Born into Crisis

Rooted in the Real Economy

Responding Today

Responding TodayRooted in the Real Economy

Born into Crisis

The International Labour Organization1919-2009

• Specialized agency of the UN• 182 member States• 40 field offices throughout the

world

• Devoted to advancing opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity

• Placing employment at the heart of development policy

The International Labour Organization

The ILO: Born into Crisis

• Founded in 1919 as part of Treaty of Versailles that ended First World War

• A response to the extraordinary economic development of the Industrial Revolution, which was accompanied by intolerable human suffering and social unrest– Workers demanding democratic rights and

decent working conditions– Visionary industrialists saw social

progress as critical to survival of private

industry

The ILO: Reaching deep into the Real Economy

• The only tripartite organization in the UN family.– Employers’ and workers’ representatives have an equal voice

with that of governments

• Operates with practical, concrete and specific contributions from its tripartite constituents– Promote labour standards– Create greater opportunities for decent employment– Enhance coverage and effectiveness of social protection

– Strengthen tripartism and social dialogue to advance these goals.

The ILO: Experience Responding to Crisis

• In its first year, the ILO adopted 6 conventions, including those covering…– Hours of Work– Unemployment Insurance– Maternity Protection– Minimum Age

The ILO: Experience Responding to Crisis

• In the 1930s, in the wake of global financial collapse, the ILO worked to coordinate a global approach toward raising labour standards and rebuilding employment.

The ILO: Experience Responding to Crisis

• At the end of Second World War, the ILO adopted the Declaration of Philadelphia as nations looked to a future of peace and security– Labour is not a commodity

– Freedom of expression and association are essential to sustained progress

– Poverty anywhere constitutes a danger to prosperity everywhere

– All human beings have the right to pursue their material well being in conditions of freedom and dignity, economic security and equal opportunity

The ILO: Experience Responding to Crisis

• 1950s – 1970s– Creation and expansion of technical cooperation to help newly de-

colonized nations build sustainable economies

• 1980s – 1990s– Response to end of Cold War, helping newly democratic countries restore

functioning labour markets– Response to Asian financial crisis– Declaration on Fundamental Principles and Rights at Work

• 2000s– Decent Work Agenda responds to global poverty– World Commission on the Social Dimension of Globalization– Declaration on Social Justice for a Fair Globalization

The ILO’s Decent Work Agenda• Work is central to people’s well being• Creating decent work should be at the heart of

development policy• Make globalization more

inclusive and fair

The ILO’s Decent Work Agenda• Centered on the ILO’s key strategic objectives…

– Employment• The principal route out of poverty is work

– Rights• People in poverty need representation,

participation and voice

– Protection• Earning power is suppressed by

marginalization and lack of support systems

– Dialogue• The only way to solve problems

peacefully

• Current world financial meltdown worst since the Great Depression

• World growth in 2009 will be lowest since the Second World War

• World trade expected to contract by 2.8% in 2009 after growing 7.8% annually over the past three years

A World in Crisis

The crisis is spreading…

• From largest industrialized nations to emerging economies to least developed countries

• Beyond the financial markets– Credit crunch– Waning consumer and business confidence– International linkages

• World trade• Commodity price drops• Fall off in FDI and private capital flows• Remittances falling for first time in

decades• Drop in development assistance?

• Global unemployment in the formal sector could rise to 6.5% this year– A total of 210 million people out of work

• 77 million workers in developing countries to be pushed into poverty

• Some hit especially hard– Women– Youth – Migrants

…and affecting the real economy

Case in Point:Women and the Crisis• Number of unemployed women will rise by as much as

22 million in 2009• Women are often regarded as a flexible reserve, to be

drawn into the labour market in upturns and expelled in downturns - i.e. casual, temporary, contract, and home workers

• Shrinking economies and reduced social protection tend to hit

women and children harder

• Women concentrated in export-oriented firms that are exposed to global slowdown

It’s having far-reaching consequences• Risk of prolonged labour market recession

– Job losers tend to lose skills and get discouraged after one year of unsuccessful job search

• Rise in informal employment and working poverty

• Threats to social cohesion and stability, public support for globalization, achievement of MDG’s

• Sense that innocent victims are hit, largely because benefits from earlier growth went mainly to high-income groups

• A social crisis is at hand

Problem: Unemployment and informalisation are difficult to reverse…

05

101520253035404550

1991 2001

Output

Job MarketRecovery

Duration of output recovery and job market recovery after the 1991 and 2001 recessions in the U.S. (in months)

Source: Irons, John (2009) 'How long would a job-market recovery take'? , Economic Policy Institute, January 7

Vulnerable employment to increase by 113 million

Change, in millions, 2007 - 2009

0 5 10 15 20 25 30 35

Lat. Am. & Caribbean

Cent., SE Eur. & CIS

Middle East

North Africa

S.E. Asia & Pac.

