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INERNAIONAL LABOUR ORGANIZAIONINERNAIONAL INSIUE FOR LABOUR SUDIES

World of Work Report 2012Better jobs for a better economy

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Published by the International Institute or Labour Studies

Te International Institute or Labour Studies (IILS) was established in as an autonomous acilityo the International Labour Organization (ILO) to urther policy research public debate and the shar ingo knowledge on emerging labour and social issues o concern to the ILO and its constituents labourbusiness and government.

World o work report : Better jobs or a better economy / International Labour Oce InternationalInstitute or Labour Studies. Geneva: ILO

xvii p.

ISBN ---- (print)ISBN ---- (web pd )

ISSN - (print)ISSN - (web)

International Labour Oce; International Institute or Labour Studies

employment / unemployment / employment security / labour relations / economic recession / socialimplication / economic recovery / debt consolidation / economic cooperation / international cooperation /developed countries / developing countries

..

First published byInternational Labour OceCH- Geneva Switzerland

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Copyright International Labour Organi zation (International Institute or Labour Studies)

Short excerpts rom this publication may be reproduced without authorization on condition that thesource is indicated. For r ights o reproduction or translation application should be made to the DirectorInternational Institute or Labour Studies P.O. Box CH- Geneva Switzerland.

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Te responsibility or opinions expressed in signed articles studies and other contributions o this volumerests solely with their authors and their publication does not constitute an endorsement by the Inter-national Institute or Labour Studies o t he opinions expressed.

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Wh re the thrs f Wrld f Wrk Reprt 2012?

Te report has been prepared by sta o the International Institute orLabour Studies with inputs rom other ILO colleagues and is publishedunder the responsibility o the Institutes Director. Chapter authors are:

c Editorial: Raymond orres

c Uma Rani Federico Curci and Pelin Sekerler Richiardi (Chapter )

c Sandrine Cazes (Employment Sector) Sameer Khatiwada andMiguel Angel Malo (Universidad de Salamanca) (Chapter )

c

Vernica Escudero and Elva Lpez Mourelo (Chapter )c Marva Corley-Coulibaly and Daniel Samaan (Chapter )

Raymond orres edited and coordinated the Report. Steven obin pro-vided contributions to Chapters and . Matthieu Charpe and SteanKhn developed simulations o dierent policy options based on theGlobal Economic Linkages (GEL) model.

We are grateul to the ILO Director-General or his stimulating guidance.

Excellent eedback on earlier versions o the report was provided by theInstitutes Expert Group which includes: Werner Eichhorst RichardFreeman Maria Jepsen Johannes Jtting Frdric Lerais Isabel OrtizMarcio Pochmann Alakh Sharma Nikolai Staehler Dannielle Venn andRobert P. Vos.

Our thanks to ILO colleagues in the Social Dialogue Sector who providedvery helpul comments especially Michel Binon Susan Hayter MlanieJeanroy Angelika Mul ler and Corinne Vargha. In add ition we aregrateul to the rends Unit o the ILO Employment Sector or providingthe global unemployment projections.

Te Interntinl Institte fr Lr Stdies was establishedby the International Labour Organization in as an autonomous centreor advanced studies in the social and labour eld.

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The employment situation is deteriorating in Europe

and is no longer improving in many other countries

Over the past year labour markets have been aected by the slowdown in globalgrowth. Tis is all the more problematic because labour markets had not ullyrecovered rom the global crisis that erupted in : there is still a decit o

around million jobs in comparison to the pre-crisis situation (Chapter ). It isunlikely that the world economy will grow at a sucient pace over the next coupleo years to both close the existing jobs decit and provide employment or the over million people expected to enter the labour market during this period.

Te trends are especially worrying in Europe where the unemployment ratehas increased in nearly two-thirds o these countries since ; but labour marketrecovery has also stalled in other advanced economies such as Japan and theUnited States. Elsewhere employment gains have weakened in terms o the needso a growing better educated working-age population as in China. And jobs de-icits remain acute in much o the Arab region and Arica.

as a result, the global jobs crisis has entered a new,more structural phase.

his is not a normal employment slowdown. Four years into the global crisislabour market imbalances are becoming more structural and thereore more di-cult to eradicate. Certain groups such as the long-term unemployed are at risk oexclusion rom the labour market. Tis means that they would be unable to obtainnew employment even i there were a strong recovery.

In addition or a growing proportion o workers who do have a job employ-ment has become more unstable or precarious. In advanced economies involuntary

part-time employment and temporary employment have increased in two-thirdsand more than hal o these economies respectively. Te share o inormal employ-ment remains high standing at more than per cent in two-thirds o emerging

Editril

How to move out

of the austerity trap?Rymnd TrresDirectorInternational Institute or Labour Studies

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World of Work Report 2012: Better jobs for a better economy

and developing countries or which data are available. Women and youth are dis-proportionately aected by unemployment and job precariousness. In particularyouth unemployment rates have increased in about per cent o advanced econ-omies and in two-thirds o developing economies.

Job instability is above all a human tragedy or workers and their amilies;but it also entails a waste o productive capacity as skills tend to be lost as a result

o excessive rotation between jobs and long periods o unemployment or inactivity.More job instability thereore means weaker productivity gains in the uture andless room or prospering and moving up the career ladder.

he jobs deicit is going hand-in-hand with a prolonged investment de-icit another sign that the crisis has entered a new phase. Te amount o unin-vested cash in the accounts o large irms has reached unprecedented levels(Chapter ) while in the case o advanced economies small rms continue to havediculty accessing credit that would allow them to invest and create jobs. Impor-tantly the Report nds that investment has become more volatile and that thishas exacerbated job precariousness in advanced economies as well as in emergingand developing ones.

Finally society is becoming increasingly anxious about the lack o decent jobs.In out o countries the Social Unrest Index developed or the purposes othis Report increased in compared to . Europe the Middle East NorthArica and sub-Saharan Arica show the most heightened risk o social unrest. Onaverage Latin America where there has been a degree o employment recoveryand in a ew cases improvements in job quality has experienced a decline in therisk o social unrest.

The worsening situation reects the austerity trap

in advanced economies, primarily in Europe

Since and despite the job-riendly statements in successive G meetingsand other global orums the policy strategy has shied its ocus away rom jobcreation and improvement and concentrated instead on cutting scal decits atall costs. In European countries cutting scal decits has been deemed essentialor calming nancial markets. But even in countries which have not suered romthe eects o the crisis this remedy is being applied or pre-emptive reasons scaldecits are being reduced to avert any negative reactions rom nancial markets.Tis approach was intended to pave the way or greater investment and growthalong with lower scal decits.

In addition as part o the policy shi the majority o advanced economies

have relaxed employment regulations and weakened labour market institutions(Chapter ) and more deregulation measures have been announced. Tese stepsare being taken in the hope that nancial markets will react positively therebyboosting condence growth and job creation.

However these expectations have not been met. In countries that havepursued austerity and deregulation to the greatest extent principally those inSouthern Europe economic and employment growth have continued to deterio-rate. Te measures also ailed to stabilize scal positions in many instances. Teundamental reason or these ailures is that these policies implemented in a con-text o limited demand prospects and with the added complication o a banking

system in the throes o its deleveraging process are unable to stimulate pri-vate investment. Te austerity trap has sprung. Austerity has in act resulted inweaker economic growth increased volatility and a worsening o banks balance

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Editorial

sheets leading to a urther contraction o credit lower investment and conse-quently more job losses. Ironically this has adversely aected government budgetsthus increasing the demands or urther austerity. It is a act that there has beenlittle improvement in scal decits in countries actively pursuing austerity policies(Chapter ).

