A society that fails to provide jobs for its citizens will see political unrest, sinking tax revenue and soaring debt.
What do the Arab Spring, the London riots and the Greek debt crisis have in common? They have all happened in environments of rampant joblessness. In fact, it might not be far off to say that a big share of the world's political and economic turmoil is fuelled in one way or another by unemployment.
That is why, when policymakers and economists meet in Washington this week for the annual meetings of the International Monetary Fund and World Bank, unemployment will be prominent on the agenda.
After all, the ultimate measure of economic success is not whether the stock or bond markets go up — though it sometimes seems that way — but rather whether a society can provide jobs for its citizens. A society that fails will see other problems multiply in the form of political unrest, sinking tax revenue and soaring debt.
Greece, which is threatening to undermine the global financial system, is a prime example. An underlying cause of its debt problem is the country's dysfunctional economy and an ossified job market that keeps out newcomers and outsiders.
“The Greek labour market clearly plays a huge role,” said Jacob Funk Kierkegaard, an economist at the Peterson Institute for International Economics in Washington. “Greece is totally overregulated and systemically corrupt. Everybody is a protected group. You clearly need to get rid of that.”
Likewise, it is no accident that the countries in the Middle East and North Africa where political unrest has flared have some of the highest rates of youth unemployment in the world, with young people nearly four times as likely to be jobless as adults, according to the International Labor Organization in Geneva. An unusually high number of the unemployed are well educated.
The long-term success of uprisings that toppled strongmen in Egypt, Tunisia and Libya will probably depend in large part on whether the new governments can provide jobs for the frustrated young people who propelled regime change.
For that reason, the European Bank for Reconstruction and Development, which is financed by 61 countries, including the United States, has put a priority on creating jobs as it expands its involvement to North Africa after the Arab Spring.
“The No. 1 focus is going to be on small and medium-size enterprises and employment, creating new jobs and meaningful jobs,” said Erik Berglof, chief economist of the European Bank.
But it is the industrialised countries, not the poor nations, that have the biggest growth in unemployment. Developed countries account for 15 per cent of the world's labour force but more than half the number of newly jobless since 2007, according to the International Labor Organization.
Unemployment, said Prakash Loungani, an adviser in the research department of the IMF in Washington, “is an advanced-country problem.”
This does not mean that workers in the United States or Europe are going to start migrating to emerging markets for jobs. Working people in emerging countries are often extremely poor. Nearly 40 per cent, or 1.2 billion people, earn less than $2 a day.
It is the prospect of a better job that drives huge numbers of poor people to risk their lives in treks to Europe or the United States, where the influx of immigrants can raise political tensions.
While the number of people migrating in search of work has declined during the global downturn, developed countries “remain attractive,” said Thomas Liebig, who studies migration at the Organization for Economic Cooperation and Development in Paris. “The gap is still pretty large.”
High growth rates mean that employment in emerging countries is at least going in the right direction. That is not true of many developed economies. Just ask President Barack Obama, whose re-election may depend on whether the United States unemployment rate starts to go down.
The German experience
Few large countries have had better success than Germany. Unemployment has plunged to 6.2 per cent from a peak of 10.6 per cent in 2005. One reason is a series of policies that loosened job protections and put more pressure on unemployed people to find work.
A boom in exports also helped. “Anyone who really wants to work, they will find a job,” said Bernhard Frank, deputy director of the Jobcenter, a government facility, in Offenbach, a working-class city next to Frankfurt.
Offenbach, which never quite recovered from the collapse of the local leather goods industry decades ago, still has a jobless rate above 10 per cent even though that is sharply lower than a few years ago. Many Offenbach residents are recent immigrants who do not speak German or lack other skills.
Mr. Frank is proud that the Offenbach Jobcenter has one of the best records of any large city in Germany for bringing down the number of long-term unemployed. But the progress requires resources that most countries would be unwilling or unable to pay for, like day-care centres.
It took half a decade for such efforts to affect jobless rates, and in the meantime the unpopular changes inflicted lasting damage on the Social Democrats, the party that undertook them.
Greece is at the beginning of that painful process, and unlike Germany is contending with a brutal economic downturn and harsh government austerity programmes. Even those Greeks who have not joined mass protests are sceptical that labour market deregulation will benefit them.
Panos Alivizatos, a 35-year-old father of two who lost his job at a small furniture manufacturer near Athens last November, said that measures to lift restrictions on entry into dozens of professions, ranging from taxi drivers to pharmacists, were a good thing. But he does not see how they are going to help him.
“I can drive, but you need €30,000 to get a taxi license. Where am I going to find €30,000?” Mr. Alivizatos said.
Economists say that labour market deregulation in Greece, while badly needed, by itself will not cure unemployment. Growth must also recover. In the meantime, the tax revenue lost when people become jobless only worsens Greece's debt burden. “Clearly it doesn't help if a large proportion of your population is not paying taxes and you're having to pay them benefits,” said Mr. Loungani.
Mr. Loungani worries about the corrosive effects of unemployment on people and societies. “I know from my own experience the loss of confidence in your own skills that comes with the 200th job rejection letter,” he said. “That's why it's so important to get people back soon. You risk making a cyclical problem into a structural problem.” — New York Times News Service