OECD, Directorate for Employment, Labour and Social Affairs

Organisation for Economic Co-operation and Development

National Adult Literacy Conference

The Royal Hospital Kilmainham, Dublin,

8th September 2010

The jobs crisis in OECD countries: some stylised facts

John P. Martin Director for Employment, Labour and Social Affairs, OECD

The jobs crisis

An unprecedented crisis

•OECD-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 dropped a bit (8.5% in June 2010)

While recovery is underway, the jobs crisis is far from over

•OECD UR projected to show little change this year, before dropping slowly through next year, but could still be 8% by end 2011

Bold action needed to tackle high and persistent unemployment

• Individuals in jobless households 5x more likely to be poor on average

•Social costs go well beyond the loss of income (e.g. health, crime etc.)

•High risk of hysteresis effects

Part I

What are the labour market impacts of the crisis?

•Historical patterns and recent trends

The unemployment impact so far differs greatly across countries

Percent of the labour force

* March 2010 for Greece, April 2010 for Norway, Turkey and the United Kingdom, May 2010 for Sweden, 2010 Q1 for New Zealand and Switzerland, 2010 Q2 for Iceland (OECD harmonised unemployment rate data are not available on a monthly basis for the last three of these countries).

0

2

4

6

8

10

12

14

16

18

20

KOR

NO

R

AUT

NLD

CHE

AUS

JPN

LUX

MEX NZL

DN

K ISL

DEU CZ

E

GBR

CAN

FIN

ITA

BEL

SWE

USA PO

L

FRA

HU

N

PRT

TUR

GRC IR

L

SVK

ESP

OEC

D G7

EU-2

7

Euro

are

a

% December 2007 June 2010*

Different responses of employment to output declines

Total percentage change, 2007 Q4 to 2009 Q4

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

% Change in real GDP Change in total hours worked

Different margins of adj. in the labour market: employment vs.

hoursTotal percentage change, 2007 Q4 to 2009 Q4

-14

-12

-10

-8

-6

-4

-2

0

2

4

% Change in total employment Change in average hours worked

The current crisis is the worst in recent decades

Index base 100 = OECD area unemployment rate at the preceding business-cycle peak (based on output gap), quarterly data

Source: OECD Economic Outlook, May 2010.

90

100

110

120

130

140

150

160

0 1 2 3 4 5 6 7 8 9 10 11 12

Quarters elapsed since the beginning of the recession

1973 Q2 1979 Q2 1990 Q1

2000 Q2 2007 Q3 Projected

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in the United States, January 1970 - July 2010

0

2

4

6

8

10

12

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1 2010M1

26 years

9 years

4 years3 years7 months

5 years5 months

8 years

3 years3 months

4 years9 months

3 years8 months

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in Germany, January 1970 - June 2010

0

2

4

6

8

10

12

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1 2010M1

5 years 7 years6 months

2 years8 months

2 years4 months

4 years6 months

3 years17 months

Recessions not only hurt lots of people, but also take a long time

to fix Harmonised unemployment rates in Ireland, January 1970 - June 2010

0

2

4

6

8

10

12

14

16

18

1970M1 1975M1 1980M1 1985M1 1990M1 1995M1 2000M1 2005M1 2010M1

4 years

7 years

3 years 2 years

8 years

2 years11 months

9 years4 months

Who have suffered the most during the

recent recession?

Percentage change of employment over 2007 Q4 to 2009 Q4Panel A. OECD weighted average Panel B. Ireland

-2.2 -3.4-0.7

-9.6

-2.1

3.7

-7.1-3.8

3.9

-2.2

0.0

-5.2

-48

-40

-32

-24

-16

-8

0

8

Tota

l

Men

Wom

en

15-2

4

25-5

4

55-6

4

Low

-ski

lled

Med

ium

-ski

lled

Hig

h-sk

illed

Self-

empl

oyed

Perm

anen

t wor

kers

Tem

pora

ry w

orke

rs

Gender Age groups Educational attainment

Workforce groups

-12.4-17.3

-6.2

-41.5

-8.2

-1.6

-29.6

-14.1

1.9

-13.2 -13.0

-3.5

-48

-40

-32

-24

-16

-8

0

8

Tota

l

Men

Wom

en

15-2

4

25-5

4

55-6

4

Low

-ski

lled

Med

ium

-ski

lled

Hig

h-sk

illed

Self-

empl

oyed

Perm

anen

t wor

kers

Tem

pora

ry w

orke

rs

Gender Age groups Educational attainment

Workforce groups

Part II

How have OECD countries responded to the crisis on the labour market policy front?