With regard to deregulation policies the Report nds that they will ail to

boost growth and employment in the short term the key time horizon in a crisissituation. Indeed the employment eects o labour market reorms depend heavilyon the business cycle. In the ace o a recession less stringent regulation may leadto more redundancies without supporting job creation. Likewise the weakeningo collective bargaining is likely to provoke a downward spiral o wages therebydelaying recovery urther.

In general the Report conrms ndings rom earlier studies that show thereis no clear link between labour market reorms and employment levels. Interest-ingly within the range in which the majority o countries lie adequate employ-ment regulations tend to be positively associated with employment. Beyond thatbadly designed regulations may adversely aect labour market perormance. In

these cases there are grounds or considering reorms as part o social dialogue andin conjunction with social protection measures. Tis policy has been successullypursued in the recent past in countries such as Austria and Brazil.

but spreading to other countries.

Many emerging and developing countries pursued a strategy o boosting domesticdemand in order to compensate or weaker prospects or exporting to advancedeconomies. Tere are signs that in some o these countries such as India LatinAmerica South Arica and more recently China wages have grown to catch up

with productivity. Public investment and social protection have also been rein-orced and regional integration has proved helpul.Nevertheless even in these countries labour markets and real investment

are not immune to the global economic weakening. Volatile capital lows hasalso aggravated the instability o the real economy and the possibility or creatingbetter jobs.

It is thereore crucial to pursue urther the present approach o boostingdomestic demand complementing it with better enorcement o core labour stand-ards and measures to avoid destabilizing capital fows.

An alternative approach exists

It is possible to move away rom the austerity trap. Last years World o Work Reportoered a three-pronged approach which remains valid today. First labour marketinstitutions should be strengthened so that wages grow in line with productivitystarting in surplus economies. In the current situation consideration could begiven to a careul and coordinated increase in the minimum wage. Further eortsto implement core labour standards would also be helpul especially in emergingand developing countries where gaps exist. Ratiying ILO core Conventions in allG countries would give a positive signal in this respect.

Second it is critical to restore credit conditions and create a more avourable

business environment or small enterprises. Te issue is particularly pressing in theEuro-zone countries where the policy o the Central Bank to provide liquidity tobanks has ailed to boost credit to the real economy. Tere may also be a case or

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higher taxation o rms that do not reinvest prots and/or lower taxation o rmsthat emphasize investment and job creation.

Tird it is possible to promote employment while meeting scal goals. TeReport shows that a scally neutral change in the composition o expendituresand revenues would create between . and . million jobs within to years.In the case o emerging and developing countries eorts should be centred on

public investment and social protection to reduce poverty and income inequalityand to stimulate aggregate demand. For advanced economies the ocus should beon ensuring that unemployed people especially youth receive adequate supportto nd new jobs.

More undamentally it is high time or a move towards a growth- and job-orientated strategy. Tis would help to coordinate policies and avert urther conta-gion caused by scal austerity. In Europe the strategy could include a coordinatedapproach to solving the debt crisis or which innovative unding mechanisms andimproved utilization o European Structural Funds properly reormed in orderto better tackle present job decits would be instrumental.

which requires embracing the perception that job-friendly policieshave a positive effect on the economy and that the voice of nance

should not drive policy-making.

Te current policy approach refects the premise that growth ollows austerity andthat in turn jobs ollow growth. According to this view the main thrust o eortsto date has thereore ocused on cutting decits and restoring global growth topositive territory with the view that soon thereaer job creation would ollow. Asa consequence more direct eorts to stimulate job creation and boost the incomeso those most vulnerable to the crisis have been o secondary importance.

Since there are now indications that these premises have proved counterpro-ductive it is vital to demonstrate that an alternative job-centred approach out-lined above exists. It is also imperative to nurture this alternative approach withconcrete examples o policies that work in which ILO has played a key role viathe adoption o the Global Jobs Pact and could play a greater role as a orum orpolicy analysis.

Another actor at work has been the imbalance between the voice o the realeconomy and that o the nancial sector. Both are important but both need tobe heard. o remedy this consideration could rst be given to the creation onational employment and social observatories. Tis step could help to identiy anupper bound to the level o unemployment beyond which new measures will be

needed in much the same way as or infation or scal targets. Te task couldbe acilitated by the establishment o independent and authoritative observatoriesto monitor and orecast trends in the labour market which could be charged withproviding independent evaluations o the employment impact o policy proposals.Teir remit would be to orewarn governments against the adoption or continua-tion o policies that are unlikely to achieve the unemployment goals.

Second there is a strong case or establishing consultative national orumswhere economic and social policies are discussed by government and the socialpartners. Although outcomes will not be binding such consultations can provideimportant eedback to governments on the current state o the labour market and

outlook or unemployment. Te orum could also play a central role in collabo-rating and consulting with the national observatory or agency created to monitorand assess labour market developments and policy impacts.

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Finally national eorts to shi to policies that will ensure higher levels oemployment will be greatly acilitated by reorms in the governance o the globaleconomy. Te key objective o this reorm is to provide a high and stable levelo eective demand in the global economy. Tis will entail: (i) ensuring eectiveglobal coordination o economic policies to eliminate beggar-my-neighbourpolicies that lead to global imba lances and restrict potential global grow th;

(ii) removing the constant threat to global economic stability rom volatile andunregulated cross-border nancial fows; and (iii) developing coordinated macro-economic policies or dealing with uture global economic crises.

In short this Report calls or countries to put in place the necessary condi-tions or a dramatic shi in the current policy approach. It highlights the needor an approach that recognizes the importance o placing jobs at the top o thepolicy agenda and the need or coherence among macroeconomic employmentand social policies. Tis requires a signicant change in domestic and global gov-ernance which is a complex task. Tough the task is demanding even progressivesteps in this direction will be rewarded with better job prospects and a more e-cient economy.

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Editril . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

1. Emplyment, j qlity nd scil implictins

f the ll crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Main ndings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Employment trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. Job quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C. Impact o the crisis on poverty and income inequality . . . . . . . . . . . . . . . . . .

D. Better jobs or a better economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix A. Country groupings by income level . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix B. Determinants o non-standard employment:

An empirical analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix C. Te impact o crises on employment: An empirical analysis . .

Reerences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Emplyment prtectin nd indstril reltins:

Recent trends nd lr mrket impct . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Main ndings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Labour market institutions: Overview o the literatureand recent trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. Assessing the labour market eects o changes in employmentprotection regulations and collective bargaining . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Policy considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A. Empirical analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix B. Recent changes in labour legislation

and collective bargaining. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reerences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Fiscl cnslidtin nd emplyment rwth . . . . . . . . . . . . . . . . . . . . . . . 59

Main ndings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Debt dynamics and ongoing scal consolidation eorts . . . . . . . . . . . . . . . . .

B. Employment eects o scal consolidation:Austerity versus socially-responsible approaches . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix A. Fiscal policy expenditure and revenue compositionand the eect on employment: An empirical analysis . . . . . . . .

Reerences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Investin in sstinle recvery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Main ndings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Global investment and employment trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. Drivers o investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C. Policy considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A. Empirical analysis o investment dynamics . . . . . . . . . . . . . . . . . . . .

Reerences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recent plictins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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Table of Contents

List of gures, tables and boxes by chapter

FIguRES

Chpter 1

Figure . Employment rates in the third quarters o and . . . .

