The jobs crisisAn unprecedented crisisOECD-area UR jumped from 25-year low of 5.8% at the end of 2007 to a post-war high of 8.8% in October 2009. Since then, it has remained fairly stable (8.5% in July 2010), close to the rate in Italy (8.4%)

While recovery is underway, the jobs crisis is far from overOECD UR projected to show little change this year, before beginning to drop slowly through next year, but still to be around 8% by end 2011OECDs Interim Economic Outlook (9th Sept.) suggests that world economic recovery is more fragile than previously anticipated

The current jobs crisis is the worst in recent decadesIndex base 100 = OECD area unemployment rate at the preceding business-cycle peak (based on output gap), quarterly dataSource: OECD Economic Outlook, May 2010.

The unemployment impact so far differs greatly across countriesPercent of the labour force* March 2010 for Greece; April 2010 for Turkey; May 2010 for the United Kingdom; June 2010 for Chile, Estonia, Mexico, Norway and the Netherlands; and 2010 Q2 for Iceland, New Zealand and Switzerland (OECD harmonised unemployment rate data are not available on a monthly basis for the last three of these countries).

Chart1

2.43.5

3.13.7

43.8

3.54.4

2.84.4

3.85.2

4.35.3

4.25.3

3.85.5

3.56.8

2.26.8

4.86.8

7.96.9

3.26.9

4.97.3

5.17.8

68

7.28.3

6.78.4

68.5

6.58.5

7.28.9

8.39.4

59.5

7.810

810.3

910.8

7.810.8

811

4.813.6

10.515

4.118.6

8.820.299999

5.88.5

5.58.2

6.99.6

7.410

December 2007

July 2010

Sheet1

Column1December 2007July 2010

NOR2.43.5

KOR3.13.7

AUT4.03.8

CHE3.54.4

NLD2.84.4

JPN3.85.2

AUS4.35.3

LUX4.25.3

MEX3.85.5

NZL3.56.8

ISL2.26.8

SVN4.86.8

DEU7.96.9

DNK3.26.9

CZE4.97.3

GBR5.17.8

CAN6.08

FIN7.28.3

SWE6.78.4

ITA6.08.5

CHL6.58.5

BEL7.28.9

POL8.39.4

USA5.09.5

FRA7.810

HUN8.010.3

TUR910.8

PRT7.810.8

GRC8.011

IRL4.813.6

SVK10.515

EST4.118.6

ESP8.820.299999

OECD5.88.5

G75.58.2

EU-276.99.6

Euro Area7.410

Who have suffered the most during the recent recession?

Percentage change of employment over 2007 Q4 to 2009 Q4

Panel A. OECD weighted averagePanel B. Italy

Labour market policy challenges Short-term challenges vary a lot across countries

Providing an adequate safety net to the unemployed, including the LTUProviding effective re-employment services. What to do with the unemployed when labour demand is weak?Is the work-first approach recession-proof? Maintaining viable employment/promoting job creation. How to sustain effective labour supply?

Minimise the risk of persistent LTU in those countries which have experienced sharp jumps in UNR

*

Providing an adequate safety nets while minimising benefit dependency

The jobs crisis is leading to longer average unemployment spells Where unemployment benefit durations are short, temporary extension during the crisis helps reducing the poverty risk among the long-term unemployed. Extension of benefits in e.g. Canada, Finland, Japan, Portugal and United States;

Increasing numbers of ineligible jobseekers due to the increase in non-standard work in some countriesSome countries have extended coverage to temporary and/or young workers, e.g. Finland, France, Japan; Italy introduced a lump-sum payment to unemployed former project contract workers