Resources available for LM policies differ across OECD countries

Passive and active labour market programmes (expenditures as a % of GDP) in OECD countries, 2008

0

0.5

1

1.5

2

2.5

Tota

l pas

sive

m

easu

res

Une

mpl

oym

ent

bene

fits

Earl

y re

tire

men

t

Tota

l acti

ve

mea

sure

s

PES

and

adm

inis

trati

on

Trai

ning

Empl

oym

ent

ince

ntive

s

Dir

ect j

ob

crea

tion

Inte

grati

on

of d

isab

led

Passive measures Active measures

%

OECD average

Minimum

Ireland

Maximum

Discretionary changes in labour market policy in response to the economic

downturnNumber of OECD countries that have taken different types of measures

0

5

10

15

20

25

30

Job

subs

idie

s, re

crui

tmen

t in

centi

ves

or p

ublic

sec

tor j

ob c

reati

on

Redu

ction

s in

non-

wag

e la

bour

cost

s

Shor

t-tim

e w

ork s

chem

es

Activ

ation

requ

irem

ents

Job

sear

ch a

ssis

tanc

e an

d m

atch

ing

Job-

findi

ng a

nd b

usin

ess

star

t-up

ince

ntive

s

Wor

k exp

erie

nce

prog

ram

mes

Trai

ning

pro

gram

mes

Gen

eros

ity o

r cov

erag

e of

un

empl

oym

ent b

enefi

ts

Soci

al a

ssis

tanc

e

Oth

er p

aym

ents

or

in-k

ind

supp

ort

Fisc

al m

easu

res

for l

ow e

arne

rs

Trai

ning

for e

xisti

ng

wor

kers

Appr

entic

eshi

p sc

hem

es

Measures to support labour demand for job seekers and vulnerable workers

Measures to help unemployed find work

Income support for job losers and low-income earners

Other training

measures

Part III

SOME KEY CHALLENGES FACING LABOUR MARKET POLICIES

THE NEED TO ADAPT ACTIVATION POLICIES TO THE JOBS CRISIS/EMERGING RECOVERY

Over the past decade, major efforts made in many OECD countries to implement activation policies to get jobseekers off benefits and into work. Where they were well-designed and implemented effectively, they worked.

But the jobs crisis presents important threats to activation strategies:

- Risk of reduced intensity of interventions in the unemployment spell (less job-search controls; fewer in-depth interviews; less action plan follow-up etc.) as PES resources do not keep step with rising UN inflows and stocks

- Vacancy flows decline, resulting in a lower number of direct referrals

16

THE NEED TO ADAPT ACTIVATION POLICIES (Cont.)

Overriding goal: prevent job losers from becoming disconnected from the labour market

- Core element of activation regimes and mutual obligation principle should not be allowed to lapse or be overly diluted- For those at risk of LTU, re-employment services need to be adapted to specific conditions of slack LM- Shift to somewhat from a “work-first” to a “train-first” approach (OECD evidence suggests that the benefits to investing in training programmes for the unemployed rise in a

deep recession)- Training for the unemployed should remedy basic skill deficiencies and have a strong workplace component

17

CHALLENGES FACING IRELAND ON THE ACTIVATION FRONT

OECD (2009) showed that the intensity of activation strategy in Ireland was relatively weak prior to the crisis.

The FÁS debacle came at just the worst moment when we most needed a high-performing PES.

However, the recent amalgamation of FÁS Employment Services with the benefit agency under DSP is a potentially important step forward so long as an effective governance system is put in place with clear quantifiable objectives and a performance management system that rewards good employment/career outcomes.

Worries: Training is an important ALMP. How to ensure effective co-ordination

and delivery of effective training to FAS/DSP clients?

How to resource adequately FÁS/DSP at a time of serious public finance constraints?

How to ensure that the new integrated agency delivers performance-oriented results?

18

CHALLENGES FACING IRELAND ON THE VET FRONT

Main burden of rising unemployment has fallen on youth and the low-skilled (many of whom have weak literacy and numeracy skills).

While the weak labour market is encouraging many youth to stay on longer in education and training, this poses a huge challenge to our VET system to cope with rapidly rising demand and maintain/improve quality.

Need a fundamental rethink of the apprenticeship system:

•Too narrow in terms of occupations (e.g. dominant focus on construction, few services)

•Too few women apprentices

•Inappropriate sharing of the costs between apprentices, firms and the public purse.

A fundamental redesign of the apprenticeship system could be inspired by the good practices in Australia and Switzerland

19

CHALLENGES FACING IRELAND ON THE VET FRONT (Cont.)

Need to expand the role of on-the-job training in many VET programmes.

Much greater emphasis needs to be put into remedying basic skills deficiencies among working-age adults.

•This will require much more systematic screening by FAS/training providers for potential literacy and numeracy training

•For those diagnosed with insufficient literacy/numeracy skills, basic skills support will need to be an integral part of their VET courses.

20

Concluding remarks

Governments are intervening actively to minimise the scale of the jobs crisis

Some have been more successful to date than others With a sluggish recovery underway, governments

must not reduce their efforts to tackle high and persistent UNR and some countries may have to do more

Ireland faces a massive challenge to cut high and persistent UNR

The crisis is an opportunity to radically rethink its LM and training policies and institutions in order to promote more and better jobs.

FURTHER READING

22

FURTHER READING (Cont.)

23