Figure . Long-term unemployment and inactivity ratesthird quarters o and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Incidence o non-standard employment advanced economies

and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Incidence o precarious employment advanced economies

and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Inormal employment in developing economies . . . . . . . . . . . . . . . . Figure . New jobs created between and by wage quintile . . Figure . Employment rates and incidence o non-standard employment

changes between and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Poverty rates pre-crisis and crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Income inequality pre-crisis and crisis . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Income share by income quintile . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Employment projections: Advanced economies . . . . . . . . . . . . . . . . Figure . Employment projections: Emerging economies . . . . . . . . . . . . . . . . . Figure . Employment projections: Developing economies . . . . . . . . . . . . . . . Figure . Change in the risk o social unrest between and . . .

Chpter 2

Figure . Main ndings o over studies on the labour marketeects o employment protection legislation . . . . . . . . . . . . . . . . . . . .

Figure . A global overview o changes in employment protectionlegislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Change in the employment protection legislation indexbetween / and / . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Proportion o workers covered by collective agreements . . . . . . . Figure . Employment protection legislation index and aggregate

employment rates: Standard assumption versus evidence-

based relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Relative strictness o labour legislation or regular contractswith respect to temporary contracts and incidenceo temporary employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Relationship between aggregate employmentand the employment protection legislation index . . . . . . . . . . . .

Figure . Coordination o wage bargaining and employment rate . . . . . . .

Chpter 3

Figure . Change in public debt and scal balance as a percentageo GDP between and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Composition o scal balances by country group . . . . . . . . . . . . . .

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Figure . Factors contributing to the reduction o expendituresand growth o revenues in advanced economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Percentage o countries that have introduced cutsin social security benets since . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Debt dynamic ollowing scal consolidation . . . . . . . . . . . . . . . . . . .

Figure . Number o jobs that would be created between and depending on dierent policy mix scenariosadvanced economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chpter 4

Figure . Investment to GDP ratio . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Change in investment volatility

versus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Increased investment volatility associated

with lower job quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Years to investment and employment recoveryin previous crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Employment and investment changes during selected economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Average annual investment growth by company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Average annual investment growth by company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure . Cash holdings and investment as a percentage o total assets

by rm size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Investment uncertainty averages and standard deviation

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Investment and employment impact o a reduction

in uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure . Public spending crowds in private investment . . . . . . . . . . . . . . . . .

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Table of Contents

TabLES

Chpter 1

able B. Denitions and sources o variables usedin the regression analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able B. Summary o the estimation o the determinantso non-standard employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able B. Marginal eects o the determinantso non-standard employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able B. Robustness tests o the estimation o the determinantso non-standard employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able C. Denitions and sources o variables usedin the regression analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able C. Regression results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . able C. Alternative estimators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chpter 2able A. Summary o variables used in the empirical analysis . . . . . . . . . . . . able A. Empirical analysis o employment and investment . . . . . . . . . . . . . .

Chpter 3

able . Change in scal expenditures and revenues as a percentageo GDP by category between and . . . . . . . . . . . . . . . . . . . .

able A. Denitions and sources o variables usedin the regression analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

able A. Regression results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chpter 4

able . Investment to GDP ratios . . . . . . . . . . . . . . . . . . . . . . . . . .

boxES

Chpter 2

Box . Employment protection legislation and labour market dualityduring the crisis: Issues and considerations . . . . . . . . . . . . . . . . . . . . . . . . .

Chpter 3

Box . Public sector wages and social security policiesas scal consolidation measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chpter 4

Box . A tale o two crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Box . Growth and distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Box . Uncertainty measures and the VIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Min findins

c Global employment has not yet recovered rom the global crisis that erupted in. Te global employment rate at . per cent in is . percentagepoints lower than beore the crisis. Tis means that around million jobs aremissing relative to the pre-crisis situation.

c here are marked cross-country dierences in recent employment trends.Employment rates have recovered much aster in emerging and developingeconomies especially the latter where as a group they have surpassed the pre-crisis levels. By contrast employment rates remain subdued in many advancedeconomies and in Northern Arica.

c Despite the cross-country dierences there are general issues which have to beaddressed in order to ensure a sustainable job recovery in all countries. First in themajority o countries some groups such as youth and the long-term unemployedace considerable diiculties in obtaining employment. Youth unemploymentrates have increased in about per cent o advanced economies and in two-

thirds o the developing economies. On average more than per cent o job-seekers in advanced economies have been without work or more than one year.

c Second in many countries where employment growth has resumed jobs tendto be provided on a short-term basis. Involuntary part-time work and temp-orary employment are on the increase in the majority o countries whereemployment growth has resumed. Involuntary part-time employment andtemporary employment have increased in respectively two-thirds o advancedeconomies and more than hal o these economies. he share o inormalemployment remains high standing at more than per cent in two-thirdso emerging and developing countries or which data are available. Tere are

Employment,job quality andsocial implicationsof the global crisis*

* Tanks to the rends Unit o the Employment Sector or providing the global unemploymentprojections and Sameer K hatiwada (Institute) or the social unrest graph.

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however some exceptions to these general patterns; in particular Austria Bel-gium Brazil Chile Germany Indonesia Peru Poland Tailand and Uru-guay have increased their employment rates without compromising on jobquality.

c hird the crisis has led to an increase in poverty rates in hal o advancedeconomies and one-third o developing economies. Similarly inequality has

increased in less than one-hal o advanced economies and one-quarter oemerging and developing economies. Inequalities have also widened in termso access to education ood land and credit.

c Fourth in out o countries the Social Unrest Index increased in compared to . Sub-Saharan Arica and the Middle East and North Aricashow the most heightened risk o social unrest. In several countries in Asia andLatin America where there has been employment recovery and in some casesimproved job quality have experienced a decline in the risk o social unrestbetween and .

c Projections indicate that on present trends employment in advanced econ-

omies will not reach pre-crisis levels until late . Te current economicslowdown has also aected employment prospects in emerging and developingeconomies. Te global unemployment projections show that around mil-lion people will be unemployed and unemployment rate will increase to . percent in .

Intrdctin

Four years since the onset o the global crisis the employment rate or the global

labour market is still below the pre-crisis peak (ILO ). Recent trends suggestthat the labour market recovery has been weak in many o the advanced econ-omies. Employment growth in developing economies has shown a correspondingdecline as economic growth has slowed down. Te decline in demand rom theEurozone area has potential consequences that may spill over into other regionsthrough trade and nancial linkages i there is no boost in internal demand indeveloping economies (UNDESA ).

Beyond these general trends this chapter provides an in-depth examinationo the proound impact which the prolonged period o economic turbulencehas had on labour markets. Te chapter examines its impact on employmentlong-term unemployment and labour market inactivity (section A) as well as job

quality (section B) and poverty and income inequality trends (section C). Finallythe chapter presents employment projections and introduces the rest o the report(section D).

a. Emplyment trends

In the past year the employment recovery has been slower in advanced economies(. per cent) than in developing economies (. per cent). Te recovery is marginalin advanced economies compared to the crisis period () during which it

declined by . per cent. Developing economies in contrast experienced a slow-down in their employment growth by more than one percentage point (. percent) compared to the crisis period (. per cent).

