The impact of the global financial and economic crisis on

employment and social development and policy responses

Briefing note for the ITC Seminar on

“The economic crisis and the Global Jobs Pact”

(Turin, 2-6 November 2009)

Aurelio Parisotto

Policy Integration Department, ILO

A. Introduction

The current economic recession is unprecedented for its speed, its depth, its global scope and the

way it is simultaneously affecting economies worldwide. It is not a crisis of Russia or of a group of

economies in Asia. It is a crisis of the financial and corporate sector in almost all countries. It arrives

after years of fast, unequal growth and growing polarization across and within nations. It comes on

top of a series of shocks in the global energy and food markets that markedly affected the incomes

of the poor and the vulnerable.

Recovery from such a systemic economic downturn is going to be subdued. Given the financial

nature of the crisis, time will be needed for the banking sector to go through the process of cleaning

up balance sheets and re-establish sound foundations for large volumes of lending. Households in

rich countries will also need time to restore their wealth and their confidence in the future, key

prerequisites to sustain higher levels of spending for consumption. Corporations will defer

investment as long as prospects for sales remains uncertain, credit is scarce and costly, and

productive capacity is largely underutilized. Given the global geographical spread of the crisis,

moreover, no country will be able to abruptly squeeze wages and other domestic production costs

to rapidly gain new market shares in export markets. To cope with a crisis of this type requires an

international collective effort of a new kind.

Some observers are heralding incipient signs of recovery, or “green shoots”. Indeed, a few

developing economies are maintaining positive growth rates, largely driven by their large domestic

markets, sound financial systems and high level of reserves. But the reality is that the perspectives

for a global recovery remain fragile and vary markedly across countries. Like any great upheaval, the

crisis is producing economic shock waves that will reverberate over time. As the crisis unravels, falls

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in incomes and job opportunities reach the poor, exacerbating long-standing vulnerabilities and

inequalities. A recent World Bank report estimates that, excluding India and China, GDP per capita in

the developing countries will fall 0.6 per cent in 2009. In a similar vein, the latest UN forecasts

indicate that 60 developing countries and 14 transition economies are likely to experience falls in per

capita income in 2009. This trend is a dramatic setback on the way to achieve the MDG poverty

reduction objectives. Long waves of distress are also hitting labour markets in all regions, with

impacts across the entire income distribution. Whatever shape and length the economic recovery

will take, comparable experience from previous crises shows that employment recovery will lag

behind. For women and men worldwide, and in particular for the most vulnerable and

disadvantaged, the crisis will not be perceived as receding until they get a decent job and a minimum

floor of social protection. Decisive action could considerably contribute to shorten that lag.

This note reviews the main features of the deep and prolonged labour market distress created by

the global financial and economic turmoil. It considers national and international policies and

frameworks to address the jobs crisis, and it outlines some issues for discussion. A main argument is

that strong employment and social protection policies are needed right away in order to counteract

both the immediate and the long-lasting effects of the global economic downturn. Policies and

institutions for social development are central to shape patterns of recovery that foster sustainable

economic growth, employment creation and decent and stable societies.

B. Employment and labour market outlooks in the aftermath of the crisis

More than one year after the Lehman shock in September 2008, stock exchange markets are up and

industrial output in some major countries is showing initial signs of recovery. Nonetheless, there

remains controversy among economists on whether the recession is definitely over and what pace

and shape the economic recovery might take. Some think growth will resume naturally, but fear the

implications of excessive government spending for inflation and public finances and call for budget

discipline and a withdrawal from the expansionary stimulus packages that have propped up ailing

economies all over the world. Others - including the IMF, the World Bank and the United Nations –

warn in their forecasts that the initial signs of recovery are relatively frail and that the coordinated

effort to pull the world economy back from the brink of a severe depression needs to be maintained.

They point out that finance markets are still not functioning normally and confidence in the future

amongst individuals and enterprises is fragile, as a result in many countries consumption and private

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investment remain weak.1 Most forecasters expect that, unless the underlying global

macroeconomic imbalances are remedied, the growth of the world economy could remain relatively

sluggish over the next few years.

