A global economic recovery is well under way, but worldwide unemployment in 2010 will nearly match its record level of 6.6% in 2009, according to a new report by the International Labour Organisation (ILO). The spectre of such a “jobless recovery” poses serious economic and political risks. High unemployment will add to severe fiscal strains in many countries, posing tough policy challenges and undermining long-term competitiveness and growth prospects. Meanwhile, persistently high levels of joblessness will mean continued economic hardship for tens of millions of households, creating a political atmosphere ripe for outbreaks of protectionism, xenophobia and social unrest.
The ILO’s latest Global Employment Trends report, released on January 26th, highlights several worrying trends. The first is that the global recession created an unprecedented level of unemployment in 2009, with the number of jobless people worldwide rising by 34m since 2007, to 212m. The ILO forecasts that global unemployment will remain at essentially the same level (6.5%) in 2010. Second, the number of unemployed youth also registered a record increase. Nearly one out of every eight people under the age of 24 is currently jobless. Third, the ILO now classifies over half of the world’s workers—some 1.5bn people—as economically “vulnerable”.
Like global economic growth figures, global unemployment averages paint an occasionally misleading picture. In the case of GDP, the end of the global slowdown is really a tale of two recoveries: emerging markets led by China and India have rebounded vigorously, but economies in most of the developed world remain much weaker. For the most part, the story is the same for joblessness. By far the worst affected have been the developed countries, where unemployment has surged from 5.7% in 2007 to 8.4% in 2009. These countries account for less than 16% of the global workforce but more than 40% of the increase in unemployment during the global downturn. The ILO expects unemployment to worsen in the industrialised world in 2010, rising by 3m to 8.9%.
In the rest of the world, meanwhile, the unemployment rate will either remain roughly at current levels or slightly decline. The ILO forecasts little change in Africa and the Middle East, or in South-east Asia and the Pacific. In Latin America and the Caribbean, and in Eastern Europe and Russia, joblessness is set to decrease slightly. Meanwhile, in East Asia (excluding Japan) the unemployment rate in 2010 is expected to fall back to its 2008 level of 4.3%—less than half the rich-world average.
The ILO’s prognosis largely dovetails with the Economist Intelligence Unit’s forecasts. We estimate that official unemployment in the world’s 51 largest economies rose from 8.1% in 2007 to 9.3% in 2009, and will rise to 9.7% in 2010. Our forecasts for individual countries also confirm the bleaker outlook for developed economies. Most ominously for the global economy, US unemployment is set to average 9.7% this year, up from 4.6% in 2007.
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If the global employment picture is unlikely to brighten in 2010, this does not necessarily cast doubt on the global economic recovery. Unemployment is a lagging indicator: it takes time for employers to react to recessionary conditions by laying off staff, or to respond to improving conditions by hiring workers. Also, tens of millions of people join the global workforce every year, so unemployment can rise simultaneously with economic growth. Unemployment may also rise, perversely, as improving economic prospects prompt those who had given up trying to find work to re-enter the job market.
However, the “joblessness” of the global recovery will create a range of problems. The ILO calculates that it takes an average of four to five years for labour markets to recover after recessions. This implies persistently lower levels of consumption as millions of households remain in economic distress. Moreover, when stable growth returns it is likely to be weaker than before the downturn, suggesting that there will be little slack in the job market.
This leaves governments around the world facing tough policy challenges in the years ahead. The ILO recommends that developed countries tackle unemployment with the same urgency and decisiveness with which the financial sectors were rescued. However, most rich countries are already in dire fiscal straits and will find it difficult to sustain—not to mention to expand—employment-support programmes. Many developing countries have rosier employment prospects, but they also have much larger numbers of workers in danger of falling below the poverty line.
Persistently high unemployment will also produce political strains. Developed-country governments are facing a wave of popular anger over job losses. In the face of slipping approval ratings—and his party’s ignominious by-election loss in Massachusetts—President Barack Obama’s first state-of-the-union speech vowed that jobs would become his administration’s “number-one focus.” In 2009 the US economy shrank by 2.5% and the unemployment rate crept towards 10%. This has been bad news for Mr Obama, but in many developing countries—especially authoritarian regimes that stifle legal outlets for economic discontent—the consequences for social stability of such a performance would be catastrophic. As a result, unemployment in emerging markets may pose political risks at least as serious as the developed world’s higher numbers of jobless workers.
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