Global ‘Austerity Trap’ Has Caused ‘Alarming’ Jobs Crisis
New report from ILO highlights failures of austerity model to improve global jobs crisis
The current global jobs situation is “alarming,” and many countries have fallen into the “austerity trap,” according to the new report “World of Work Report 2012: Better Jobs for a Better Economy” from the International Labor Organization (ILO).
The report finds the path of austerity that many countries have chosen simply has not generated jobs and has worsened the economic situation.
“The narrow focus of many Eurozone countries on fiscal austerity is deepening the jobs crisis and could even lead to another recession in Europe,” said Mr. Raymond Torres, Director of the ILO Institute for International Labor Studies and lead author of the report.
In contrast to the austerity choosing countries, “countries that have chosen job-centered macroeconomic policies have achieved better economic and social outcomes,” added Mr. Torres.
The report states bluntly: “The austerity trap has sprung. Austerity has, in fact, resulted in weaker economic growth, increased volatility and a worsening of banks’ balance sheets leading to a further contraction of credit, lower investment and, consequently, more job losses.”
However, the report notes that “it is possible to move away from the austerity trap.” And “more fundamentally, it is high time for a move towards a growth- and job- orientated strategy.
A growth-oriented strategy could bring about the creation of between 1.8 and 2.1 jobs over a one year period, the ILO states.
The report also finds “the weakening of collective bargaining likely to provoke a downward spiral of wages, thereby delaying recovery further.”
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Jobs recovery threatened by fiscal austerity
The world needs to create 50 million jobs to return to pre-crisis employment levels, according to the ILO’s World of Work 2012 report, but fiscal austerity and tough labor market reforms threaten the scenario for a true jobs recovery.
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Despite signs that economic growth has resumed in some regions, the global employment situation is alarming and shows no sign of recovery in the near future, says the International Labor Organization (ILO).
The ILO’s “World of Work Report 2012: Better Jobs for a Better Economy” says that around 50 million jobs are still missing compared to the situation that existed before the crisis. It also warns that a new and more problematic phase of the global jobs crisis is emerging.
First, this is due to the fact that many governments, especially in advanced economies, have shifted their priority to a combination of fiscal austerity and tough labor market reforms. The report says such measures are having devastating consequences on labor markets in general and job creation in particular. They have also mostly failed to reduce fiscal deficits.
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The report calls for a socially-responsible approach to fiscal consolidation, arguing that the pace and content of fiscal cuts are important both in terms of fostering fiscal stability and boosting employment growth.
In over 90 per cent of countries that have implemented austerity measures, unemployment rates are still above their 2007 levels. In close to half of them, unemployment rates had increased further by the end of 2011. There are an estimated 43.5 million unemployed workers in advanced economies.
According to the report, current consolidation policies will lead to weak employment growth and a deteriorating fiscal position in the medium-term. Under this scenario, only 0.8 million jobs would be created in a one-year period in advanced economies.
In contrast, safeguarding employment and social measures – while adhering to the demands of prudent fiscal management – could more than double employment creation and generate up to 2.1 million jobs in advanced economies.