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1. Employment, job quality and social implications of the global crisis

Labour markets have not recovered from the global crisis

Despite an improvement in the past year labour markets have not recovered romthe global crisis and there is an overall decline in employment growth in advancedeconomies by . per cent or the period . For countries with availableinormation employment rates have increased since only in six (AustriaGermany Israel Luxembourg Malta and Poland) o the advanced economies( per cent) and in per cent ( out o countries) o the developing econ-omies (see Figure . panels A and B). Some o the developing countries in the

Latin American region (Chile Colombia and Uruguay) were able to increase theiremployment rates by more than three percentage points while in others the rateremained below the peak. In the developing economies the growth spurt

0

90

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Croa

tia

Greece

Ita

ly

Hungary

Spa

in

Be

lgium

Slova

kia

Ire

lan

d

France

Portuga

l

Sloven

ia

Czec

hRepu

blic

Es

ton

ia

Ta

iwan,

China

Japan

Un

ite

dKing

dom

Un

ite

dStates

Cyprus

Barba

dos

Korea,

Rep.

of

Denmark

Worl

d

Finlan

d

Ne

therlan

ds

Aus

tra

lia

Cana

da

New

Zea

lan

d

Swe

den

Norway

Ice

lan

d

Ma

lta

Po

lan

d

Israe

l

Luxem

bourg

Germany

Aus

tria

2007 Q3 2011 Q3

0

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2007 Q3 2011 Q3

Jordan

Sou

thAfrica

Mo

ldova,

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of

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lgaria

India

Lithuan

ia

Roman

ia

La

tvia

Ecua

dor

Mex

ico

Venezue

la,

Bo

l.Rep.

of

Worl

d

Ukra

ine

Wes

tBan

kan

dGaza

Mace

don

ia,

FYR

Morocco

Turkey

Sri

Lan

ka

Argen

tina

Braz

il

Mauri

tius

Chile

Co

lom

bia

Paraguay

Philipp

ines

Uruguay

Peru

Russ

ian

Fe

dera

tion

Kaza

khs

tan

Tha

ilan

d

Countries whereemployment rates

increased

Countries where employment rates decreased

Countries whereemployment rates

increased

Countries where employment rates decreased

Panel A. Advanced economies

Figure 1.1 Employment rates in the third quarters of 2007 and 2011 (percentages)

Panel B. Emerging and developing economies

Note: For Argentina, Israel and Sri Lanka the data refers to Q2 and for Morocco and Uruguay the data refers to Q1.

World refers to global employment rates estimated for the baseline scenario from ILO, 2012.

Source: IILS estimates based on Eurostat, OECD employment database and national sources.

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driven by domestic demand on both the consumption and investment side andrising real wages have actually helped many o these economies to register increasesin employment. Among the advanced economies Germany was able to increaseemployment largely due to the Kurzarbeit scheme.

there is a widespread deterioration in youth unemployment

In addition to unsatisactory employment outcomes in the majority o advancedeconomies labour markets have deteriorated since in terms o unemploymentand inactivity. Unemployment has been particularly widespread among vulnerablegroups especially youth (aged -). Youth unemployment rates have increasedin about per cent o the advanced and two-thirds o the developing economieswith available inormation. In addition in hal o the advanced economies youthunemployment is higher than per cent. Although there was a temporary respitein the unemployment rate among adults in the situation did not improve orthe unemployed youth (ILO ). In the Middle East and North Arican regionyouth unemployment was our times greater than adult unemployment (ILO )

and the rates were as high as per cent. Although some countries that improvedtheir employment situation mainly Austria and Germany were also able to reducetheir youth unemployment rates in some others it escalated to per cent in coun-tries such as Spain and Greece. In particular the youth unemployment rate in Spainhas increased by percentage points (rom to . per cent) since .

Across age groups the long-term unemployment rate has increased by morethan ve percentage points among adults in advanced economies. Te long-term un-employment rate has seen its greatest increase among youth since (Figure .panel C) and inactivity rates have also increased among youth (Figure . panel D).Tis has huge economic costs in terms o loss o skills and motivation and could

lead to human capital depreciation. Tere may also be accompanying social impli-cations in terms o increased social strie riots illness and so orth.

long-term unemployment continues to increase in advanced economies

Globally long-term unemployment rates have increased much more in advancedeconomies compared to developing economies (Figure . panel A). In hal o theadvanced economies more than per cent o the unemployed are long-termthat is unemployed or more than months. Te long-term unemployment ratehas increased most signicantly in Denmark Ireland Spain the United Kingdomand the United States since . he presence o a large proportion o long-

term unemployed could result in huge economic and social costs. In some o thecountries where the long-term unemployment rate declined such as the CzechRepublic Finland Greece Netherlands Portugal and Slovenia inactivity ratesactually increased. Tis could imply that many o the long-term unemployed arealready exiting the labour market. Countries such as Australia and Germany hada comparatively small increase in long-term unemployment.

In comparison in the majority o the developing economies with availableinormation there is a decline in both long-term unemployment rates and inac-tivity rates (see Figure . panels A and B). Tis could be seen as a result o labour

. Kurzarbeitreers to short-work or reduced working hours in Germany wherein companiesenter into an agreement to avoid lay-os o their employees to reduce the working hours o all or mosto their employees with the government taking up the responsibility o some employees lost income.

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moving into inormal employment to secure access to an income given the absenceo unemployment benets in these economies.

and there is a major slowdown under way.

As observed earlier most countries have not recovered rom the global crisis andshort-term trends indicate a urther slowdown in the labour market recovery.Among the G countries or the time being employment rates have continuedto improve in several Latin American countries like Argentina Brazil and Mexico

as well as in Indonesia the Russian Federation and urkey. In other countries orwhich recent statistics exist employment rates have tended to stagnate or havedouble-dipped such as in the China EU India and Saudi Arabia.

b. J qlity

As discussed in the preceding section advanced economies are still ar below their peak and unemployment rates have continued to increase in almost all the

countries in the group. However there is little empirical evidence about the qualityo jobs that have been created since the crisis. Tis section addresses the issue ojob quality which is a multi-dimensional concept including dierent attributes

Panel A. Long-term unemployment rates Panel B. Inactivity rates

Panel C. Long-term unemployment rates by age-group Panel D. Inactivity rates by age-group

0

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Advanced

Advanced Advanced

AdvancedDeveloping Developing

1524 2549 5074 1524 2549 5074

Note: Long-term unemployment rates refer to the number of jobseekers who have been looking for work for over one

year, as a share of the total number of jobseekers. Inactivity rates are calculated as the number of persons of working

age who do not work as a per cent of the total number of persons of working age.


Figure 1.2 Long-term unemployment and inactivity rates,

third quarters of 2007 and 2011 (percentages)

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and dimensions o work and employment. In the literature these dierent dimen-sions o job quality are identied as labour compensation power relations con-tractual status and stability o employment working time etc. (see Muoz deBustillo and de Pedraza () or details o the dierent perspectives).2 All theseaspects o employment quality have a potential impact on the well-being o theworkers and their career development. Te issue o job quality is addressed below

by taking into account only three dimensions: rst the contractual status and sta-bility o employment; second the willingness to continue in a particular employ-ment status; and third labour compensation that is wages. All three dimensionscombined actually refect the quality o employment.

Te rst dimension o job quality considers the contractual status and sta-bility o employment that is standard and non-standard jobs in advanced econ-omies or ormal and inormal employment in developing economies. Non-standardjobs comprise part-time or temporary employment or sel-employed own account.Inormal employment comprises workers in small enterprises o ewer than veworkers sel-employed own-account workers unpaid amily helpers and workerswith no proper contract in the ormal sector. Tis indicator determines the quality

o jobs created whether they are standard or non-standard ormal or inormal.Te second dimension examines the willingness o part-time or temporary

workers to remain in their job and this analysis is largely conned to advancedeconomies. Eurostat data provides inormation to dierentiate between volun-tary and involuntary part-time or temporary work. Involuntary work is denedas those workers who are engaged in these orms o employment because theycannot nd either ull-time or permanent jobs. As the workers are in these ormso employment not out o their choice but due to compulsion so they are reerredas precarious workers.3 Te third dimension examines the wages o the workersin assessing job quality or a sample o advanced and developing economies.

