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OECD warns 57 million people could be unemployed in better-off countries – calls for major Government action

Unemployment in better-off countries could reach 10% of the labour force if the economic recovery fails to gain momentum according to the Organisation for Economic Co-operation and Development (OECD). This would bring the total number unemployed in these countries to 57 million. It has already reached 8.5%, an increase of more than 15 million in the numbers unemployed since the end of 2007.  

According to the OECD despite early signs of economic recovery, in most countries unemployment will rise further in 2010 and remain high for the immediate future.
 The Paris-based OECD said that, despite the economic improvements that have been seen, governments must intervene “quickly and decisively” to prevent the sharp rise turning into long-term joblessness.

In its annual employment outlook published on September 16, 2009 the OECD expressed fears that a recovery without jobs might emerge, even if the tentative return to economic growth currently being seen in some countries is sustained.
In 2007 the unemployment rate in the OECD was at a 25-year low of 5.6 per cent, but it rose to a postwar high of 8.5 per cent this July. The US, Spain and Ireland, where the banking crisis has been accompanied by a housing market collapse, have been worst hit. The rise in unemployment has been slower in European economies such as Germany and Italy.
The report suggests that Ireland, Japan, Spain and the US may have already seen most of their likely job losses. It also states that countries such as France, Germany and Italy may yet see substantial increases in their unemployment levels.  
Social Justice Ireland welcomes the OECD recommendation that, in light of these developments, governments must urgently reassess and adapt their labour market and social policies in order to prevent people from falling into the trap of long-term unemployment.
The report notes that most OECD countries have introduced measures to support labour demand. These include temporary cuts in employers’ social security contributions and short-time working subsidies to compensate workers for working fewer hours or to encourage firms to hire such as the German Kurzarbeit, which involves about 1.5m workers.
As part of an overall strategy to tackle the jobs crisis, the OECD also recommends governments to:

  • Help young people who have been hardest hit by the crisis, especially those with few or no qualifications. Targeting this group will reduce the risk of a “lost generation” of young people falling into long-term unemployment and losing touch with the job market.
  • Reinforce social safety nets to avoid jobless people falling into poverty: on average in the OECD area, 37% of individuals living in jobless households are poor - five times higher than for individuals living in a household where at least one person has a job. 
  • Increase spending on active labour market policies, such as job search assistance, and training, to help the unemployed back to work. Spending on these policies has risen in many countries over the past year, but only modestly compared with the magnitude and pace of job losses. In Ireland, Spain and the United States, which have seen the fastest rise in unemployment in OECD countries, spending per unemployed person on active labour market policies has fallen by 40% or more over the past year.
  • Foster skill formation to ensure that workers are well-equipped with the appropriate skills for emerging jobs, including green jobs.

In the short-term, the OECD acknowledges that these measures are playing a positive role.  21 countries have sought to save jobs by introducing or expanding short-time working schemes. But the OECD insisted that such schemes must be focused on companies where demand was only temporarily depressed, otherwise they could hamper the recovery by putting a brake on the required reallocation of workers from declining to expanding companies.

The report went on to say that governments must urgently adapt their labour market and social policies to prevent people falling into the trap of long-term unemployment. Measures should be focused on helping young people, who have been hardest hit by the crisis, to reduce the risk of producing a “lost generation”.
The OECD report also said that social safety nets should be reinforced to avoid jobless people falling into poverty. It urged an increase in spending on active labour market policies, such as job search assistance and training, to help the unemployed back to work. According to the report spending on these policies has increased in many countries but has not kept pace with the scale of job losses.