Sub-Saharan Africa

South Asia

Source: ILO, 2009, Global Employment Trends

Low Unemployment Insurance coverage in many economies

0 20 40 60 80 100

Germany

France

UK

Canada

U.S.

Japan

China

Brazil

Percentage

Share of unemployed workers NOT receiving unemployment benefits

Source: IILS estimates based on national statistics. For Brazil, recipiency rate is taken from Vroman and Brusentsev (2005), Unemployment Compensation Throughout the World: A Comparative Analysis, and applied to the level of unemployment from the Dec. 2008 Labour Force Survey.

The challenge to be met

• Preventing the financial crisis from becoming a long-lasting labour market and social crisis– Averting widespread, major

increases in unemployment– Avoiding long-lasting

shift to informal work– Staving off large

increases in poverty among the world’s

working poor

• Most have taken some action– Much of focus is stabilizing financial markets and attempting to

restore liquidity– Many economic recovery packages are targeted at the real

economy to stimulate demand• Cutting taxes and boosting government

spending• Targeting infrastructure development• Spending on education and health• Extension of unemployment benefits, hiring

incentives, retraining and other actions targeted to help workers and employers weather the crisis

What countries are already doing

Multilateral action

• In April 2009, statement of the G20 London Summit of world leaders:– Support those affected by the crisis by creating

employment opportunities and through income support measures

– Support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable

– “We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.”

But there are still many shortcomings… • Action has been swift, but relatively unfocused• Financial rescue measures are generally far in excess of fiscal

tools to stimulate demand• Impact has been limited to date• Lack of coordination among countries• Little attention to development

assistance for poorer countries• Structural causes are not being

addressed– Return to status quo (the “crisis before the crisis”) would leave the

world vulnerable to future downturns

Financial rescue efforts vs. fiscal rescue efforts

0 10 20 30 40

U.S.

Germany

France

U.K.

Portugal

Spain

Percentage of GDP

Fiscal Rescue EffortsFinancial Rescue Efforts

Source: IILS, based on ILO, OECD & Bloomberg.

Case in Point:Unemployment Insurance• United States

– 2008 financial stimulus included extension of Unemployment Insurance benefits– New administration indicates further extensions to come

• Europe– Many countries expanding Unemployment Insurance duration, benefits and

eligibility• OECD recommends strengthening safety net in countries with

short duration of Unemployment

Insurance benefits

• China– Financial stimulus package expected to include

income and employment support to jobless families

• Canada: Economic recovery plan emphasizes training– $1 billion for job training delivered through unemployment

insurance programme– $500 million strategic training and transition fund available to all

individuals

– $40 million for apprenticeship programmes

– Long-tenured worker programme to extend Unemployment Insurance benefits while worker is being retrained

Case in Point:Skills and Job Training

The “Crisis Before the Crisis”

• Prior to the onset of the current meltdown…– Global economy was not producing sufficient jobs

where people live

– 86 million young people were unemployed

– Existing framework of development not working for many people

– Globalization not delivering for them

Fate of developing countries hangs in the balance

“This is truly not the moment to let them down and to say ‘sorry, we have to fend for ourselves’… One of the biggest problems we have is an enormous lack of coordination among all these stimulus packages, and that can easily lead to beggar-thy-neighbor policies, and we are already seeing indications of that.”

Juan Somavia, Director-General, ILO

ILO Recommended Measures• Ensure flow of credit and stimulate demand• Extend social protection and retraining

– Focus on the vulnerable

• Support productive and sustainable enterprises– Small and medium-sized

businesses and cooperatives

– Employment-intensive investment

– “Green jobs”

– Ensure restructuring of enterprises and sectors is socially sensitive

ILO Recommended Measures• Ensure core labour standards are promoted and not

undermined or eroded• Strengthen social dialogue, tripartism, and ILO role in

multilateral system• Maintain and expand

development aid

Case in Point: Social Protection• Brasil’s Bolsa Familia: Federal cash transfer programme

focused on poor families– Serves 11 million poor families, with a monthly income up to

per capita (US$ 60.00)

– 2009 Budget: approx. US$ 5 billion - 0.4 % GDP

• Conditioned on health monitoring for pregnant women and infants, child school attendance

