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    Letter No.52
    20 December, 1996

THE 1996-97 ILO JOBS REPORT

There's plenty of work to do !!

  • About the ILO

    an essential summary
    edited by The Jobs Letter

  • With one billion people either unemployed or under-employed, the world is at crisis levels not seen since the 1930s depression. The International Labour Organisation (ILO) however believes that the current disarray in labour markets is "neither inevitable nor irreversible" and argues that "...the concept of full employment, suitably updated, should remain as a principal objective of economic and social policy."

    In this special feature, the Jobs Letter presents an essential summary of the latest ILO report on WORLD EMPLOYMENT 1996/97.

    The report covers the widespread debate over job trends today, and fires many criticisms at a range of popular ideas -- from the effects of "labour market flexibility" and the "natural" rates of unemployment ... to concepts such as "jobless growth", "the end of work" and "utopian" solutions such as introducing a basic citizens' income.

  • ON LABOUR MARKET DISARRAY
    The persistence of high jobless rates in industrialised economies and massive underemployment in developing economies only reinforces the strong economic and moral case for reinstating full employment as a primary policy objective.

    The ILO disputes the questioning of the usefulness of the concept of full employment that is prevalent in academic and public­policy circles worldwide. It also disputes the vogue concepts (jobless growth, end of work etc.) that have replaced it.

    These concepts are not related to fact and are potentially harmful. The ILO insists that there is no evidence that there is, or soon will be, a scarcity of useful work such that full employment will no longer be attainable. The ILO maintains that the rise in unemployment has been caused by a decline in economic growth rates rather than the onset of jobless growth.

  • ON FULL EMPLOYMENT
    The definition of full employment as "the absence of involuntary unemployment or the availability of jobs for all active job seekers" remains as valid as ever. Historically, this definition represents an unemployment level of around 2 or 3 per cent, which was the level that prevailed in most industrialised countries until the early 1970s.

    Targeting a particular unemployment rate, however, is not the point as there is nothing sacrosanct about these numbers, particularly in light of the many technical and economic changes that have happened since then.

  • The policy goal of nations today should be to accept an historically useful and progressive concept -- the elimination of involuntary unemployment -- and adapt it to current realities, which include globalisation, faster technological progress, the development of non­standard forms of work and even fundamental shifts in the nature of work or in personal attitudes toward employment.

  • ON EMPLOYMENT PESSIMISM
    Abandoning the goal of full employment risks becoming a self­fulfilling prophecy as the spectre of a jobless future looms for many millions of citizens as labour­market conditions worsen. "Employment pessimism" is growing, which risks worsening the problem as confusion builds over the real causes of and solutions to unemployment.

  • There is a viewpoint from some commentators which maintains that current high unemployment combined with revolutionary changes in technology and the globalisation of trade and finance will automatically lead to the conclusion that while economies will grow ... "new jobs will never again be created in sufficient numbers to restore full employment". These sceptics who believe in a jobless future believe it would be best "to abandon conventional discussion of policies for reducing unemployment" and begin adapting "economic and social institutions to a future dearth of jobs." The ILO suggests that such plans are neither imminent nor feasible.

  • ON THE RISING INDUSTRIAL UNDERCLASS
    The labour markets of the wealthiest industrialised economies continue to be plagued by high and persistent rates of unemployment and rising income inequality. The long­term unemployed in these countries risk becoming permanent, economic "outsiders". Prolonged mass unemployment transforms a proportion of the unemployed into a permanently excluded class.

    As these people lose their skills, they are no longer considered as candidates for employment and cease to exert any pressure on wage negotiations and real wages. The result is that the competitive functioning of the labour market is eroded and the influence of unemployment on real wages is reduced.

  • The trends toward high levels of income inequality and unemployment are ominous in their consequences and constitute serious deviations from the ideal of full employment. They arouse concerns that jobs at the bottom end of the labour market will fall below acceptable standards.

    For its part, the ILO argues that low unemployment, low inequality and adequate social protection need to be part of the full employment ideal.

  • In addition to the increasing precariousness of employment, larger numbers of workers have access only to low paid jobs, fuelling concerns over a growing class of "working poor". In the US, stagnant real wages and a shrinkage in the share of workers who earn mid­level wages are believed to have led to a continuing risk in the proportion of the workforce earning less than poverty­level wages.

  • ON GROWTH AND JOBS
    The notion of a "jobless recovery" is unfounded. In fact, the job content of the current economic recovery is very much as it was in past years and overall job creation has remained constant during most of the last 35 years, although job creation has lagged behind the growth of the labour force.

  • The US labour market seems to have started to create more higher­paid jobs in the context of strong macroeconomic recovery and a falling unemployment rate. Recent studies show that 68 per of the net growth in full time employment occurred in job categories paying above median wages; over half (52 per cent) of full time employment growth was in the top 30 per cent of job categories.

  • ON TECHNOLOGY AND JOBS
    Technology is not to blame for job losses. The World Employment report cites data showing that total working hours in Canada, Japan and the US rose sharply over the last three decades in spite of the high levels of technological innovation in these countries. During the same period, working hours declined only slightly in the UK, France and Germany, irrespective of technical progress.

