As
bankers, business leaders and politicians descend on Davos to ponder the future
of the world economy, one issue should be top of mind – the world economy is
not creating enough jobs, particularly for young people.
Unemployment
is one of the biggest issues facing us today, and we can’t rely on growth alone
to fix it.
In
developed countries, sluggish recovery in the wake of the crisis has left
employment well below 2007 levels, with 6 to 7 million fewer jobs in the US, UK
and euro area alone, according to a Standard Chartered Global Research report,
‘Making economies work’. Youth unemployment has gone up, and more unemployed
people are out of work long term.
Emerging
markets have coped better, shrugging off the Great Recession, with China alone
adding 60 million non-agricultural jobs since 2007. Yet, even these markets are
not creating the right jobs sufficiently fast. As growth slows, there is
concern that job creation will slow, too.
Unemployment
locks people in poverty. It makes us less able to generate economic growth in
future, as people lose skills and become unemployable. It perpetuates
inequality, with a disproportionate amount of wealth owned by a small minority
of the population. And it affects social stability: the Arab Spring is a potent
reminder of the wider stress in society that can be caused by high youth
unemployment.
How
do we create more jobs? Clearly, stronger economic growth is part of the
answer, and the good news is that 2014 promises to be a better year for the
global economy. Europe is pulling out of recession and the US economy is
accelerating.
Meanwhile,
the cyclical factors that have hampered job creation since 2007 – such as the
economic fall-out from the financial crisis and fiscal tightening – are
dissipating. This includes the legacy of uncertainty which has seen companies
shy away from investing and hiring.
Growth,
however, is unlikely to be enough. More direct policy measures are needed to
address the underlying structural and demographic issues stalking the world’s
labour markets.
In
the last couple of decades, developed economies have suffered from a succession
of ‘jobless recoveries’. Unlike before 1990, layoffs during recessions are no
longer reversed so quickly when growth picks up again.
An
ageing population is part of the problem, as is the fact that – as economies
have evolved – large groups of workers have become stranded with the wrong
skills, or in the wrong place. Though likely to increase overall employment in
the long term, technological innovation, in particular, has driven out routine,
middle-skilled jobs in developed economies, leading to a ‘polarisation’ of
jobs.
In
these markets, more work now needs to be done to retrain workers who were
previously employed in sectors that have lost jobs, such as construction.
Governments have to encourage people to work until they are older and – even
more urgently – reduce long-term unemployment among the young to prevent young
people from dropping out of the labour market altogether.
More
flexible labour markets would help, as would policies aimed at raising
university-level education. A 2012 study by McKinsey Global Institute predicted
that advanced economies would have to raise the number of young people
finishing university by two and half times to fill the projected gap in demand
for high-skilled workers.
Emerging
markets face their own challenges. By 2030, 95 per cent of the world’s
additional work force – or around 550 million people – will come from these
economies. But after years of strong growth, the pace of job creation is
slowing and not enough of the new jobs are good, well-paid ones.
Part
of the reason why emerging markets are set to dominate the world economy over
the next few decades is their so-called ‘demographic dividend’ – the huge
projected increase in their populations of working age. But in order to tap
into this demographic boom, emerging markets must create a sufficient number of
productive jobs, and ensure that the workforce has the skills needed for those
jobs. Clearly, there is still some way to go.
In
fact – according to research by the International Labour Organization – most of
the jobs created in emerging markets over the past few years have been in the
informal sector, with low pay and a lack of adequate employment rights and
benefits. The challenge to educate and train people, as well as to create
enough good jobs to absorb labour from the land and from unemployment, remains
huge.
Emerging
markets urgently need to raise productivity and the quality of jobs, but this
will only be possible with greater investment in education alongside market
reforms that encourage businesses to take on more workers. Education levels
remain abysmally low – especially in south Asia and Africa where the labour
force is growing the fastest. More worryingly, public spending on education has
fallen in many markets, including in India – a trend which must be reversed.
As
in the developed world, youth unemployment is an urgent and growing problem –
more than 85 per cent of the world’s young people live in emerging markets.
Every
country in the world shares the job creation challenge and it is one we cannot
afford to ignore. The World Economic Forum at Davos provides a timely opportunity
for global policy makers, regulators and businesses to ask ourselves what we
are going to do about it.
Mike Rees
Group Executive Director and CEO
Wholesale Banking
Standard Chartered Bank January 2014
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