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ILO Director General’s address on G20 Labour Markets

By Guy Ryder
Director General, International Labour Organisation

The Director-General of the ILO, Guy Ryder, joined the G20 Labour and Employment Ministerial Meeting held in Melbourne in September 2014, during which the ILO presented a number of reports on employment issues that have been prepared to inform the Ministerial discussions.

Thank you for the floor, Minister Abetz, and thank you for the opportunity to present the joint work that the ILO, OECD and World Bank have been undertaking together over the course of this year at your request and in response to the call by G20 Leaders last year for each G20 country to develop growth strategies and employment action plans.

It won’t come as a big surprise to any of the Ministers here that despite the efforts made, current employment challenges remain substantial for all G20 countries.
Looking at the slide (blow), you can see that large employment gaps opened as a result of the financial crisis that broke in 2007 and remain significant in most G20 countries.

 

G20-Labour-Markets1

 

Our projections of the future trend, based on IMF growth projections, is that the gaps will remain large in advanced G20 countries at least to 2018 and indeed may even widen.

That said, in the last 12 months, the majority of the G20 countries have witnessed a modest reduction in the unemployment rate. These positive developments were largely due to welcome net job creation, especially in the United States, but in some cases they resulted at least in part from declines in the labour force participation rate.

This has to be noted while recalling that the rate of youth unemployment declined in many countries but still remains at historically high levels in others.

In the emerging G20 countries, jobs gaps are not as wide as an industrialized countries but the prospect of closing the gaps in the next five years is not very promising under current growth trends.

 

G20-Labour-Markets2

 

And those overall growth trends do not give much cause for optimism at the moment. Despite a modest economic recovery in 2013-4, economic growth is expected to remain below trend over the foreseeable future. The G20 jobs gap in 2012 was about 55 million. The ILO estimates that the gap will continue to widen until 2018, reaching 63 million that year.

G20-Labour-Markets3jpg

 

G20-Labour-Markets4

 

Furthermore, the employment intensity of growth has also been weakened in many countries. This figure shows that even very high growth rates in China, India and Indonesia have not produced comparable growth in employment.

Except for Turkey, Mexico and Germany, all of the other G20 countries that did grow saw lower rates of job growth than economic growth.

In addition to the sheer size of the jobs gap, then, there are clearly specific employment problems facing G20 economies.

 

*Selected urban areas. Q3 2007-Q3 2013 for the Russian Federation; and Q1 2008-Q1 2014 for South Africa

In over half of the G20, the share of long-term unemployed has increased as a share of total unemployment, in some cases dramatically. These unemployed face daunting re-employment odds.

Particularly sharp increases took place in Spain as well as in the United States, and countries such as Italy and South Africa have seen further increases in already high long-term unemployment rates. However, some declines were recorded in Brazil and the Russian Federation and to a lesser extent Turkey and, although from a high base, also in Germany.

The median value of long-term unemployment as a share of total unemployment had risen to 30.2 per cent by the first quarter of 2014, up from 24.6 per cent at the end of 2007. In several countries, the challenge of long-term unemployment, and unemployment more generally, is particularly acute among youth.

The next slide addresses one element of the quality of employment, that is the issue of informality
.

G20-Labour-Markets5

 

 

  1. Corresponds only to persons employed in the informal sector
  2. Six cities only

In a number of emerging G20 economies, the biggest challenge lies in moving the labour force out of low productivity, low wage informal employment and underemployment. This slide shows, disaggregated by gender, the high levels of informality in many emerging G20 countries. In addition, we have observed an emergence of informal working relationships even in the formal sector in some advanced G20 economies.

Coinciding with the sizeable jobs gap we looked at is a deterioration in job quality in a number of G20 countries, and here we look at the behaviour of real wage rates. Real wages have stagnated across many advanced G20 economies and even fallen in some.

 

G20-Labour-Markets6

 

 

On average, the crisis brought down the growth rate of average real wages to about 1 to 2 per cent. That modest growth was attributable almost entirely to emerging economies, particularly China, while wage growth in advanced economies has been fluctuating around the zero mark since 2008 and has been negative in some countries.

The reflection of that is the decline in the labour share of income observed in most G20 countries over recent decades, which has continued in some while in others it has stagnated.

 

G20-Labour-Markets7

 

 

This is a long-term structural problem, a “legacy vulnerability” which was revealed by the crisis but has been decades in the making. Its persistence over recent decades demonstrates that it is a problem that won’t go away on its own; it must be addressed by specific policies. And it is a problem affecting nearly all G20 economies, both current account surplus and deficit countries.