Views are less divergent as it concerns the consequences of the global economic downturn on the

labour market. There is solid empirical evidence from past financial crises showing that employment

takes several years to pick up following a turnaround in output or other indicators such as business

confidence or stock market prices. 2 Evidence also show that recessions tend to be longer when they

are associated with credit crunches and house price busts, and they are more severe the more they

are internationally synchronized, ie the greater the number of countries that are in recession at the

same time.3 Given the global nature of the current crisis, even if growth recovers, as stated by the

IMF’s Managing Director,: “It might still take some time for employment to follow. Unemployment

might very well continue rising next year, even as the economy bounces back. For people losing their

job, the crisis is not over”.4 In short, countries in all regions are looking at the risk of a deep and

prolonged jobs crisis fraught with social and political dangers.

Indicators of global labour market distress have been on an upward track since the burst of the

crisis. The ILO estimated that continued labour market deterioration around the world in 2009

would produce an increase in global unemployment of between 39 and 61 million workers relative

to 2007, which could result in global unemployment ranging from 219 to 241 million. Joblessness is

likely to continue well into future years despite initial signs of recovery. A simple scenario exercise

suggests that, depending on the scope of policies to counteract the job shortfall, from three to six

1 The Global Development Finance Report released by the World Bank in June 2009 warns about the possibility

of a second round in the crisis – from the financial sector to the real economy back to the financial sector.

Banks and firms in emerging countries might have stayed away from the financial excesses of the recent years,

but have high levels of external debt contracted to support their high growth rates. They will find it hard and

costly to sustain it as private capital flows to developing countries are drying up and multilateral finance

remains inadequate and burdensome. 2

In a study of several serious financial crises, Rogoff and Reinhart concluded that “the aftermath of banking

crises is associated with profound declines in output and employment. The unemployment rate rises an

average of seven percentage points over the down phase of the cycle, which lasts on average over four years.

Output falls (from peak to trough) an average of over 9 per cent, although the duration of the downturn,

averaging roughly two years, is considerably shorter than for unemployment”, see Carmen M. Reinhart,

Kenneth S. Rogoff, The aftermath of financial crises, NBER Working Paper No. 14656, January 2009. 3

Marco Terrones, From Recession to Recovery, presentation to the Committee of the Whole on Crisis

Response, 98th

International Labour Conference, Geneva, 3 June 2009. 4 Remarks by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, at the Global

Creative Leadership Summit, New York City, 23 September 2009.

03.03.2010 4

years might be needed before labour market conditions similar to the pre-crisis situation be re-

established.5

In the industrialized economies, unemployment escalated in the first quarter of 2009. The sharpest

increases were registered in Spain, Ireland and the United States, perhaps because financial

institutions were particularly hit and, in the case of Spain, of the very high number of workers on

temporary contracts (see Table 1). In other countries, such as Canada, Denmark, France, Germany,

Italy and the Netherlands, the fall in output was larger than the fall in employment, partly as a result

of policy measures taken by governments.6 The increase in unemployment slowed down in the

remaining quarters of 2009, but overall levels rose to historical highs. In the United States, the

unemployment rate went from below 5 per cent in 2007 to 9.8 per cent in 2009, close to its

historical high over the past 40 years, and it is projected to be 8.9 per cent in 2010 and 7.7 per cent

in 2012.7 Japan and Sweden are two other countries where joblessness reached almost

unprecedented levels.

As the crisis spread rapidly, increases in unemployment were registered in almost all countries

outside the industrialized world. The Baltic States, Turkey and countries in Eastern Europe were

dramatically affected. Massive retrenchments and lay-offs also occurred in the export-oriented

manufacturing industries of developing Asia and Latin America. On the whole however, the

observed increases in unemployment rates were relatively moderate compared to the situation of

the industrial economies. Among a sample of emerging and developing economies for which data

are available, a few even registered a slight decline, eg Indonesia, Mauritius and Uruguay (Table 1).

In fact, the relatively skilled, formal sector urban workers who were directly hit by the crisis are still a

small portion of the workforce of most developing economies. To some extent, this divergence also

reflected the resilience of countries in Asia and Latin America that, having drawn lessons from

previous financial crises, could take advantage of sound fiscal stances, low inflation, low external

debt and their high external reserves to undertake quick action.

Unemployment statistics, however, are not fully adequate to gauge the degree of labour market

distress in developing economies. Changes in employment and unemployment figures, for instance,

do not include changes in the numbers of discouraged workers nor - more critically - of those pushed

into informal work. As the crisis unravels, both episodes become common.