*

Need to adjust activation strategies during the jobs crisisThreats to previously successful strategies:DNK and SWI are the only two countries where resources for ALMP increase almost automatically with unemployment...... in other countries in the past, PES staff and ALMP funds did not increase much in downturns, but this time there has been a stronger responseRisk for intensity of interventions in the unemployment spell (job search controls; in-depth interviews; action plan follow-up) to decrease, and, given lower vacancies, a lower number of direct referrals.Overriding goal: prevent job losers from becoming disconnected from the labour marketCore element of activation regimes and mutual obligation principle should not be allowed to lapse or be overly dilutedAdequate increase in resources is needed to:handle client flows and maintain the range of PES interventionscompensate for the fall in vacancy notifications by scaling up short-term programmes such as job clubs, work trials or internships*

Need to ensure that S-T measures to support labour demand are well targeted and temporaryMost OECD countries have introduced measures to support labour demand:Subsidies for the reduction in working time (22 countries, including ITA with CIGO/CIGS);Reductions in non-wage labour costs (16 countries);Hiring subsidies and work experience, generally targeted at disadvantaged groups (15 countries).

When and how to scale down labour demand support measures?By protecting job matches these measures have reduced socially and economically inefficient job losses but risk increasing dualism (U highly concentrated on already disadvantaged groups and new entrants)....and slow-down efficiency-enhancing labour reallocationHiring subsidies may help promoting employment for disadvantaged groups, but have to be well targeted and with strict conditions for employers. *

Annual average stock of employees participating in short-time work schemes as percentage of all employeesData on short-time workers are from the OECD-EC questionnaire, except in the following cases. * indicates that data are from national sources. ** indicates that data are OECD estimates using flows data from the OECD-EC questionnaire or from national sources.*

Country-specific impact of short-time work schemes on permanent workersProportional and absolute changes in permanent employment due to short-time work schemes (percentage changes)** indicates countries that introduced a new short-time work scheme in response to the crisis. The estimated jobs impacts refer to period from which the short-time work scheme became operational until the end of 2009 Q3.

Going forward: the skills investment imperativeSkill development is crucial to renewing economic growth on a balanced and sustainable basis:The crisis has intensified longer-term shifts in skills as blue-collars have been hit harder than white-collarsAnd youth and low-skilled most at risk of being left behind in the recoveryGrowing importance of lifelong learning so that workers can upgrade their skills to cope with population ageing, globalisation, climate changeBut tackling inequalities in training is difficult The crisis has also reinforced the message that we will need to be more job-mobile than in the past. Acquiring a range of generic skills can prove to be a life insurance against prolonged unemployment and help displaced workers find new jobsBut which generic skills are most useful?How can more comprehensive and rapid information on skill demands be provided?

Skills for mobility and sustainable growth*

Going forward: the skills investment imperative (cont.)Skills needs are evolving towards high-skilled jobs -- but some evidence of polarisation (i.e. hollowing-out of skill distribution of jobs)Need for better information on skill requirements of jobs, e.g. importance of: Routine versus non-routine tasksHard skills versus soft skillsConsiderable challenge for education and training systems to adapt to these changes in skill demandsNeed to strengthen links with employer organisationsIdentifying key skillsChart 1.Change in labour demand in terms of routine and non-routine tasks, United States *

Going forward: the skills investment imperative (cont.)Important challenge to better utilise existing stock of human capital E.g. women and older workers may face employment barriers because of family responsibilities, early retirement measures and poor working conditionsNeed to expand skill investments for mid-career workers Need to anticipate future skill needs:Expanding workforce in health and long-term will raise issues of appropriate skill mix (general versus specialist skills in medical care) and the transferability of qualifications (especially for immigrants)Green jobs are likely to expand but again need for better information on what types of skills these jobs will requireBetter utilising skills and anticipating future skill needs*

Improving the knowledge basePIAAC will extend and improve on the work of previous international surveys of adult skills by:Expanding direct assessment to problem-solving skills in context of IT and component literacy skillsExtending skill measures to broader range of skills used at work Tightening focus on links between skills and labour market outcomesDetermine importance of soft skillsMeasuring comparably both formal and less formal training and barriers to training*Literacy, numeracy & problem-solving skillsSkill formation & labour market and social outcomesSkills used at workHousehold-based survey of population 16-65 (minimum of 5000 respondents per country) to be held in 2011-201228 (mainly OECD) countries participating incl. ItalyThe OECD Programme for the International Assessment of Adult Competencies (PIAAC): a new window on adult skills

