The financial and economic crisis has already put millions of people out of work in the OECD area alone, and the unemployment figures are going to get far worse. What can governments do to ease the suffering?
Anyone who needs proof that we are experiencing one of the worst ever global crises should look at the jobless numbers. Whether for American workers, who have been losing jobs at an average rate of nearly three-quarters-of-amillion jobs per month since last October, or Spanish 20 to 24-year-olds whose unemployment rate stood at 29% in December 2008, a third higher than a year earlier, the language of this economic crisis, written in sudden, steep drops in employment, is global.
In the US, more than 4 million people lost their jobs in the year to February 2009, when the unemployment rate reached 8.1%, its highest level in over 25 years. In Ireland, the unemployment rate was 8.2% in December 2008, 3.5 percentage points higher than one year earlier, and both France and the UK are reporting significant increases in unemployment over the year to January 2009. The 6.9% average unemployment rate across OECD countries recorded in January 2009 represents some 7.2 million more workers who joined the jobless ranks since one year earlier. And there’s worse to come: the OECD projects that unemployment rates will approach 10% in the OECD area by 2010, swelling the numbers of unemployed by about 25 million-by far the largest and most rapid increase in OECD unemployment in the post-war period.
Governments are beginning to respond. Japan has announced some changes in its policies which increase the number of non-standard workers who are eligible for unemployment benefits if they lose their jobs. Finland has reduced the length of time that an unemployed worker needs to have worked previously in order to qualify for benefits. And the French government has proposed extending unemployment benefits to some youth who are ending a fixed-term contract.
In an effort to contain job losses, several OECD countries, including Denmark, Germany and Spain, are considering introducing, or expanding, schemes that subsidise shortened work times for limited periods. These plans usually apply when there is a temporary reduction in the number of working hours due to a slowdown in business activity. In these cases, some of the workers’ loss of earnings are compensated by a state subsidy. This appears to be a sensible policy in this crisis, because so many firms are facing a combination of severe short-term contraction in demand and a major credit crunch, a combination which could force them to lay off workers they would like to keep in the long term.
These subsidies may also be fiscally wise, since intervening while at-risk workers are still employed may ultimately be less costly than the option of waiting for them to lose their jobs and then register as unemployed. On the other hand, the historical experience with short-time subsidies has not been very encouraging since compensation has often gone either to workers who would have been retained by their employers anyway, even without a subsidy, or has ended up supporting firms that proved to be unviable when business conditions improved.
The OECD is working with governments to find ways to minimise these risks by better targeting short-time assistance.To be effective, such responses also need to be temporary to avoid becoming a drag on the economy later on, but they can work.
Unemployment will not improve until the world’s financial system and economic activity get back on track.