5

Committee of the Whole on Crisis Response, C.Pl./TD.1-Brief, 98th

International Labour Conference, Geneva,

June 2009. 6 D. Bell and D. Blanchflower, What should be done about rising unemployment in the OECD?, mimeographed,

September 2009. 7 Paul Krugman, Mission not Accomplished, NYT 2 October 2009.

03.03.2010 5

Discouraged workers are those members of the working age population who are available and

willing to work but do not actively seek employment and therefore are not registered among the

unemployed. If taken into account, their number would significantly increase the unemployment

rate in developing countries. In South Africa, for instance, the expanded unemployment rate

including discouraged workers would jump from 23.6% to 29.7 % in the first quarter of 2009; from

9.0 % to 12.6 % in Brazil; and from 5.1% to 15.6 % in Mexico.8

Similarly, although it is difficult to capture it in official labour market statistics, the increase in poor

quality informal work is a major effect of economic recession in developing countries. In the

absence of a social security system, people cannot be totally unemployed; they have to find some

sort of work to survive. This would typically be in activities such as street trading or casual day

labouring which are often very unproductive and yield incomes below the poverty line.9 A reversal in

rural-urban migration is also typical of recessions, and the large scale return of redundant workers to

their rural areas of origin has been documented in several countries in Asia as a result of the current

crisis, eg Cambodia, China, India and Vietnam.10 To sum up, in a crisis the numbers of those in

employment might remain constant or even rise but much of it could be of extremely low quality

trapping individuals, communities and whole countries in poverty.

The deteriorating returns to employment for informal economy workers who live wide apart from

crisis-hit global financial centres are documented in several field studies. Field surveys on the impact

of the crisis were conducted by WIEGO in 10 countries (South Africa, Malawi, Kenya, Peru, Thailand,

Indonesia, Pakistan, India, Colombia and Chile). 11

WIEGO carried out 12 focus group discussion on

three sectors of the informal economy (59 home-based workers, 52 street vendors and 53 waste

pickers) and participated in by a total of 164 informal workers. As a result of the crisis, much like

their formal counterparts, informal economy workers are experiencing decreasing demand for goods

and services (around 65% of the respondents), rising cost of inputs (average of 86% of the

respondents), and increasing price volatility for goods sold (41% average decrease in prices of goods

sold). However, unlike those in the formal economy, the informal firms and informal wage workers

8

The increase would be 1.2% in the United Sates and between 0.3% and 0.5 % in France, Germany and the

UK, see Protecting People, Promoting Jobs, ILO report to the G20 Leaders’ Summit, Pittsburgh, 24-25

September 2009, table 1.2. 9

The increase in the number of the self-employed in occupations with low entry barriers such as truck driving

is a well-established trend of recessions in industrialized countries. In shrinking markets, new entries push

earnings down. 10

See P. Huynh, S. Kapsos, Kee B. Kim and G. Sziraczki, Impacts of Current Global Economic Crisis on Asia’s

Labour Markets, Asian Development Bank Institute, 2009. 11

“No Cushion to Fall Back on: The global economic crisis and informal workers”, Inclusive Cities study,

Women in Informal Employment: Globalizing and Organizing (WIEGO), synthesis report, August 2009.

03.03.2010 6

have no social safety nets to address the continuing threats to the stability and quality of their

working lives. They continue to work harder but earn less, hence, their chances to lift themselves out

of poverty are diminished.

While official statistics in some countries seem to suggest that the impact of the crisis has been

relatively less severe for women workers in the formal economy than their male counterparts – the

increase in unemployment rates is lower in most of the countries for which data are available - field

surveys suggest that the additional burden on informal workers was especially harsh on women.

More than half (54%) of the respondents to the WIEGO survey reported they had to devote more

time to work, both paid and unpaid work. Forty-nine per cent of the home-based workers indicated

that they carried out child care duties alongside their home-based production. Widows and single

mothers were specially pressured as they had no external support to care and earn for their

children. During times of crises, women are sometimes forced to provide for other relatives who

have lost their jobs. This leads them to make crucial decisions and difficult cutbacks in the

households’ expenditure - quantity and quality of food, education of children, health

treatments/medicines and resorting to increased indebtedness.

Overall, ILO projections of working poverty across the world indicate that 200 million workers are at

risk of joining the ranks of people living on less than US$2 per day between 2007 and 2009. The

longer the distress on the labour market persists, the more those workers, their families and their

communities run the risk of being trapped in long-lasting poverty. The likely pressure for cuts in

public social spending could exacerbate their difficulties and could contribute to further spread

inequities and inequalities.