Non-standard employment has tended to increase or has remained high

Since the onset o the global crisis part-time employment has increased in two-thirds o the advanced countries (Figure . panel A) and temporary employmenthas increased in one-hal o the countries (Figure . panel B). Te increase in non-standard orms o employment is a phenomenon which was already widely knownbeore the current crisis (Houseman and Osawa ). Te World o Work Report2008 (ILO ) showed that the incidence o part-time and temporary employ-ment has increased over the past two decades. In many countries much o theslow recovery in employment has been accompanied by an increase in part-time or

temporary employment between and . Tis is despite the act that mucho the employment loss in the beginning o the crisis was the result o dismissalo temporary and part-time workers. For example Spain along with Poland con-tinues to have the highest proportion o temporary employment in Europe ( percent) despite signicant losses o temporary employment during the crisis.

. Appendix B presents an analysis o the determinants o non-standard employment.. Precarious work has the ollowing characteristics in the literature: low wages (at or below minimum

wage i it exists) uncertainty and insecurity (in terms o hours o work earnings multiple possibleemployers tasks to perorm or duration o the employment relation) lack o protection (romtermination o employment o access to social protection and standard non-wage employment benets:

sick leave domestic leave or parental leave) no explicit or implicit contract or lack o or limited accessto exercise union and work rights (Kalleberg ; ucker ). However due to lack o data onthese various dimensions we restrict our analysis only to involuntary part-time and temporary workers.

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A proportion o the increase in non-standard employment in advanced econ-

omies could be o a precarious nature that is involuntary part-time and temp-orary employment. Te share o involuntary part-time and temporary employmentincreased in the majority o the advanced countries (Figure . panels A and B).In the share o involuntary part-time and temporary employees accountedor more than and per cent o part-time and temporary employees respec-tively and these shares have increased to and per cent in or the EUas a whole. Te creation o precarious employment has also led to a decline in un-employment rate in some o the countries.

Precarious employment (both involuntary part-time and temporary) declinedin Austria Belgium and Germany while in Eastern and Southern European coun-

tries it increased during the crisis (Figure . panel A and B). In Greece Italy andSpain involuntary part-time employment is relatively high approximately percent in ; and involuntary temporary employment topped the per cent level in

50

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0

Lithuania

Poland

Portugal

Israel

Norway

New

Zealand

Bulgaria

Slovakia

Hungary

CzechRepublic

Greece

Cyprus

Latvia

Korea,

Rep.of

Estonia

Romania

UnitedStates

Slovenia

Malta

Spain

Finland

Italy

France

Luxembourg

Iceland

Mexico

Canada

Japan

Ireland

Belgium

Australia

Austria

Germany

Switzerland

Sweden

Denmark

UnitedKingdom

Netherlands

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Lithuania

Bulgaria

Belgium

Norway

Denmark

Italy

Japan

France

Finland

Sweden

Slovenia

Netherlands

Korea,

Rep.of

Spain

Poland

Estonia

Slovakia

Malta

UnitedKingdom

Latvia

Luxembourg

CzechRepublic

Ireland

Greece

Austria

Hungary

Cyprus

Switzerland

Canada

Germany

Portugal

Countries where part-time employment increased

Countries where

part-time employmentdecreased

Countries where temporary employment increasedCountries where temporary employment decreased

Panel A. Part-time employment (percentage of total employment)

Figure 1.3 Incidence of non-standard employment, advanced economies, 2007 and 2010

Panel B. Temporary employment (percentage of total employment)

Note: Grey bar denotes countries where employment rates increased.


2007 2010

2007 2010

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Greece Portugal and Spain. A comparison o involuntary part-time and temporary

employment beore the crisis (taken as an average between and ) and in shows that the increase in involuntary part-time and temporary employmenthas been larger than the increase in unemployed and permanent jobs since the crisis.Tis clearly shows that during the crisis more precarious employment was created.

and informal employment remains signicant in most developing

countries for which data exist.

Te incidence o inormal employment remains high at over per cent o non-agricultural employment in two-thirds o the countries or which data is avail-

able (Figure .). In about per cent o the countries inormal employmenthas remained stable or has marginally declined since the beginning o the crisis.Inormal employment provides a reuge or the underemployed and also presents

60

45

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Austria

Belgium

Poland

Germany

Bulgaria

Netherlands

Norway

Slovenia

Luxembourg

RussianFederation

CzechRepublic

Denmark

UnitedStates

UnitedKingdom

Malta

Estonia

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Zealand

Sweden

Finland

Slovakia

Canada

Portugal

Cyprus

Australia

Japan

France

Hungary

Ireland

Lithuania

Latvia

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Italy

Greece

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Slovenia

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Finland

Italy

Hungary

CzechRepublic

Lithuania

Latvia

Bulgaria

Slovakia

Poland

Romania

Portugal

Greece

Spain

Cyprus

Panel A. Involuntary part-time employment (percentage of part-time employment)

Figure 1.4 Incidence of precarious employment, advanced economies, 2007 and 2010

Panel B. Involuntary temporary employment (percentage of temporary employment)

Note: Grey bar denotes countries where employment rates increased.


2007 2010 Countries where the share of involuntary part-time employment increasedCountries wherethe share ofinvoluntarypart-time

employmentdecreased

2007 2010Countries where the share of involuntary

temporary employment increasedCountries where

the share ofinvoluntarytemporary

employmentdecreased

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possibilities or raising amilies out o poverty. Tere is some evidence that time-related underemployment4 reduced marginally in some o the Latin American

countries (Argentina Brazil Chile Colombia Ecuador Mexico Peru and Uru-guay) (ECLAC ). Similarly in the Asian region the implementation o theNational Rural Employment Guarantee Scheme in India has reduced underem-ployment while boosting employment opportunities and wages in rural areas (Raniand Belser orthcoming). In Sri Lanka underemployment has declined by . per-centage points between and (Ministry o Finance and Planning ).

Wages paid to temporary workers are comparatively low

Te wages paid to workers in non-standard employment are comparatively low.Te World o Work Report 2008 (ILO ) showed that in European coun-

tries workers on xed-term contracts are paid less than permanent employees.An analysis o temporary contracts in nine countries (advanced and developing)shows that temporary workers are paid about per cent less than permanentworkers in a number o countries.5 Earlier empirical evidence also shows that xed-term jobs pay less than permanent ones even aer controlling or other individualcharacteristics (Stancanelli ; Amuedo-Dorantes and Serrano-Padial ).During the present crisis this tendency has become widespread in many countries.Te phenomenon was also observed in many developing countries where data was

. Te time-related underemployment denition is rom ECLAC. It is dened as involuntarilyworking less than the normal duration o work determined or a given activity.

. Te countries where wages are per cent lower are Germany Mexico South Arica and Spainand the analysis is based on ijdens et al () wage indicator dataset. Please contact the authors ormore details about the analysis.

90

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Russ

ian

Fe

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Panama

Sou

thAfrica

Uruguay

Chile

Cos

taRica

Indones

ia

Tha

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Braz

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Ecua

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Nicaragua

Paraguay

Peru

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liv

ia

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India

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ico

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Venezue

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inican

Repu

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lva

dor

Hon

duras

Co

lom

bia

Zam

bia

Pa

kistan

Figure 1.5 Informal employment in developing economies(percentage of total non-agricultural employment)

Pre-crisis Crisis Countries where informalemployment increased

Nosignificantchange

Countries where informalemployment decreased

Note: For Pakistan, Russian Federation, Turkey and Ukraine the figures represent only employment in the informal sector (it excludes

workers with no proper contracts in the formal sector) and for all other countries the figures are estimates of informal employment.

Grey bar denotes countries where employment rates increased.

