families are trying to cope with substantial losses of income while governments attempt to come to grips with surging benefit outlays. After all, workers everywhere are taking a hit and not just in their jobs and wallets, but in their homes too, as redundant workers across diverse social classes find they cannot keep up with mortgage repayments or rent. In Japan recently, workers at a Canon digital camera factory were not only laid off, but many were ordered by the company to leave their employer-provided apartments too. Little wonder there is a more than inchoate worry that the crisis poses a real threat to social stability.

Back to those staggering statistics. In the US, more than 4 million people lost their jobs in the year to February 2009, when the unemployment rate reached 8.1%, its highest level in over 25 years. In Ireland, the unemployment rate was 8.2% in December 2008, 3.5 percentage points higher than one year earlier, and both France and the UK are reporting significant increases in unemployment over the year to January 2009. The 6.9% average unemployment rate across OECD countries recorded in January 2009 represents some 7.2 million more workers who joined the jobless ranks since one year earlier. And there's worse to come: the OECD projects that unemployment rates will approach 10% in the OECD area by 2010, swelling the numbers of unemployed by about 25 million-by far the largest and most rapid increase in OECD unemployment in the post-war period.

Initially, the construction and manufacturing sectors, both linked to the plunging housing market and both predominantly male domains, were hit the hardest. But as the economic downturn continues and spreads, other sectors are also suffering. In the United States, for example, services industries now account for half of the overall decline in employment-and women are heavily represented in those industries. When state and local governments in the US start trying to balance their budgets, as they are required to do by law, women employees will be joining their male counterparts at the sharp end of the crisis. The state of California recently sent out 10,000 "pink slips", or redundancy notices; six out of 10 workers in California's state government are women.

In recent years, companies in OECD countries have taken on increasing numbers of temporary workers, largely to avoid hiring and firing regulations. As the economy contracts, these workers are among the first to be let go-and they may have only limited access, if any at all, to social safety nets during the time they are unemployed. In France, for example, employment through temporary work agencies fell by 21% over the year up to the fourth quarter of 2008, while overall employment in the non-agricultural sector declined only 0.7%. Some 95% of the 158,000 layoffs in Japan since October 2008 involved non-regular workers-who often do not qualify for either company-paid severance or for unemployment insurance.

Governments are beginning to respond. Japan has announced some changes in its policies which increase the number of non-standard workers who are eligible for unemployment benefits if they lose their jobs. The Japanese government also set up a subsidy programme to encourage employers to continue to offer housing to workers who have been dismissed because of the crisis. Finland has reduced the length of time that an unemployed worker needs to have worked previously in order to qualify for benefits. And the French government has proposed extending unemployment benefits to some youth who are ending a fixed-term contract.

Click for bigger graph

In an effort to contain job losses, several OECD countries, including Denmark, Germany and Spain, are considering introducing, or expanding, schemes that subsidise shortened work times for limited periods. These plans usually apply when there is a temporary reduction in the number of working hours due to a slowdown in business activity. In these cases, some of the workers' loss of earnings are compensated by a state subsidy. This appears to be a sensible policy in this crisis, because so many firms are facing a combination of severe short-term contraction in demand and a major credit crunch, a combination which could force them to lay off workers they would like to keep in the long term.

These subsidies may also be fiscally wise, since intervening while at-risk workers are still employed may ultimately be less costly than the option of waiting for them to lose their jobs and then register as unemployed. On the other hand, the historical experience with short-time subsidies has not been very encouraging since compensation has often gone either to workers who would have been retained by their employers anyway, even without a subsidy, or has ended up supporting firms that proved to be unviable when business conditions improved. The OECD is working with governments to find ways to minimise these risks by better targeting short-time assistance.To be effective, such responses also need to be temporary to avoid becoming a drag on the economy later on, but they can work.

Unemployment will not improve until the world's financial system and economic activity get back on track. Solving the crisis will be a focus of discussions when ministers meet at the OECD on 24-25 June. However, it is also crucial to reduce the social costs resulting from the upsurge in unemployment by providing help directly to workers. Sizeable, targeted income and re-employment support, including training, can not only ease the suffering of those who have lost their jobs, but can help laid-off workers prepare for when the economy rebounds. When labour ministers meet at the OECD in late September, they will take stock of these measures and draw lessons on how best to help workers navigate the hazards created by economic downturns. MA/RJC

References

 ©OECD Observer No. 272, April 2009




Economic data

GDP growth: +0.7% Q2 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +1.4% exp, +1.7% imp, Q2 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017

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