For the millions of people who live in poverty in poor countries, the current economic downturn will

not be only a short-term stressful event. Its consequences will be passed across generations

affecting all members of a family, including children, for years to come. In other words they will lead

to “scarring”, ie long-lasting damage to individuals, society and the economy more broadly.12 The

effects of underinvestment in human capital formation, for instance, are particularly relevant to the

prospects for economic growth and poverty reduction in developing economies. There are many

12

The long-standing effects of recessions on educational achievements, the creation of small businesses and

the spending on innovation and R&D are outlined in John Irons, Economic scarring: The long-term impacts of

the recession, Economic Policy Paper No. 243, September 2009. The paper makes an important point: fiscal

policies to stimulate the economy and address the hardships of families and individuals have long-term

economic benefits that should be compared with the long-term costs associated with the deficits created in

order to finance those policies. While the latter costs are often mentioned in the policy debate on fiscal stimuli

- arguing that deficits can transfer wealth from future generation of taxpayers to the present - the former

benefits are usually neglected.

03.03.2010 7

channels by which educational achievements are undermined in a recession. A growing body of

literature shows the importance of improved early childhood nutrition for cognitive abilities, grade

attainment and ultimately wages later in life.13

Families under economic hardship may also delay or

forgo plans for continuing education of their children, undermining their chances for future

economic success but also a variety of social benefits, including better health outcomes, lower

incarceration rates, greater volunteerism and active participation to civic life.14

The “scarring “effects of the current recession appear particularly strong for the large cohort of

young women and men who are about to enter the labour market, in poor and rich countries alike. If

there is a distinctive feature of the way in which labour markets are adjusting to the global recession

that is clearly borne out by labour market statistics, this is the increase in youth unemployment.

Faced with a sudden and unexpected drop in demand, employers endeavoured to hold on to their

experienced and skilled workers but have simply stopped hiring. In many countries, the rise in

unemployment was driven largely by the freeze in hiring, less so by the highly visible layoffs.15 The

pervasiveness of this pattern, at least in countries in Europe, is evident in Chart 1. Increases in youth

unemployment rates (18-25) are systematically higher than adult rates, at times 3-4 times so. The

less educated, unskilled and minorities are bearing the main burden.

The effects of the long-lasting labour market distress resulting from the current global recession on

the youth are of particular concern. There is ample evidence that prolonged unemployment and

underemployment at any stage in an individual’s life weakens their chances of resuming productive

employment. This is critically relevant as it concerns young women and men. A spell of

unemployment or underemployment when young leaves permanent scars and continues to have a

harmful impact in later life. The symptoms of this scarring are weaker performance in health,

education, crime, productivity growth and overall poverty reduction.16

13

See Ruel and J. Hoddinott, Investing in early childhood nutrition, IFPRI Policy Brief 8, November 2008.

14 See D. Acemoglu and J. Angrist, How large are human capital externalities? Evidence from compulsory

schooling laws, NBER Macroeconomics Annals, vol.15, pp. 9-59, 2000. 15

See S. Cazes, S. Verick and C. Heuer, Labour market policies in times of crisis , ILO Employment Working

Paper No. 35, 2009, for a discussion based on U.S. data. 16

See Bell and Blanchflower (2009) for a review of the literature. In their study of the UK, they also provide

evidence that youth unemployment continues to hurt two decades later on a variety of variables including

unemployment, health status, wages and job satisfaction, Bell and Blanchflower, “What should be done about

rising unemployment in the UK”, IZA Discussion Paper No. 0833, 2009.

03.03.2010 8

Chart 1: Relative change in the unemployment rate in selected countries in Europe (Q1 2009 vs. Q4 2008)

Source: ILO based on EUROSTAT data

The world’s economically active population rises every year by some 45 million persons; mostly

young women and men in developing countries entering the labour market. There is a grave danger

of long-term damage to their job prospects and productivity as a result of the scarring effects of

unemployment and underemployment. The challenge is to absorb this increase in the labour force.

The ILO estimates that the global economy would have to create some 300 million new jobs over the

next five years just to go back to pre-crisis levels of unemployment. This objective cannot be

achieved in the absence of a stronger collective policy drive focusing on jobs.

