OECD predicts 7% unemployment among member nations

In a new report, the OECD says it expects more than 36 million people to face unemployment in its 30 member countries, equivalent to nearly 7 percent of their combined labour force. As governments strive to tackle unemployment, the OECD urges them to avoid taking too narrow an approach and to consider wider economic and social objectives as well.

From OECD:
OECD Urges Governments to Combine Job Strategies with Other Social Objectives

Strategies to create jobs have succeeded in some countries, but governments must consider a range of issues including the need to boost employment levels and meet individuals’ needs for job security and work-life balance in taking forward their strategies to fight unemployment, according to a new report from the OECD.

The OECD’s latest review of labour market trends and issues, OECD Employment Outlook 2004, predicts some reduction in unemployment rates over the next two years, supported by the continuation of strong growth in certain countries, notably the United States, and a recovery in most others — in particular Japan and, to a lesser extent, the European Union.

Nonetheless, the OECD says, this is likely still to leave more than 36 million people unemployed in the 30 OECD countries, equivalent to nearly 7 percent of their combined labour force. As governments strive to tackle unemployment, the OECD urges them to avoid taking too narrow an approach and to consider wider economic and social objectives as well.

In addition to cutting unemployment, it is important to raise the proportion of working-age persons who actually work, the OECD says. At present, about 35% of people of working age in OECD countries are not employed and most of these people are statistically classified as ”inactive” even though they can and often wish to work. This figure masks big differences between countries, with the non-employment rate being below 30% in Australia, the Netherlands, New Zealand, the Nordic countries (except Finland), North America, Switzerland and the United Kingdom, but over 40% in Belgium, most of Central and Eastern Europe, Greece, Italy, Mexico and Turkey (see Chart 1).

Strategies to raise employment also need to take other social objectives into account. The reform of employment protection legislation (EPL) is a case in point. On the one hand, less strict EPL may make it easier for employers to hire workers, thereby improving the job chances of groups which are subject to entry problems, such as young people and women. But this can also damage job security and sometimes put undue emphasis on the creation of temporary forms of employment.

Similarly, cutting the size or duration of welfare benefits can make it more attractive in financial terms for people to work, while tighter access to benefits may help to ensure that individuals who can work do not withdraw from the labour market. In such circumstances, however, governments need to avoid letting hard-to-place individuals drop out of the benefit system entirely, thereby falling into poverty.

As a general rule, the OECD report notes, an effective policy to meet both employment and social objectives involves a modest degree of employment protection regulation combined with services that help new workers into employment by making them more attractive to employers. This requires a ”mutual obligations” approach, whereby welfare recipients are offered counselling, job-search support and other re-employment services: as a counterpart to continued benefit support, individuals must look actively for a job or take steps to improve their employability. The ”flexicurity” approach of Denmark shows that such a combination of policies can have positive results, although it doesn’t come cheap: labour market programmes cost the equivalent of almost 5% of Denmark’s GDP.

OECD Employment Outlook 2004 highlights additional possible policy responses that governments can consider in their search for more and better jobs, including:

Greater ”flexibility” in working time as a way of boosting employment. Expanding options to work part-time can make it easier for parents with young children to combine working and parenting and for some older workers to extend their careers, while greater flexibility of working hours can help firms adjust to changing work loads. However, other working-time arrangements tend to make it more, rather than less, difficult for workers to reconcile their work and family life. Thus, workers whose job requires them to work evenings, nights or week ends, as well as those with unpredictable work schedules or particularly long hours, report significantly greater conflicts between their work hours and their family responsibilities.
Improved regulation and government administration to beat the ”informal” economy and undeclared employment. Tax and social security systems should be made more coherent. Burdensome red tape affecting formal employment should be cut. Existing regulations should be better implemented, backed by well-functioning labour and tax inspectorates. Social protection and employment promotion schemes should reach the really needy, even when they are employed in the informal economy, but at the same time be designed to encourage integration into the formal economy.
Support for lifelong learning to help workers to improve their skills. During the past two decades, the pay gap between people with different levels of skills has widened. Wider earnings inequality may indeed be needed to support employment of the low-skilled, which raises a potential trade-off between efficiency and equity objectives. Workers who receive training that enables them to improve their skills have a greater chance of keeping their job than their non-trained counterparts.

The OECD recently launched a project for the reassessment of its Jobs Strategy – a blueprint for reforms to cut high and persistent unemployment adopted 10 year ago by OECD countries. The main outcomes of the reassessment will be discussed by OECD Ministers in two years time. The challenge is to formulate a balanced reform agenda that helps countries adapt to structural change while also meeting employment and social objectives.

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