Source: The estimates for Latin American countries are from Panorama Laboral (2011); data for Zambia, South Africa, Turkey,

Republic of Moldova, Russian Federation, Ukraine, Sri Lanka and Thailand were compiled by the ILO Statistics Department and

are published in Vanek et al. (forthcoming). Data for India, Indonesia and Pakistan are estimates by IILS from national sources.

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available where inormal jobs were paid at less than per cent o the rate orormal jobs and the wage gaps were widening urther (ILO ).

and new jobs created tend to entail relatively low wages.

An examination o the nature o jobs created between and in the

countries or which data exist shows rst that the majority o new jobs are remu-nerated at a rate below average wages. Tis is particularly the case in ArgentinaMexico Netherlands South Arica and Spain. Second the analysis shows thatnew low-paid jobs are less stable than is the case with new highly-paid jobs. Againthere are cross-country dierences such as in Sweden and Netherlands most othe new jobs are in lower quintiles and these are concentrated in agriculture con-struction wholesale and retail trade accommodation and ood while the jobs inthe upper quintiles are concentrated in inormation real estate and nancial sec-tors. In comparison in the Russian Federation the new jobs are equally distributedacross the quintiles and jobs in manuacturing and construction sectors are preva-lent in all quintiles. Te new jobs in lower quintiles are predominantly in accom-

modation and ood and in the upper quintiles they are concentrated in miningnance real estate inormation and communication and proessional and scien-tic sectors.

An attempt is also made to analyse the new jobs created between and in order to account or permanent and temporary contracts. It emerges thatthe distribution o permanent contracts between wage quintiles is more homoge-nous compared to the temporary jobs which are unevenly distributed towards thelower wage quintiles (see Figure .).

There is signicant cross-country heterogeneity

in the quantity and quality of new jobs created.

In order to deepen the preceding analysis o the nature o new jobs created coun-tries have been grouped into our categories depending on their aggregate employ-ment record since and whether the incidence o non-standard employmentincreased or not since (see Figure .). For the purpose o the analysis non-standard employment includes temporary employment or precarious workers(involuntary part-time and temporary employment) or advanced countries andinormal employment or developing countries.

Category consists o countries where employment rates have increased since

and the incidence o non-standard employment has decreased (see Figure .category ). Tis group comprises Austria Belgium Brazil Chile Germany Indo-nesia Peru Poland Tailand Paraguay and Uruguay.

Category consists o countries where employment rates increased comparedto and the incidence o non-standard employment increased (see Figure .category ). Tis group comprises Colombia Luxembourg Malta urkey andUkraine.

Category consists o countries where employment rates decreased com-pared to and the incidence o non-standard employment also decreased (seeFigure . category ). Tis shows that the impact o the crisis on job quality can

actually be mixed as it is usually the worst jobs that are lost rst resulting in animprovement in overall job quality through the composition eect. Tis groupconsists o Argentina Denmark Ecuador Japan Netherlands Norway Republic

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o Korea Republic o Moldova Russian Federation Slovenia Spain South Aricaand Sri Lanka. However countries in this category are relatively heterogeneous interms o institutions. Netherlands and Denmark have the highest share o part-time work and their strong reliance on this type o employment has helped themto curtail the growth in temporary employment. In contrast in Spain job qualitywas improved through the destruction o temporary jobs. Spain also presents the

highest rate o transition rom temporary jobs to unemployment in .Category consists o countries where employment rates decreased compared

to and the incidence o non-standard employment increased (see Figure .category ). Tis category has the largest number o countries and comprises theBolivarian Republic o Venezuela Bulgaria Canada Cyprus Czech RepublicEstonia Finland France Greece Hungary India Ireland Italy Latvia Lithu-ania Mexico Portugal Romania Slovakia Sweden and the United Kingdom.

Te analysis shows that countries such as Austria Belgium Brazil ChileGermany Indonesia Peru Poland Tailand and Uruguay have increased theiremployment rates without compromising on job quality in terms o reducing the

share o non-standard employment. In countries such as Greece Hungary IrelandItaly Latvia Portugal and Romania the employment situation did not improveand temporary and precarious employment actually increased.

10

5

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25

15

Standard employment

Non-standard employment

Q1 Q2 Q3 Q4 Q5

Note: Q1 denotes the lowest wage quintile and Q5 the

highest wage quintile. The countries included in this

analysis are: Argentina, Belarus, Belgium, Chile,

Colombia, Czech Republic, Denmark, Finland,

Germany, Kazakhstan, Mexico, Republic of Moldova,

Netherlands, Poland, Russian Federation, Slovakia,

South Africa, Spain, Sweden, and Ukraine.

Source: IILS estimates based on Wage indicator survey.0

30

Figure 1.6 New jobs created between 2007 and 2010 by wage quintile (percentages)

1.2

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0.4

1.25 1.000.75 1.25 1.500.75 0.501.00 0.25 0 0.50 0.25

Change in the incidence of non-standard employment

Changeinemploymentrate

JJ

J

J

JJ

J

J

J

J

J

J J

J

JJ

J

J

J

J

J

JJ

J

J

J

JJ

J

J

J

J

JJ

J

JJ

J

J

J

J

J

J

J

J

J

JJ

J

J

AustriaBelgium

Bulgaria

Canada

CyprusCzech Rep.

Denmark

Estonia

Finland

France

Germany

GreeceHungary

Ireland

ItalyJapan

Korea

LatviaLithuania

Luxembourg

Malta

NetherlandsNorway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

Russian Federation

MoldovaSouth Africa

Uruguay

ChileIndonesia

Thailand

Brazil

Ecuador

Paraguay

Peru

Sri Lanka

Ukraine

Mexico

Turkey

Argentina Bol. Rep. of Venezuela

Colombia

India

Source: IILS estimates.

Figure 1.7 Employment rates and incidence of non-standard employment,

changes between 2007 and 2010

Category 2Increased employment rates

and increased incidenceof non-standard work

Category 4Decreased employment rates

and increased incidenceof non-standard work

Category 1Increased employment ratesand decreased incidenceof non-standard work

Category 3Decreased employment ratesand decreased incidenceof non-standard work

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C. Impct f the crisis n pverty nd incme ineqlity

he social impact o the current global crisis has been maniold as rising un-employment and alling incomes urther deepen poverty and worsen inequality incertain countries. In many o the developing countries the inormal sector labourorce has expanded with the entry o the unemployed rom the ormal sector

resulting in sharp declines in the earnings o workers. Te situation is similar inthe advanced economies where the rise in temporary employment and precariousworkers also leads to a decline in incomes. Tis section analyses the impact o thecrisis on poverty and income inequality.

Poverty rates have increased since the start of the crisis in advanced

economies, and have tended to decrease in developing countries

In the past decade global poverty rates measured as the share o the populationliving below $. per day declined by percentage points rom per centin to per cent in (World Bank ).6 However increasing ood

and uel prices and the global crisis reversed these positive trends in sev-eral regions o the world. Te poverty threshold which is the minimum level oincome deemed adequate to sustain a basic standard o living is dened dier-ently or advanced and developing economies. In advanced economies the povertythreshold is a relative measure and is calculated as the percentage o the populationliving on an income below per cent o the median income. In developing econ-omies it is an absolute measure calculated as the percentage o the populationliving on incomes below the national poverty rates.

In about three-quarters o the developing economies there was a declinein national poverty rates between pre-crisis and crisis periods which was most

marked in the Latin American region ollowed by the Asian countries and Ugandaand Rwanda in the Arican region (Figure . panel A). In advanced economiespoverty rates declined or remained the same in hal o the countries between and (see Figure . panel B). As the poverty line used in Europe is a rela-tive one the decrease in poverty rates might stem rom a disproportional declinein overall income instead o an improvement in poverty. Poverty rates have alsodeclined in some o the East European countries that joined the EU recently. Inthese countries the poverty rates were relatively high and joining the EU seems tohave had a positive impact on their poverty level.

