ILO World Employment Report, 1998

Global Financial Crisis Will Trigger Jump in World Unemployment

Released from Washington, D.C. and Geneva

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Rashid Amjad, Ph.D., chief of the ILO World Employment Report, will be in Washington, D.C. on Friday, September 18 for interviews. To schedule a time, please call (703) 820-2244.

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The number of unemployed and underemployed workers around the world has never been higher and will grow by millions more before the end of the year as a result of the financial crisis in Asia and other parts of the world, says the International Labour Office (ILO) in its annual World Employment Report.

“The global employment situation is grim, and getting grimmer,” says Michel Hansenne, Director General of the ILO. “The world financial crisis has put immense pressure on globalization, and we fear that many governments may begin turning their backs on much needed economic reforms. But globalization per se is not the problem.”

Noting that beyond the current financial turmoil, many countries are suffering from long term employment problems that can be solved only through the combined action of governments, trade unions and employer organizations, Mr. Hansenne says:”Among measures to increase competitiveness, growth and employment in a globalizing world economy, the critical role of a high-quality, educated and skilled workforce must gain more prominence.”

Among the highlights of the World Employment Report (WER):

  • Some 1 billion workers — one third of the world’s labor force — remain unemployed or underemployed, a figure that is largely unchanged from ILO estimates contained in its World Employment Report 1996-1997;
  • Of the 1 billion total, some 150 million workers are actually unemployed, or seeking or available for work. Of these 150 million, 10 million unemployed have been generated this year due to the financial crisis in Asia alone;
  • In addition, 25 to 30 percent of the world’s workers — or between 750 million and 900 million people — are underemployed, i.e., either working substantially less than full-time, but wanting to work longer or earning less than a living wage;
  • The ILO estimates some 60 million young people, between the ages of 15 and 24, are in search of work but cannot find it;
  • The global unemployment and underemployment picture contained in the 1998-99 report contrasts sharply to developments expected since the last WER was issued in 1996, when the ILO said that a number of encouraging signs heralded a global economic revival and would cut unemployment and underemployment worldwide;

“The first half of 1998 has actually seen economic growth in many parts of the world,” Mr. Hansenne said. “However, this revival, which we anticipated would spur higher jobs growth in all parts of the world, has only cut unemployment and underemployment in the United States, and to a lesser degree in the European Union.”

“Stubbornly persisting high levels of unemployment and underemployment lead to social exclusion of the young and the old, the less skilled, the disabled and ethnic minority groups — with a strong bias against women in all categories,” Mr. Hansenne added.

The ILO says that worker training provides the single best way to resolve this problem among unemployed women, youths, workers trapped in the informal sector and other “vulnerable groups,” such as older workers, the long-term unemployed and workers with disabilities.

“Nations facing rapid globalization and competitive pressure need to invest in skills development and training in their workforce,” the report says. “Training and education were at the heart of Southeast Asia’s economic miracle and could well provide a way out of under-development and poverty for millions of workers in other parts of the world.”

Here is a global overview of the World Employment Report.

Asia — The report says that the three decades of sustained growth, averaging almost 8 percent per year (or 5.5 percent per capita) in many countries of East and South-East Asia has had no parallel in recorded economic history, but the situation in the region has deteriorated dramatically in the past year.

In Indonesia, steep increases in unemployment and underemployment are being accompanied by food shortages caused by an early drought. The ILO warns that “real wages in 1998 could well fall further than the 15 percent or so expected drop in per capita GDP. Unemployment in 1998 could reach between 9 to 12 percent of the labor force, compared to about 4 percent in 1996, though much of this increase will be reflected in rising underemployment rather than open unemployment.”

In Thailand, unemployment could rise to about 6 percent in the labor force in 1998, or almost 2 million jobless, compared to 1-2 percent or 400,000 to 700,000 unemployed just two years ago. The reliance of many Thais on the traditional safety net of the extended family could trigger a four to five-fold increase in underemployment. The ILO says that the ripple effect of such trends will impact far from the urban centers, because “many people in the rural areas, especially the elderly . . . rely on remittances from working family members in Bangkok.”

In the Republic of Korea job losses have accelerated in the past year, nearly doubling between November 1997 and February 1998 to 5 percent, and reaching 7 percent in June of this year. In Hong Kong, the unemployment rate rose sharply to 4.5 percent at the end of the second quarter of 1998, from 2.9 percent in 1997.

In China, it is estimated that 3.5 million workers will be laid off in 1998 and unemployment will increase to 5-6 percent. Hopes for increasing productive employment lie in the expanding role of private industry, especially small and medium-sized enterprises.

Furthermore, the ILO fears that labor market conditions in India, Pakistan and Bangladesh, which have so far been spared significant impact from the crisis, could worsen, if the external economic environment turns hostile.

Central and Eastern Europe and the CIS — Despite the benefits enjoyed by a tiny minority, most people in this region in the 1990s continue to suffer dramatic and painful declines in living standards. The ILO notes that “this has been accompanied by a rapid rise (from about zero to over 9 percent) in unemployment, lower real wages and an increase in income inequality as a result of immense economic and enterprise restructuring.”

