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Putting Jobs First: The Case for an Integrated Model of Growth

The jobs crisis must not be underestimated: 200 million people are out of work, including 75 million young people, and 1.52 billion workers are in precarious employment. Forty million people are estimated to enter the labour force every year into economies, weakened by poor growth and inadequate job creation that cannot accommodate them. At the same time, 75% of the world’s people have no formal social protection. As the World Economic Forum’s 2012 Global Risk Survey shows1, inequality, poverty and unemployment drive social unrest and economic risk. The Global Agenda Council on Employment and Social Protection considers all this to be a potent economic and social time bomb, and is calling on policy-makers to take action.

The Council identifies the need for a new growth model that recognizes the importance of employment and social protection. Growth, employment and social protection should be seen as elements of a virtuous circle: high-quality jobs and decent incomes generate sustainable demand; and social-protection systems provide a safety net against growing labour market risks, giving citizens the confidence to consume and businesses to invest.

In its latest report, “The Case for an Integrated Model of Growth, Employment and Social Protection”2, the Council outlines how a more growth-oriented and balanced approach to global economic policy will fulfil the G20’s Pittsburgh commitment to “put quality jobs at the heart of the recovery”. The report argues that employment can no longer be treated as a residual outcome of economic growth. Rather, employment growth is necessary to restore confidence and bring about economic recovery. The Council calls for recognition that well-designed systems of social protection have acted as important shock absorbers in the crisis, and must be invested in and widened in the future.

The report was launched at the World Economic Forum Annual Meeting in January 2012, in a session moderated by Council Chair Kemal Dervis.3  It has been widely disseminated through the international policy community, and informed numerous policy discussions and developments at the Organization for Economic Co-operation and Development4  (OECD), International Labour Organization5 (ILO) International Monetary Fund6 (IMF) and G207. Most recently, the report has helped to shape the recommendations of the B20 Task Force on Employment, the L20 positions, and the G20 Task Force on Youth Employment in the run-up to the G20 Guadalajara Employment Ministers’ meeting in May 2012 and the G20 Los Cabos Summit in June.

This paper will highlight the Council’s key findings and five recommendations for action. Readers who want a more in-depth analysis of the jobs challenge and the case for an integrated model of growth are encouraged to read the Council’s full report.

The Need for Urgency

As members of the Global Agenda Council on Employment and Social Protection have argued8, there are potential disastrous consequences of failing to address the global shortage of jobs and widening social inequalities.

Stephen Pursey, Council Member and Director at the International Labour Organization, describes the current situation as creating ticking time bombs of social dissatisfaction and unrest that will eventually explode around the world:

“I believe that we are facing a global social time bomb, or more accurately, a series of such time bombs, each one different according to the particular circumstances in various parts of the world. We can see problems unfolding already. In some cases it has taken the form of relatively organized protests, with people on the streets putting reasonably coherent demands for change to their governments. In other cases, the frustration has come out in less focused ways: riots or a rise in small-scale issues of social dislocation”.

Sharan Burrow, Council Member and Secretary-General at the International Trade Union Confederation, explains the associated risks:

“If people do not have jobs, they do not have a secure income and they do not have a sense of security. When work is not underpinned by social protection, people risk falling into poverty traps. If there are not jobs or adequate forms of social protection, there is not enough income to create the consumption base that drives demand and sustainable economic growth”. 

Policy attention has been focused on the world’s financial system and sovereign debt, but it is vital that leaders recognize the urgency of global unemployment, inequality and the necessary social policies needed to redistribute wealth. Individual governments can take national action, however equally important is an enabling environment and effective policy coordination at the global level, including through the G20 and International Monetary Fund (IMF).

Governments must move quickly to get the global economy moving again. The following measures should be considered:

  • Targeted investments in infrastructure
  • Public investment in “green jobs”
  • Shifting taxation from employment to environmental “bads”
  • Targeted tax cuts or increases in cash transfers to low-income households
  • Robust minimum wage floors to prevent wage deflation
  • Provision of finance for high-growth, small and medium-sized businesses
  • Greater progressivity in the tax system
  • Higher levels of investment in active labour market programmes
  • Creating flexible schemes to promote job retention and job sharing

Huge opportunities exist in taking action to drive employment and reduce inequality. For example, in the green economy, where investing 2% of GDP in the green economy of 12 countries across seven industries can create 48 million jobs over five years9. Likewise, there is opportunity in infrastructure, where long-term investment strategies can tackle ageing infrastructure in the developed world and infrastructure deficits in the developing world.