However i poverty thresholds are calculated using an absolute measure thenthe situation might be dierent. For example in Latvia relative poverty rates do

not show any signicant change in poverty between and . Tough ian absolute poverty line such as a minimum subsistence basket is used then thepoverty rate increases by percentage points between and (Kla etal. ). Te situation in Greece and Portugal 7 seems to be similar wherein GDPper capita decreased while relative poverty rates did not change during the crisis.

. Tis indicator is one o the two indicators used in developing countries to measure poverty (theother one is the share o population living below $ a day) and indicates extreme poverty according tothe World Bank. Tese estimates are provided to present an overall picture o g lobal poverty. Howeveras each countrys national poverty rate is more relevant (since this takes into account economic andsocial conditions specic to that country) this is the rate considered or developing countries. In the

case o advanced countries per cent o the median income is used as the poverty rate.. Using an absolute measure it was ound that poverty rates increased by two percentage pointsbetween pre-crisis and crisis periods (Callan et al. ).

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Tis is surprising given that Greece observed a decline in minimum wages by per cent which should have led to a decline in purchasing power and alsoincrease in poverty.

One o the obstacles to reducing poverty is its intergenerational transmis-sion rom parents to children which increases the long-term probability that thepoor will remain in poverty. One o the reasons why certain groups are trapped inpoverty is due to low pay.8 Historically poverty was associated with joblessness(Luciora and Salverda ); however today an increasing number o those who

. Low pay is dened by the ILO as the proportion o workers whose hourly wages [are] less thantwo-thirds o the median wage across all jobs (ILO a).

70

30

40

50

60

10

20

0

Be

larus

Mon

tenegro

Tha

ilan

d

Kaza

khs

tan

Sri

Lan

ka

Alban

ia

Indones

ia

VietNam

Azerba

ijan

Uruguay

Braz

il

Ugan

da

Nepa

l

Lao

PDR

V

enezue

la,

Bo

l.Rep.

of

India

Fiji

Bang

lades

h

Kyrgyz

Repu

blic

Panama

Dom

inican

Repu

blic

Peru

Paraguay

Mongo

lia

Afghan

istan

Ecua

dor

Co

lom

bia

Mauri

tan

ia

Rwan

da

Ta

jikistan

Hon

duras

Ma

lays

ia

Philipp

ines

Jordan

Chile

Turkey

Cos

taRica

Egyp

t,Ara

bRep.

of

Mo

ldova,

Rep.

of

Armen

ia

ElSa

lva

dor

Co

ted'Ivo

ire

Mozam

bique

Countries where poverty rates decreased

Coun

triesw

ithno

s

ignificantchange

P re - cr is is C ri si s

30

15

20

25

5

10

0

Czec

hRepu

blic

Ice

lan

d

Norway

Be

lgium

Ire

lan

d

Un

ite

dKing

dom

Ita

ly

New

Zea

lan

d

Bu

lgaria

Roman

ia

Israe

l

Ne

therlan

ds

Aus

tria

Hungary

Finlan

d

Por

tuga

l

Greece

Korea,

Rep.

of

La

tvia

Slova

kia

Sloven

ia

Swe

den

Denmark

France

Luxem

bourg

Ma

lta

Germany

Sw

itzerlan

d

Cyprus

Po

lan

d

Cana

da

Lithuan

ia

Spa

in

Japan

Aus

tra

lia

Un

ite

dStates

Countries where poverty

rates decreased

Countries with no

significant change


rates increased


rates increased

2007 2010

Panel A. Emerging and developing economies

Figure 1.8 Poverty rates, pre-crisis and crisis

Panel B. Advanced economies

Note: For emerging and developing economies, the poverty rate is measured as the percentage of the population living below

the national poverty rate. For advanced economies it is measured as the percentage of the population living below 60 per cent

of the median income. For Australia, Canada, Israel, Japan, Republic of Korea, New Zealand, Switzerland and the United States

the data refer to mid-2000s and latest year.

Source: IILS estimates based on World Bank, Eurostat and OECD databases.

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are working are also poor. Available data show that the incidence o low pay hasrisen in a number o countries: the comparison between and periods (averages) shows that this increase was more than per cent in Ger-many and Argentina per cent in Luxembourg almost per cent in Hondurasand more than per cent in Panama (ILO a). Te issue o low pay and theworking poor is crucial or implementing policies which aim to address poverty.

In addition to the issue o low pay unemployment among young graduatescould also lead to intergenerational poverty. Tere is some evidence rom earliercrises that youth unemployment persists even long aer growth resumes (ILOb). Tis oen implies a lower probability o nding a job in the uture. Forexample in Belgium it was ound that the probability o young graduates nding ajob aer a -month period o unemployment decreases rom per cent to percent or men and rom per cent to per cent or women (Cockx and Pic-chio ). Unemployment at graduation also has a signicant negative impact onuture earnings. For instance in Sweden those who were unemployed aer gradu-ation were earning per cent less aer ve years than graduates who had a jobat graduation (Gartell ) while in the United States Mroz and Savage ()

ound that a six-month spell o unemployment at the age o would lower utureearnings by per cent.

and a similar pattern can be observed for income inequalities.

Te increase in the number o unemployed the decrease in earnings and the slow-down in growth has raised concerns about income inequalities. Using the Ginicoecient as an indicator or inequality in more than hal o the advanced econ-omies and three-quarters o the developing economies inequality actually declined(see Figure . panels A and B). However the level o income inequality in devel-

oping economies is markedly higher than in advanced economies.Te decline in income inequality in many o these countries must be inter-preted careully. Tere is evidence that the Gini coecient can be a misleadingconcept in terms o income inequality especially with respect to income redistri-butions that are on one side o the median. In act in such a case the Gini coe-cient would decrease and polarization would increase (Seshanna and Decornez). An analysis o income shares or developing countries with availableinormation shows that the income share among the richest per cent o thepopulation () is almost per cent and among the poorest per cent o thepopulation is per cent (see Figure .).

Non-income dimensions of inequality are on the rise.

Additionally there are non-income dimensions o inequality that are not refectedin the Gini coecients. Tese dimensions o global inequality include inequalitiesin health access to education employment gender etc. which apart rom exacer-bating poverty also lead to greater marginalization within society. Some o thesedimensions are explored here.

Inequality related to health is an important non-economic component o in-equality which has been increasing both in advanced and in developing econ-omies. In developing and less-developed economies access to health care is quite

restricted and health insurance coverage is not universal thereore the nancialburden o health care oen alls on the private households which cannot aordsuch costs. In the aermath o the recent ood and uel crisis poor households

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50

30

40

10

20

0

70

40

50

60

10

20

30

0

Norway

Hungary

CzechRepublic

Finland

Netherlands

Iceland

Austria

Croatia

Cyprus

Ireland

Germany

New

Zealand

Poland

Italy

Estonia

Greece

Bulgaria

Romania

Portugal

Slovenia

Sweden

Slovakia

Belgium

Denmark

Luxembourg

Malta

France

UnitedKingdom

Spain

Latvia

Canada

Lithuania

UnitedStates

2007 2010 Countries where inequality decreased Countries where inequality increased

Montenegro

Bosnia-Herzegovina

LaoPDR

RussianFederation

BurkinaFaso

Latvia

Mongolia

Macedonia,

FYR

Uganda

Lithuania

Belarus

Nigeria

Ukraine

CentralAfricanRep.