Concluding remarksOECD countries are facing a deep jobs crisis, but the nature of the crisis and policy challenges vary significantly across the boardRecent LM policy reforms may have helped to deal with the rapid rise in unemployment but a number of issues remain:Administrative capacity to scale up LM programmes and possible role of private providersHow to help those unemployed who are not eligible for income support schemesDiscretionary LM policy measures should be timely, temporary and targetedThe severe economic downturn could be an opportunity to invest in labour market institutionsA longer-term strategy of investing wisely in skills is also needed to ensure recovery from the crisis is converted into balanced and sustained growthThis requires better data on training and skill needs, more evaluations of existing skill development programmes and sharing of experiences across countries.The OECDs PIAAC survey will help fill these knowledge gaps as well as its ongoing assessment of students (PISA) and its reviews of VET, tertiary education and regional skill strategies

*

www.oecd.org/els/employment/outlook

*

**The hike in OECD unemployment tracks closely the hike after the first oil shock in 1973.

Such a steep rise in unemployment raises the spectre of persistently high unemployment (so-called hysteresis) which was the scourge of many EU countries in the 1980s and early 1990s.

*Wide variation in UNRs across countries: from lows of 3 - 4% in Norway, the Netherlands, Switzerland and Korea to a high of over 20% in Spain. Large hikes in several countries (Spain, Ireland, US, Iceland). Contrast this with small hikes in some continental countries (Italy, Belgium, France, Poland; Switzerland); small drop in Germany. Has there been a new "German miracle" during the crisis? The variation in UNRs across countries during the current downturn as measured by the standard deviation of the OECD harmonised UNRs is larger than that recorded in three of the four preceding downturns.

* Mostly, the pattern of OECD job losses (see Panel A) during the recent recession has mirrored those of past cyclical downturns:

Men have experienced much bigger job losses then womenYouth have been particularly hard hit, as have temporary workersLow-skilled and medium-skilled workers have also suffered large losses while high-skilled employment has continued to grow.

Two interesting exceptions in the current downturn:

Employment of older workers has held upMedium-skilled workers have also experienced job losses.

Panel B shows that Italy has experienced similar patterns of job losses.** Temporary extension of UBs has been particularly noticeable in US, from a norm of 26 weeks before the crisis to almost 2 years in some states a major part of the Obama Administrations stimulus package.

*Activation of recipients of UI/SA benefits, where well-designed an implemented, proved to be a successful strategy to cut unemployment in many countries before the crisis.

Some argue that activation cannot work in this crisis because there are not enough jobs available for the growing pool of unemployed.

But OECDs view, endorsed by Employment ministers in September 2009, is that effective activation strategies are a vital tool to combat high and persistent UNR, but they need some adaptation to the current circumstances.

Italy has tightened eligibility requirements for UB recipients by requiring them to register wtih the PES or participate in training. But there is no evidence on the implementation of these directives.*

Short-time working schemes (STWs) have been one of the main LM policy innovations in the jobs crisis. Have been widely cited as one of the main factors behind the new German jobs miracle even though other factors have been just as, if not more important, than the Kurzarbeit, e.g. collective bargaining and the Hartz LM reforms of the mid-2000s.

Have STWs worked in the present crisis?

*OECD has made estimates of the size and impacts of STWs in its recent Employment Outlook.Chart shows that (a) there has been a significant recourse to STW during the jobs crisis and (b) that the size of the recourse to STW varies greatly across countries from less than 1% of workers in many countries to a high of over 5% in Belgium. Italy had an above-average use of the scheme at its peak over 3% of all workers.*STWs did save permanent jobs but there was some deadweight loss, i.e., some jobs were subsidised that firms would have retained anyway in the absence of the subsidy. OECD estimates put the deadweight cost at around 30-40%, i.e. out of every 100 permanent jobs subsidised by STW, 60-70 were saved.*