A New Integrated Approach

There are five principles that policy-makers should consider as they respond to the crisis and develop a new approach to growth, employment and social protection:

  1. A coordinated policy to refocus on growth will be required in 2012 to ensure that employment becomes a top priority. This is not to say that all countries can take expansionary fiscal action, but even those with limited room for manoeuvre can slow the pace of deficit reduction if it is part of a careful global strategy.
  2. There are priority measures that governments and companies can implement today to boost job creation and retention, such as introducing youth employment pacts or flexible job retention policies equivalent to the short-time working scheme in Germany. Tackling youth unemployment must be a top political priority.
  3. Social protection is an important tool for stimulus and growth in the context of the crisis. Reform of social protection systems in many countries may be needed (to take account of demographic change for example), but this is more likely to be successfully achieved when growth has resumed. Reform efforts should proceed and offer maximum choice and flexibility with the involvement of the social partners.
  4. In the developing world, the establishment of a social protection floor is essential to reduce poverty and create the conditions for development. Cash transfers to those on low incomes can be designed to be relatively inexpensive, and have the potential to relieve poverty, boost domestic demand and contribute to the rebalancing of the global economy. By creating a sense of confidence about income security, citizens can be equipped to withstand what might otherwise be intolerably disruptive processes of structural change.
  5. In all these cases, governments cannot act alone, but must engage the interest and support of other social actors. This multistakeholder model can help to ensure that change is both legitimized and embedded. Trade unions, business and NGOs have a critical role to play. This has been reflected in the recent joint B20-L20 discussions.

 The Path Forward

The work of the Global Agenda Council on Employment and Social Protection helps to present a framework for policy action on inclusive growth. The Council is using the recommendations presented above as the basis for shaping the debate and developing practical policy actions in major international processes in 2012, including:

  • On 19-20 March 2012, the Working Group on Economic Policy of the Trade Union Advisory Committee to the OECD, in association with the ITUC, convened a meeting in Washington DC with the IFIs and government economic advisors to discuss the economic outlook, and policy proposals for the forthcoming G20 and OECD Ministerial. The report of the Global Agenda Council was used to inform discussions on the need for jobs and more inclusive growth as a core strategy in exiting the crisis, with key participants, including:
    • Olivier Blanchard, Chief Economist of IMF
    • Alan Krueger, Chair US President’s Council of Economic Advisors and Chair of the OECD Economic Policy Committee
    • Yves Leterme, Deputy Secretary-General of OECD
    • Sandra Polaski, Deputy Under-Secretary, Department of Labor, United States
  • OECD Ministerial Council (23-24 May 2012). The OECD Ministerial Council agenda was on the theme of jobs and growth, where a major project on “new approaches to economic challenges” was launched that will be drawing on inputs from the Global Agenda Council
  • G20 Employment and Labour Ministers’ Meeting (April/May 2012) and G20 Los Cabos Summit (18-19 June 2012)
  • The report on an Integrated Model of Growth, Employment and Social Protection has informed the recommendations of B20 Task Force on Employment (Council Chair, Kemal Dervis, and Vice-Chair, John Evans are members of the Task Force) and the L20 statement. Council Members Sharan Burrow, ITUC and John Evans, Trade Union Advisory Committee to the OECD met with President Calderon to discuss these recommendations on the occasion of the World Economic Forum on Latin America 2012.

In addition, the Council’s specific analysis and recommendations on the global social protection floor will continue to be taken forward in 2012-2013 in a deep-dive project of the World Economic Forum on “Developing Future Social Protection Systems”. This project is led by a number of Insurance Industry partner companies. Members of the Global Agenda Council on Employment and Social Protection have contributed to scoping discussions on priority issues for European social security systems. The project is seeking to assess capacities of societies to provide for a sustainable social protection system, and to uncover opportunities for public and private stakeholders to improve the financial stability of, access to and quality of social protection systems.

Disclaimer

The opinions expressed here are those of the individual Members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.