The collapse of output has lead to drastic reduction in demand for labor, lower employment and lower real wages in some countries.

In the Russian Federation, rising economic turmoil has been accompanied by negative growth in real wages, now at less than 60 percent of their 1989 level. In a growing number of cases, enterprises cannot pay any wages at all, for months at a time, to their employees. The report notes that although GDP in Russia grew at a rate of 0.4 percent in 1997 after eight years of recession, and inflation fell to 15 percent from 48 percent in 1996, the current economic crisis, combined with growing political instability, is worsening the situation further. The exchange rate has fallen sharply and accelerated inflation is occurring, nearly daily. Poverty is unfortunately likely to rise.

Poland, by contrast, has begun to see a slow upswing in real wages, to just below 80 percent of pre-1989 levels. Unemployment is still high at 10.4 percent in 1998. In other Eastern European countries, unemployment is 5.4 percent in the Czech Republic, 9.2 percent in Hungary, 9.2 percent in Romania, 13 percent in Bulgaria, and 17.6 percent in Croatia.

Latin America — In Latin America, a recent improvement in general output indicators has not been matched by improved employment. Although overall growth reached 5.0 percent in 1997, accompanied by a decline in inflation from very high levels and improved real wages in several countries, the ILO says unemployment in the region increased between 1991 and 1996, reaching 7.4 percent in 1997.

Latin America faces the danger in 1998 of being caught in a global pull back by investors in emerging markets, which could push unemployment and underemployment up sharply.

Argentina provides an example: a stabilization and structural adjustment program was followed by an average annual economic growth rate of 5.8 percent between 1991-1997. However, the employment situation deteriorated, and unemployment increased between those years, rising from 6.3 percent in 1991 to a maximum of 17.5 percent in 1995, before dropping to around 15 percent in 1997.

“Unable to work in formal markets, where productivity is high and wages relatively good, many workers have to engage in a number of activities that sometimes just allow them to survive,” the report says, citing self-employment, domestic service and employment in micro-enterprises.

In other Latin American countries, the ILO estimates that unemployment in 1998 was 7.9 percent in Brazil, 11.3 percent in Venezuela, 3.4 percent in Mexico, and 15.2 percent in Colombia.

Africa — In sub-Saharan Africa, a prolonged period of poor growth and deteriorating labor market conditions has given way to a slight improvement in the employment situation in many countries during 1998. Rising growth rates have been spurred by improvements in the weather and declining drought, an increase in the prices of export products, devaluation of the CFA franc (African Financial Community) to increase competitiveness, and structural reform and political change that made foreign direct investment more attractive.

Nevertheless, the ILO says that Africa’s recovery, though encouraging, “should not be cause for undue optimism. With a labor force growth of almost 3 percent and little job creation in the formal sector, most jobs are necessarily created in the informal sector, and in low-productivity agriculture.” In addition, with a predicted annual growth rate of 2.9 percent in the economically active population between 1997 and 2010 (compared with 1.9 percent for South East Asia and 1.8 percent for Latin America), an estimated 8.7 million new job-seekers will enter the labor market every year.

Developed countries — Growth in the developed countries has been encouraging but uneven. The report says that “while between 1993 and 1997 Canada, the United Kingdom, the United States and a few other countries showed a good performance, levels of activity in France, Germany and Italy were less robust. Japan is still unable to recover from several years of lackluster growth.”

In the European Union, more than 18 million workers are unemployed this year, the ILO says, noting that “the picture does not take into account the considerable number of ‘discouraged’ workers who have given up hope of finding work, and involuntary part-time workers.” However, output and employment showed signs of picking up in Europe by mid-1998, prompting a decline in the average unemployment rate in the European Union to 10.2 percent in May 1998, compared with 10.7 percent a year earlier. Although Japan still experiences unemployment rates that are low by the standards of most developed countries, joblessness has begun rising sharply as economic growth has stalled since the mid-1990s.

“The long-term unemployed have poor prospects to find a job even if the overall macroeconomic environment improves,” the report says. “The social dimensions of this problem are enormous and have to be tackled with policy measures and programs aimed at reintegrating the long-term unemployed into the labor market.”

Young Workers: The ILO estimates that about 60 million young people around the world between the ages of 15 and 24 are in search of work, with youth unemployment running 20 percent in many OECD countries.

“Low growth has worsened the situation in Western Europe, and economic contraction and restructuring has severely limited access to new jobs in Eastern Europe.” the report says.

In developing countries of Africa, Asia and Latin America, “urban unemployment rates for young people often reach over 30 percent,” the report says. The new global turmoil makes young workers even more vulnerable to layoffs — employers react to economic recession by cutting back on hiring new workers. The report also points out the wider dangers from youth unemployment:, stressing that youth joblessness can often lead to vandalism, crime, drug abuse, alienation, social unrest and conflict.