The next graphic shows that the declining labour share cannot be attributed to lack of productivity growth. Wage growth has significantly lagged behind labour productivity growth in most G20 countries, and particularly in the advanced G20 countries.

 

Labour productivity has grown faster than wages, especially in advanced G20

 

G20-Labour-Markets8

 

In the light of this rather negative news, it’s encouraging to look at one very positive note in recent developments which is that working poverty has declined in many emerging G20 countries, most notably China.

 

Some good news: working poverty has continued to decline in the emerging G20

 

G20-Labour-Markets9

 

The aqua coloured band on the bottom shows the decline in extreme working poverty (less than $1.25 per day) and the grey band above it shows the decline in moderate working poverty, and so on. The question is can this trend be maintained and improved, in current circumstances?

Colleagues, I would like to turn now from the main trends and outlook for the G20 labour markets the policy responses we have observed.

And indeed policy efforts in many G20 countries, particularly emerging ones, have sought to address wage stagnation, income inequality and the vulnerability of low income households, through measures such as minimum wages and social protection.

 

Income-led growth strategies (I): Labour income

 

G20-Labour-Markets10

 

This slide illustrates developments based in part on wage policies, including minimum wages. China has significantly raised minimum wages. Russia, South Africa, Brazil, Argentina, Indonesia and Turkey have pursued a range of wage growth policies, such as minimum wage increases and collective bargaining, in order to rebalance their sources of growth toward more domestic consumption and to address inequality and working poverty.

The lower of the two tables shows that in twelve G20 countries the ratio of the minimum wage relative to the average wage has increased, reflecting recognition of its role in alleviating working poverty and boosting household income and consumption. The US, Germany and Saudi Arabia, among others, have also launched initiatives to establish or increase minimum wages in order to address working poverty and inequality. Japan has encouraged significant wage increases through collective bargaining and other wage setting processes as a key component of its effort to fight deflation.

Ministers, many G20 governments have also addressed the crisis through increased spending and coverage of social protection.

 

Income-led strategies (II): Social protection

G20-Labour-Markets11

 

On the left side of the graphic are emerging countries. Notable expansions occurred in Argentina, Brazil, China, Indonesia and Mexico, for example through non-contributory “social” pensions for low-income households and cash transfer programmes. India established a highly successful national rural employment guarantee that directly provides job opportunities in rural areas to build infrastructure and an income floor for vulnerable households. And South Africa created a public employment programme to address high unemployment and poverty.

Such programmes also helped to prevent declines in household consumption and thus helped to sustain aggregate demand and prevent further declines in economic growth and employment.

There is also evidence that well-designed systems of income support can help the unemployed search for jobs and ensure a better match with their skills, resulting in more productive and sustainable employment.

In advanced G20 countries, shown on the right, total income support to the unemployed generally rose in line with the number of jobseekers. Expenditures on unemployment benefits thus acted as an important stabiliser by limiting the negative impact of the crisis on household incomes.

Somewhat by contrast, and I would say unfortunately, expenditure on active labour market programmes failed to keep pace with the rise in unemployment in many countries following the start of the crisis, despite their potential benefits in re-integrating job seekers into employment.

 

But support for active labour market programmes has declined in advanced G20

 

G20-Labour-Markets12

 

For the EU and for the OECD area as a whole, real expenditure on such policies per unemployed person fell by 20% and 18%, respectively, over the period from 2007 to2011.

Colleagues, finally let me just say a word in response to the wise exhortation from our Australian hosts this year to look in particular for policies that generate positive spillovers.

And in terms of the policies I have been discussing, there are potentially strong spillovers from increasing incomes and household consumption in many G20 countries at the same time.

  • This can be achieved through policies for higher wages -including minimum wages and collective bargaining – and through social protection systems that act as automatic stabilizers and discourage excessive precautionary saving.
  • It is also important to recognize that coordinated policy to lift incomes avoids the trap of a low-wage competition rather than competition through comparative advantage, specialization and increased productivity.
  • The demographic transition can also generate positive spillovers, provided that labour mobility is facilitated through rational, balanced and fair migration policies and appropriate skills development in sending countries.

Colleagues, Ministers,

Certainly there is no room for complacency, but there are I hope some reasons for optimism at this fifth G20 meeting of Labour and Employment Ministers. I look forward to our debates and conversations.

Thank you.

 

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