• Integrated with programmes addressing child labour and forced labour

• Studies show significant success in reduction of poverty and child malnutrition, raising gender equity and economic activity

• Studies also show programme does not create disincentive to work

Case in Point: “Green Jobs”• Renewable energy – 20 million jobs by 2030

– Germany boosted jobs in renewables from 160,000 to 260,000 in just two years

– China has 1,000 manufacturers of solar thermal panels employing 600,000 workers

– Recycling in China employs 10 million workers

– Columbia’s ethanol mandate is expected to create 170,000 jobs

– World Bank: Biofuels could generate 1.1 million jobs in Africa

Case in Point:Employment Intensive Investment• Productive and social infrastructure, protection of the

productive resource base – Roads, irrigation, construction and rehabilitation of schools and health

centres, forestation, soil and water conservation

• 3-5 times more direct jobs created• Multiplier effect: 1.6 – 2.0• Foreign exchange: typically 50%

savings• Costs: typically 20% cheaper• Contribution to

increased GDP

Case in Point:Social Dialogue’s Value in Crisis• Ireland

– Faced serious economic difficulties into the 1980s– 1987 - Social partners and government

concluded first in series of tripartite agreements on national recovery

– Country subsequently became economic leader in Europe

Case in Point:Social Dialogue’s Value in Crisis• Republic of Korea

– History of hostile relationship between unions and the state

– Creation of Tripartite Commission to address 1997-98 Asian financial crisis

– Social Agreement of 1998 enabled layoffs, expanded workers’ rights and gave government flexibility to act against crisis

– Economic recovery followed soon thereafter

Needed: A Global Jobs Pact• Address similar problems at the same time with a global

approach• Stimulus packages should be more employment oriented• Target small- and medium-sized enterprises

– Responsible for most of new and existing jobs in most countries

• Avoid wage deflation and pave the way toward a more sustainable economy through greater emphasis on…– Social Protection

– Workers’ Rights / Social Dialogue

• To restore credit…– Condition government financial support on provision of credit for viable

new projects– Direct access to government loans for small- and medium-sized

businesses

• To ensure fiscal stimulus boosts economic activity…– Target employment-intensive areas– Support to small- and medium-sized enterprises– Ensure workers have the skills to

respond to new requirements– Promote rural and agricultural dimensions –

critical in developing countries

How a Global Jobs Pact would work

How a Global Jobs Pact would work• To account for the lags in launching new infrastructure projects…

– Provide support to existing jobs through shorter working hours, partial Unemployment Insurance benefits and training

– Enhance social protection through well-designed programme and make it broad-based

• To strengthen the safety net for those who lose or cannot find jobs…– Unemployment Insurance benefits and

employment guarantees– Active labour market and training programmes– Specific attention to vulnerable groups – women, youth,

migrants

Case in Point: Small and Medium Enterprises• More than 95% of OECD enterprises are classified as

SME’s– Account for up to 70% of the working population– Dynamism and flexibility

• However, they are also among most vulnerable in crisis– Weaker financial structures and limited access to credit– Often dependent on global value chains

• ILO has resources and provides policy advice aimed at strengthening SME finance– Microfinance, mico-leasing, micro-insurance and mutual guarantee

systems

Summing it up

• Global economic crisis is deepening• Risk of prolonged labour market recession• Countries are acting but rescue packages thus far not

sufficient– Too much financial, not enough fiscal– Need more focus on creating decent work and protecting people– Too little coordination among nations

• Not enough attention to development dimensions of the crisis– Social stability is at risk, particularly in developing countries

Summing it up

• Prescriptions for a more sustainable economy– Restore credit and ensure that banks lend to viable businesses– Target small and medium enterprises, the engines of job growth,

in credit restoration and infrastructure projects– Provide employment benefits and broad-based social protection

to help workers and families weather the downturn– Use social dialogue and worker protections in countries to avoid

wage deflation– Motivate multilateral institutions to work cooperatively toward

more balanced globalization that promotes sustainability from economic, social and environmental viewpoints

Looking Ahead

• International Labour Conference, June 2009– Restructuring agenda to place emphasis on the crisis

• Special Committee on the Crisis

• Two-day Global Summit on Dealing with the Jobs Crisis

• ILO Declaration on Social Justice for a Fair Globalization– Reaffirms commitment to open economies and open societies– Calls for a stronger action nationally and internationally

• Achieve social cohesion• Combat poverty and rising inequality

“This is our contribution to making sure that once the mess is cleared up, there will be no room for the destructive behavior of financial actors to ruin people’s lives and the real economy.”

Juan Somavia, Director-General, ILO