ILO warns on threat to jobs

Written by The Financial Times | Updated: Nov 1 2011, 05:48am hrs
By Brian Groom in London

The world faces a dramatic downturn in employment over the coming months unless governments act to soften the effect of the economic slowdown on labour markets, the International Labour Organisation warns in a report today.

Ahead of this weeks summit of G20 leaders, the ILO says the global economy is on the verge of a new and deeper jobs recession that will delay recovery and could spark more social unrest in dozens of countries. It says two-thirds of advanced economies and half of emerging economies are already experiencing a slowdown in job creation at a time when worldwide unemployment stands at a record of more than 200m.

The ILO calls for carefully designed programmes to support jobs, including improved skills training and help with job searches. The US is the only big advanced country with a national jobs plan, it says.

We have reached the moment of truth. We have a brief window of opportunity to avoid a major double-dip in employment, said Raymond Torres, director of the ILOs International Institute for Labour Studies.

One reason why the impact of the latest economic slowdown on employment could be greater than before is that employers are now in a weaker position to retain workers, the report says.

After the collapse of Lehman Brothers, the US bank, in 2008, many enterprises kept staff on, expecting the slowdown to be temporary - but three years on, the business environment is more uncertain and retention may be less widespread.

As pressure to adopt fiscal austerity measures mounts, fewer governments are maintaining or adopting job and income-support programmes. In addition, the ILO complains that countries are left to act in isolation because of a lack of international policy co-ordination.

The ILO says that on current trends it will take at least five years for employment in advanced countries to return to pre-crisis levels, a year longer than it forecast in last years report.

It says the world is likely to create only half the 80m jobs needed over the next two years.

The risk of social unrest is rising in 40 per cent of countries, notably in the European Union, the Arab region and to a lesser extent Asia. Discontent is being fuelled by lack of jobs and the perception that the burden of the crisis is not being shared fairly.

The report says there is no clear evidence that wage moderation in recent years has boosted employment. It calls for wages to rise in line with productivity, especially in surplus countries such as China, Germany, Japan and Russia.

In advanced economies, fiscal austerity has been accompanied by measures that are perceived as a threat to social protection and workers rights, which the ILO argues will not boost growth and jobs.

The ILO says programmes to support employment need not be expensive. Increasing active labour market spending by half a per cent of gross domestic product would raise employment by between 0.2 per cent and 1.2 per cent in the medium term, depending on the country.

The report calls for investment to be boosted by improving the flow of credit to small companies. Measures could include credit guarantees, the deployment of mediators to review credit requests refused by banks and the provision of liquidity directly to banks to finance small enterprises. Such schemes already exist in countries such as Brazil and Germany.

Out of 118 countries, 69 showed an increase in the percentage of people reporting a worsening of living standards in 2010 compared with 2006.

The Financial Times Limited 2011