High Jobless Rates Could Last Years, O.E.C.D. Warns

High Jobless Rates Could Last Years, O.E.C.D. Warns
By MATTHEW SALTMARSH
Copyright by The New York Times
Published: September 16, 2009
http://www.nytimes.com/2009/09/17/business/global/17oecd.html?ref=global-home


PARIS — Unless government programs for the unemployed are refined, there is a danger that high jobless rates will persist beyond 2010 in advanced economies, the Organization for Economic Cooperation and Development warned on Wednesday.

“A recovery may be in sight,” the group said in its annual employment outlook, referring to economic output. “But the short-term employment outlook is grim.”

The international organization said that unemployment among its 30 member nations would rise to nearly 10 percent by the end of 2010, above its previous post-1970 peak of 7.5 percent during the second quarter of 1993.

Disadvantaged groups, like youths and immigrants as well as low-skilled and temporary workers, will bear the brunt of the increase.

The estimate was based on the group’s June economic forecasts. Individual country projections vary from a high of 20 percent in Spain to 10 percent in the United States and 6 percent in Japan.

There was more evidence of a jobless recovery in Britain on Wednesday.

The country’s Office for National Statistics said unemployment rose 0.7 percentage points to 7.9 percent in the three months that ended in July. A total of 210,000 people lost their jobs during the period, taking the total to 2.47 million. The number of 16- to 24-year-olds out of work rose to almost one million, the highest since record-keeping began.

European unions, in particular, are seething at the fact that banks, many of which were bailed out by taxpayers, are starting to pay healthy bonuses again, while the labor market tightens.

John Monks, the general secretary of the European Trade Union Confederation, said Wednesday: “The scandal of bank bonuses is only the tip of the iceberg. What is also urgent now is for governments and central banks to make sure banks use the support they have been given to support jobs and investment.”

His group said high school and college graduates are experiencing “a huge fall in available opportunities,” and that temporary short time working programs “are nearing the end of their life.”

Still, the O.E.C.D. stressed that the overall jobless rate in its 30 member countries would have been even higher — 0.8 to 1.4 percentage points more in 2010 — if governments had not implemented fiscal stimulus and other macro-economic support measures.

Government spending programs on the labor market — re-training programs, for example — do not appear focused enough to bring the unemployment rate down soon, the report said.

“A major risk is that much of this large hike in unemployment becomes structural in nature as many of the unemployed drift into long-term joblessness or drop out of the labor force,” said John P. Martin, director at the O.E.C.D. for employment.

That occurred in a number of O.E.C.D. countries during past recessions, “when unemployment remained at a new higher plateau compared with the pre-crisis level even after output returned to potential and it took many years, if ever, to bring it down again to the pre-crisis level.”

As time passes, the long-term unemployed become less attractive hires and they are pushed even further toward the back of hiring queues, the report said. Persistent unemployment brings social and economic costs: poorer health, lower living standards and less life satisfaction for the unemployed and their families; increased crime and lower growth potential for society.

While unemployment benefits have sustained the incomes of many jobless people, “coverage of such benefits is weak in some O.E.C.D. countries,” the report added.

When compared with the overall resources available in the fiscal stimulus packages enacted by major economies, the increase in spending on labor market policies, like unemployment benefits and retraining, has been “rather modest in many countries.”

“This looks like a missed opportunity,” Mr. Martin said, adding that although the fiscal stimulus measures have added to public debt, further spending on reducing the jobless rate “can be justified on cost-effectiveness grounds.”

The report also said that the composition of spending on labor market support should be varied with the economic cycle to maximize its effectiveness.

Resources could now be shifted from a “work-first” approach, prioritizing short-term job creation which dominated prior to the crisis, to a “train-first” approach, stressing new skills for those at high risk of long-term unemployment.

As with previous recessions, the construction industry has cut jobs first and fastest, followed by durable manufacturing and business services.

The report will provide a basis for discussions by O.E.C.D. employment ministers at a meeting in Paris at the end of September. Its finding will be presented by the organization’s secretary-general, Angel Gurría, to leaders of the Group of 20 meeting next week in Pittsburgh.