The ILO has found examples of programs that work for young people, however. In many countries of Latin America and Asia, “schemes that provide young people with a foothold in the labor market through short-term in-firm work experience can effectively improve employment outcomes where a demand exists for low- or semi-skilled workers, and where economic growth is relatively high.”

A key policy approach in many of the European Union countries is to provide financial incentives to firms to hire and provide some training for young workers. In the mid-1990s, these “youth contracts” accounted for almost 25 percent of youth employment in Italy, 20 percent in Greece and 12 percent in France and Spain.

The long-term unemployed: “Long-term unemployment in the labor market is one of the most persistent and serious social issues,” the report says. The longer the workers have been unemployed, the smaller their chances of finding a job. Their skill level runs the risk of deteriorating, and employers are increasingly hesitant to employ them.

Long-term unemployment has been particularly severe in the European Union member countries, where more than 60 percent of the 9 million long-term unemployed in 1996 had been out of work longer than two years.

Older workers and women becoming unemployed are more at risk of remaining unemployed for a long period of time. Similarly, workers displaced from declining industries and workers with disabilities are similarly more likely to be among the long-term unemployed than workers in general.

A combination of mutually supportive measures is much more effective in improving employability for the long-term unemployed than “stand-alone” programs, the report says. Combined measures include subsidized jobs, job search assistance, remedial education, training, and family- or social-problem counseling. Training or placement in actual workplaces allows workers to overcome employers’ hesitance to hire the long-term unemployed. Small-scale, community-based reintegration enterprises have been most effective in countering long-term unemployment by providing a range of services to the unemployed while contributing to wider community needs and local economic regeneration.

Women and training in the global economy: In the past 20 years, women have provided the bulk of new workers in developed and developing countries alike. Women, for example, have accounted for nearly 80 percent of all labor force growth in the European Union since 1980. In some countries — Ireland, Italy, Sweden and the United Kingdom — the figure almost reaches 100 percent.

Two opposing trends have emerged in recent years: one is the expansion and feminization of lower-level jobs in the service sector; the other is the growing number of high-level jobs obtained by women via educational achievement. In many industrial countries, for example, women have been enrolling in large numbers “for degrees in medicine, law, accountancy and business studies, all areas which have previously been dominated by male students,” the report says.

There are, by contrast, “fewer examples of women making significant inroads into traditionally male-dominated jobs at intermediate and lower skill levels by pursuing training in these areas,” notes the report. The reasons include ingrained discrimination and the declining demand for these types of jobs in many economies.

Confronted with so many barriers in the labor market, increasing numbers of women are launching their own enterprises. “National estimates indicate that 10 percent of the new enterprises in North Africa, 33 percent in North America and 40 percent in the former East Germany were created by women,” the report says. The figure for the United States alone surpasses 60 percent.

Informal sector: The ILO report says the majority of new jobs in developing countries are being created in the informal sector which according to ILO estimates employs about 500 million workers. Lack of sufficient job growth in the formal sector of the economy as well as lack of skills of a large section of the labor force has resulted in the growth of the informal sector where most workers are in low paid employment in unregulated and poor working conditions.

Concerted action is required to improve the incomes, productivity and working conditions of the large and growing number of workers involved. With institutional support and access to affordable credit, training can make a difference to incomes and work conditions in the informal sector. Training policies argues the report, would do better to address the needs of those already established in informal production and who require upgrading of specific skills through introduction of new technologies and new products.

Training: The ILO report surveys different approaches to training around the world with an eye to highlighting some of the strengths and shortcomings of each system. It also sets out an agenda for improving the efficiency and governance of training systems worldwide, to achieve the quality standards required in today’s highly competitive world.

While the ILO authors insist that there is no ideal training system, they argue that any successful system needs to take account of three factors: a solid educational base; an appropriate incentive structure in which training priorities are fueled by real economic demand; and institutional arrangements in which the social partners — notably employers, workers and government — contribute to improving performance and efficiency.

Most training systems in developing or restructuring economies are in rapid evolution. In East Asia, governments in recent decades massively supported primary and secondary education and carefully monitored international demand in setting vocational training priorities; on the back of the success of this highly structured approach, a more decentralized system is being developed, involving less government involvement and more choice from increasingly affluent populations with stronger social institutions.

In Eastern Europe, the governments of centrally planned economies worked to match workforce skills to the demands of state-owned industries which provided additional training. In general, the training needs of workers in this region have suffered as a result of the economic transition.

The direction of reform of training systems worldwide is toward more “demand-led” systems, which respond to the real and immediate requirements of enterprises at the expense of “supply-led” systems, which tend to be driven by the priorities of public officials and established providers of training.

“Demand-led orientation of training systems has various components: Firstly, government helps private agents, both employers and individuals, to sponsor training which is in their own immediate interests. Secondly, in the training which governments sponsor in their own right, more effort is made to incorporate information about market demand for skills, and to replace government provision by private provision, using market-like mechanisms to increase efficiency,” the ILO report says. Public sector training providers are forced to compete with others for training contracts.

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