  • The "end­of­work" theories are partly fuelled by the spate of mass layoffs in large corporations due to technological innovation and efforts to increase productivity. The ILO argues that the credibility of the many dire predictions extrapolated from examples of corporate downsizing is limited because the labour saving reorganisations in large manufacturing firms do not tell the entire story: employers in small firms and the other sectors of production have to be taken into account as well.

    Such pessimistic analyses make no allowance for the indirect effects of technical change and the jobs that can be created by the growth of new products and industries.

  • ON GLOBALISATION AND JOBS
    Globalisation is not to blame for job woes. Quite the contrary, globalisation increases opportunities and incentives to productivity and trade and can provide the stimulus to economic growth necessary to attaining full employment.

  • International trade has not played a major role in pushing down the relative wage of less­skilled workers. Data from the US shows that employment patterns in industries least affected by trade (for example construction and services) moved in the same downward direction as those directly affected (notably manufacturing). And while it is certain that exports from dynamic Asian economies into the OECD did increase during the last two decades, they still represented a very small share (2.02 per cent) of industrialised countries' GDP in 1994, not nearly enough to account for such significant structural shifts in employment.

  • ON LABOUR MARKET RIGIDITIES
    The ILO also takes issue with the view that labour market rigidity has been the major cause of unemployment and that greater labour market flexibility is the solution. Labour market rigidities have not been increasing over the period of rising unemployment, and the rise in unemployment cannot be explained by labour­market factors alone. The major underlying cause of rising unemployment has been the slowdown in industrialised economies since 1974.

  • Deregulation of labour markets is not the unique or sole solution to current employment woes, although regulations that curtail productivity need to be reviewed. The steady rise in unemployment cannot be explained by labour market factors alone, not only because jobless rates appear to have risen independently of levels labour market regulations, but because they have risen in spite of numerous efforts to increase labour market flexibility.
  • It is difficult to maintain that the labour market functions less competitively today than 20 years ago, when employment without job security, temporary and fixed­term contracts are more common now.

    Similarly, trade union power was reduced in many countries, together with unemployment benefits and in some cases minimum wages, producing little if any positive employment effect. There is little convincing evidence for the trade­off between higher earnings and greater employment creation for the low­skilled.

  • ON 'NATURAL' RATES OF UNEMPLOYMENT
    There is another strand of pessimism which maintains that any efforts to tamper with the "natural" rate of unemployment will invariably come to grief by accelerating rates of inflation. If the "natural" rate theorists were right, then today's high unemployment would be cause for no undue concern, amounting to little more than a voluntary equilibrium in labour markets.

    The ILO argues that current high rates of unemployment certainly do not represent an equilibrium that is acceptable on social grounds. Social pathologies resulting from long­term unemployment risk becoming unaffordable in both human and economic terms, with macroeconomic imbalances worsening as the costs of joblessness become structural and the savings from fine­tuning of labour market regulations or benefits programmes prove inadequate.

  • ON UTOPIAN ANSWERS
    There are other theories that feed on employment pessimism and propose that a fundamental feature of post­industrial societies would be a perennial increase in productivity and wealth and a corresponding decline in the imperative to work, generating expanded scope for personally satisfying, though perhaps non­market activities.

    This utopian concept is buttressed by others which see a delinking of income from work by, for example, substituting a basic "citizens' income" for wages, which could be augmented or diminished by part­time, full time or even occasional spells of work.

    The underlying assumption here, that the economy is sufficiently productive to pay for such alternative arrangements, is highly dubious, and the impact of such schemes on incentives to work is questionable. Unless there is an imminent switch to higher growth as a result of new technologies, the proposal to delink income from work will face a serious problem of financial sustainability.

  • ON STAYING THE COURSE
    Based on its analysis, the ILO concludes that there are no convincing reasons for abandoning all thought of full employment on the grounds that revolutionary changes have taken place in the demand for labour, in the nature of work or in personal attitudes towards employment. While acknowledging incremental changes in all these areas, these are not sufficient to warrant a drastic revision of basic objectives and instruments of policy, including labour market regulations.

    The ILO recognises that it has become patently more difficult to achieve and maintain full employment today. However, one can still discuss the causes and possible remedies for high unemployment within the frame work of conventional economic and social policies, without taking on a utopian agenda.

  • The 1996/97 ILO prescription for reaching full employment in industrialised countries includes :

    — Increased economic growth rates via a combination of expansionary policies and measures to boost productivity.
    — Lower interest rates in an atmosphere of wage restraint and concerted efforts to overcome skills shortages;
    — Anti­inflation mechanisms, which could include improved coordination of wage bargaining procedures and a strengthened social pact.
    — Improved labour­market policies, including reforms of unemployment benefit systems and benefit­transfer programmes.
    — subsidies for low­wage employment and payroll tax deductions to encourage hiring of long­term unemployed.
    — Increased training to target the most disadvantaged groups in labour markets.

    Source — International Labour Organisation "World Employment 1996/97 — National policies in a global context". International Labour Office, Geneva. ISBN 92­2­110326­9. More information is available from their internet web site at http://www.ilo.org/

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