Saving the Lost Generation

Oslo was the scene this week of a remarkable event that brought together global leaders from government, business, trade unions, and academia to discuss what many of them said is the biggest issue facing the world today: the jobs crisis.

They spoke of the 210 million people currently out of work worldwide—the highest level of official unemployment in history. They spoke of the human impact in terms of persistent loss of earnings, reduced life expectancy, and lower educational achievement for the children of the unemployed. And they spoke of a potentially “lost generation” of young people whose unemployment rates are much higher than for older groups.

Fortunately, they also spoke of what can be done to save this lost generation.

The Oslo Conference—hosted by Prime Minister Jens Stoltenberg of Norway and co-sponsored by the International Labor Organization (ILO) and the International Monetary Fund (IMF)—the first such joint endeavor in 66 years—attracted extraordinary participation. By government leaders from Prime Minister George Papandreou of Greece to José Luis Rodriguez Zapatero, Prime Minister of Spain, and President Ellen Johnson Sirleaf of Liberia; by prominent Ministers such as Christine Lagarde of France and Ian Duncan Smith of the UK; by union leaders—Sharan Burrow of the ITUC, for example—and by some of the brightest minds in academia who are thinking about issues of growth, employment, and social cohesion.

This Oslo Conference was certainly a historic step in strengthening collaboration between the ILO and the IMF—it is no secret that we have not always seen eye to eye. But it was also quite inspirational in its atmosphere of cooperation and shared sense of urgency about the need for increased attention and focus on unemployment—and to bring that issue much higher up in the policy mix. The ILO estimates that, over the next 10 years, more than 440 million additional jobs will be needed to absorb new entrants to the labor force. So the challenge both today and in the years ahead is huge.

What is to be done? Naturally, there were a lot of different views expressed in Oslo. I certainly don’t claim to speak for everyone, but these are my main takeaways:

First, we cannot say the financial crisis is over until unemployment decreases. We need growth—but we need growth that increases employment. An economic “recovery” that does not translate into jobs will not mean much to most people. Frankly, most people will not notice whether growth is a percentage point or two higher. But whether unemployment is 10 percent or 5 percent is a big deal. And it is not just the pain it imposes on the unemployed, but also the anxiety it creates for many of the employed. And with 30 million more people having become unemployed since 2007, you begin to get a sense of the immense human cost involved.

Second, building on the previous point, job creation itself must be a priority and we need to use all the policy instruments available to achieve it. This includes using fiscal and monetary policies to support as strong an output recovery as we can—because output growth is the single most important determinant of employment growth. Even as many advanced economies face the need to stabilize or reduce high levels of public indebtedness, it is vital that this be done in a way that does not impair growth and jobs. In the same vein, financial sector reform needs to be aimed at making it a more make effective support of the real economy. For example, the financial sector can help to foster employment by helping to finance small businesses that have suffered limited access to credit during the crisis, but are the ones which can create the biggest amount of jobs.

Third, there are many lessons and best practices that we can apply to ease the pain in labor markets and accelerate jobs recovery. Here, Oslo generated many good ideas. Some governments have stepped up placement services and expanded labor market programs aimed at improving skills and job search. Others have implemented policies allowing firms to retain workers, while reducing their hours and wages–thus spreading the burden of the downturn more evenly. Another step is to allow unemployment benefits to be extended. Subsidies targeted at specific groups—the long-term unemployed and youth, for example—can also stimulate job creation.

Finally, cooperation is key. The consistent policy actions that many countries took during the crisis—through the deliberations of the G-20—helped to avoid the recession becoming a depression, and even more jobs being lost. This kind of cooperation will be even more important as countries exit from the crisis, and seek to restore growth and employment. Analysis undertaken by the IMF for the G-20 shows that the appropriate coordinated action over the next five years could increase global GDP by 2.5 percent, creating tens of millions of jobs. We should take advantage of the increased cooperation between the ILO and IMF to boost international coordination overall.

Specifically, in Oslo, we agreed that the ILO and IMF could usefully work together in two areas of policy development:

  • to focus on policies that promote job-creating growth; and
  • to explore the concept of a social protection floor for people living in poverty and vulnerable groups—within a sustainable macroeconomic framework.

These may not seem like earth-shaking developments. But, if indeed we can move forward our two organizations in this way, it can be an important step forward in helping the world to tackle the jobs crisis.

We all need to think differently and more creatively: about the new economic forces at play in the post-crisis world; about the better integration of employment policies with macroeconomic policies, nationally and internationally; and about how to develop a wider array of policies and programs that can provide work for all who want it.

That kind of thinking began in Oslo.


Originally published at iMFdirect and reproduced here with the author’s permission.