Kazakhstan

Egypt,ArabRep.of

Pakistan

SriLanka

Romania

Tajikistan

Armenia

Serbia

Malaysia

Mali

VietNam

Nepal

Bulgaria

Niger

Rep.ofMoldova

Argentina

Uruguay

Mozambique

Bangladesh

DominicanRepublic

KyrgyzRepublic

Jordan

Bhutan

Peru

Turkey

Guinea

Rwanda

Georgia

Paraguay

Ecuador

Mauritania

Panama

Thailand

Brazil

Bolivia

Cambodia

Coted'Ivoire

Fiji

Philippines

Colombia

Madagascar

SouthAfrica

Albania

ElSalvador

Mexico

CostaRica

Chile

Honduras

Pre-crisis CrisisCountries

whereinequalityincreased

Countries where inequality decreased

Panel A. Advanced economies

Figure 1.9 Income inequality, pre-crisis and crisis

Panel B. Emerging and developing economies

Note: The data for Canada, Croatia, Cyprus and Ireland relate to 2009.

Source: IILS estimates based on World Bank Database, Eurostat and national sources.

20

10

40

30

Q1 Q2 Q3 Q4 Q5

Note: Q1 denotes the poorest

income quintile of population

and Q5 the richest income

quintile of population.

Source: IILS estimates based

on World Bank Database.0

50

Figure 1.10 Income share by income quintile, 2011 (percentages)

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in Bangladesh and Jamaica reported nding it harder to manage the costs oaccessing health services which led to sel-diagnosis and resort to olk remedies(Institute o Development Studies (IDS) ). In Pakistan it was reported thatamong households in the poorest quintile the number o households unable toaord healthcare increased rom per cent to per cent (Sanogo ). Tecrisis has also led to a slowdown in oreign aid or health programmes in many

countries. For example development assistance or health stagnated or decreased(France Luxembourg Netherlands Ireland Italy Portugal among others) andin many o the countries there were marginal increases with some exceptionssuch as Norway and United Kingdom between and (Institute orHealth Metrics and Evaluation ). Some o the sub-Saharan countriessuch as Botswana South Arica and anzania have also announced cuts in gov-ernment budgets or HIV/AIDS and the impact on vulnerable groups could bephenomenal.

In Europe the situation was exacerbated in some countries such as Greeceaer the crisis. Many Greeks lost their access to health care through employmentwhich pushed many rom private sector health care into state health institutions.9

At the same time austerity measures led to per cent cuts in public hospitalbudgets which in turn created problems o understang and shortages o med-ical supplies. Tis led to a rise in the number o those who reported unmet med-ical needs and bad health between and . Tere was increase in theuse o street clinics run by NGOs rom - per cent to per cent worsening thesituation or the vulnerable groups (Kentikelenis et al. ). Te United Statesprovides another example o rising problems related to health care aer the crisis:many households are close to nancial ruin owing to health costs incurred aerthe loss o employer-provided health insurance (UNDESA ).

Inequality in access to education perpetuates income inequality and urther

limits the impact o economic growth on poverty reduction (Ahmad ).Tis could also have implications or other outcomes such as employment wageshealth (UNDESA ). Access to education helps in acquiring skills whichenhance the capacity to take advantage o job opportunities and improve per-sonal bargaining power in the labour market (Ahmad ). However access toeducation is quite unequal in dierent countries throughout the world. In someArican countries (Benin Burkina Faso and Senegal) the percentage o those aged and older without any education stands at more than per cent with lack oeducation much higher among poor households. Te situation worsens in times ocrisis when the nancial burden on poor households increases leading to a rise indrop-out rates among children (UNESCO ). A number o countries (Bang-

ladesh Kenya and Zambia) have observed signicant school drop-outs aer thecrisis due to unaordable school costs children entering the labour market toaugment household income and lack o adequate ood (IDS ). Te WorldBank and IMF estimate that more students will ail to complete primaryschool in due to the recent crisis (World Bank and IMF ).

Inequality inaccess to oodis the most alarming o all inequalities. In thenumber o undernourished reached a peak o . billion (FAO ). In timeso economic crisis inequalities become even more glaring as the poor whose shareo ood expenditure is more than per cent o their total income cannot aordto purchase ood at the increased prices and tend to reduce both their consump-

tion and the variety o ood they consume. In some countries such as Bangladesh. See http://www.guardian.co.uk/world//oct//greece-economic-crisis-health

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Kenya and Jamaica people reported a reduction in the consumption o vegetablescheese milk and meat and there was a tendency to buy cheaper and lower qualityproducts (IDS ).

Related to the issue o access to ood is the issue oaccess to landwhich isquite skewed in developing economies. For example the Gini coecient or landwas . in Brazil Chile Colombia Uruguay and the Bolivarian Republic o Ven-

ezuela in the s (orche and Spilerman ).10 Land has become increas-ingly concentrated in the hands o a ew landowners and landlessness has beenincreasing over the past decades in a number o countries (Bangladesh Cam-bodia the Philippines and Tailand). Moreover the cultivated land per capita hasdeclined in a number o countries: or example in Eastern and Southern Aricathe average cultivated area today accounts to less than . hectares per capita(International Fund or Agricultural Development (IFAD) ). Te landlessand those who have very small parcels o land are usually net ood buyers who aremore vulnerable to shocks and were most severely aected during the recent oodcrisis (IFAD ).

Huge inequalities exist in access to creditand historically those with better

credit worthiness have been able to access credit much more easily than others.According to IFAD basic ormal nancial services reach only ten per cent orural communities.11 Availability o credit has become highly restricted in thedeveloping world aer the crisis. In Arica real growth o credit to the privatesector declined substantially between and (Brixiov and Ndikumana). Moreover deaults in payments to microcredit institutions are on the risein many regions (such as Central Asia) reducing micro-entrepreneurs prots andincreasing the diculty o accessing liquidity (International Finance Corporation(IFC) ).

Access to credit or small and medium-sized enterprises (SMEs) has decreased

considerably in several European countries. For example in Estonia and Latviairms in were per cent more likely to be credit constrained than in largely due to credit rationing (McCann ). Greece also observed adecline in credit growth to the private sector in which turned negative at thebeginning o (OECD ). SMEs in Europe reported percentage pointsincrease in rejection o their bank loan application ( per cent) while bank loanapplication success ( per cent) and rejection rates ( per cent) remained stableor large rms (European Central Bank (ECB) ). In the situation olarge rms compared to SMEs remained more avourable with per cent othe large rms reporting that there were no obstacles to receiving nancing. Tenumber o SMEs reporting that there were no obstacles to receiving nancing in

was only per cent in Greece per cent in Portugal per cent in Spainand per cent in Ireland while it was per cent in Finland per cent inGermany and per cent in Austria (ECB ). In Te highest net per-centages o SMEs reporting deterioration in the availability o bank loans were in Greece Ireland and Portugal ( per cent per cent and per cent respec-tively) (ECB ).

. Te Gini coecient or land does not include the landless.. See http://www.iad.org/ruralnance

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D. better js fr etter ecnmy

The short-term employment outlook continues to deteriorate

in advanced economies

As observed in section A employment rates have increased in less than per

cent o the advanced economies and per cent o the developing economies. Teimpact o the economic slowdown on employment creation will be signicant.Further global unemployment has started to rise again since late reversingearlier employment gains. For around million people will be unem-ployed refecting the downward scenario indicated in the ILO (). Te un-employment rate will urther increase to . per cent o the global labour orce thisyear and increase to . per cent in . Te number o jobseekers will continueto swell and is expected to reach million people by despite a gradual butlimited decline in the unemployment rate.

In the advanced economies the employment level is not expected to recoverto pre-crisis levels till late (Figure . panel A). Given the current employ-

ment rate which is st

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