C. National employment and social policy responses – An overview

After months of denial, once the risk of a global financial meltdown was unmistakable, national and

international authorities reacted precipitously in some concerted manner. That response helped

save the world economy from financial collapse, partly also alleviating the burden of unemployment

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03.03.2010 9

in the countries more severely affected. Governments reacted mainly by means of launching

unprecedented financial rescue packages, easing monetary policies and introducing ambitious fiscal

measures to stimulate aggregate demand and to address employment and social protection

concerns. The full assessment of the employment impact of those measures is difficult, but there is

evidence to conclude that the actions taken made a difference. According to ILO estimates based on

IMF calculations, the fiscal measures taken by G20 governments since the economic crisis began will

have created or saved from 7 to 11 million jobs in year, amounting to over one third of the total

increase in unemployment in those countries in the first half of 2009.17

The range of the discretionary employment and social protection measures taken by countries to

counter the crisis is illustrated in a survey carried out by the ILO in August 2009. The survey, which is

based on information collected from official sources, covers new measures announced or taken

between mid-2008 and end-July 2009 by national and federal governments in 54 countries, spanning

all income levels and regions. It encompasses 32 specific measures grouped under four areas,

namely stimulating labour demand; supporting jobs, job seekers, and unemployed; expanding social

protection and food security; applying social dialogue and protecting rights at work.18

Table 2 provides the frequency of measures taken across the sample countries. Increased public

investment in infrastructure was the most common response to the crisis, with 47 countries out of

54 countries adopting measures in this area. Infrastructure investment has a strong employment

multiplier effect especially when indirect job creation is included. In about one third of the cases,

spending on infrastructure included a distinctive employment component, often with specific targets

for disadvantaged groups. Some governments also took the opportunity to favour projects that

would improve environmental sustainability and had the potential of creating “green jobs”.

Support to SMEs was another priority, as those enterprises account for the bulk of employment in

most economies. Interventions took the form of improving access to credit (40 countries), with

public banks playing a key role in several countries, as well as tax reductions to help lower business

costs (42 countries), one advantage being the rapidity with which tax related measures can be

implemented.

Many countries invested in training programmes as a means to support jobseekers (34 countries).

At the same time, they often increased resources devoted to job-search assistance and introduced

employment retention measures such as the promotion of part-time work and work-sharing

17

Protecting People, Promoting Jobs, ILO report to the G20 Leaders’ Summit, Pittsburgh, 24-25 September

2009. 18

ibidem

03.03.2010 10

arrangements. Those measures, which fall under the category of the so-called active labour market

policies, were relatively more common among high income and upper middle income countries,

particularly those where “automatic stabilizers” in their tax and benefit systems were weaker. 19

Investment in training at a time of fragile labour markets reflected the reduced opportunity cost of

training for enterprises as the time workers spent on learning was less needed for immediate

production. It might have also been a sign of the desire to prepare for recovery by preparing the

workforce for structural changes to come, such as those resulting from sectoral shifts in demand and

the adaptation to lower carbon emissions.

In spite of falling revenue, some countries augmented social expenditures. The preferred options

have been expansion of duration and coverage of unemployment benefits, extension of old age

pensions, and expansion of health insurance. Targeted cash transfers played a particularly useful

function in many developing countries. Several middle income countries expanded conditional cash

transfers (CCT) that provide direct cash payments to recipients in exchange for an obligation to

partake in specific services, eg enrolling and maintaining children at school. In low income countries,

the introduction and upscaling of similar income support schemes, albeit of great potential benefit,

was constrained by weak administrative capacity and the lack of sustainable funding.

In addition to increased spending in infrastructure and SME support, lower income countries put

some relative emphasis on social protection and support to agriculture in the design of their crisis-

response fiscal measures. The number of policy initiatives taken, however, was lower than in middle

and higher income countries, which points to possible resource and capacity constraints, among

other factors. This limited capacity to engage in countercyclical interventions, together with the

widespread gaps in social protection coverage, is a critical weakness, one which hinders any effort to

prevent the cumulative effects of economic shocks on existing vulnerabilities and contributes to

perpetuate a situation of economic and social distress in developing countries.

One aspect that was common to all country groupings was the relative neglect of measures to

safeguard the most vulnerable and disadvantaged and promote their rights and capabilities.

Measures to fight labour trafficking and child labour, protect migrant workers and increase labour

inspection capacities to prevent workers’ abuses were among those with the lowest frequency.

19

Automatic stabilizers support aggregate demand when economic conditions worsen. They are common in

countries where social public spending is greater. They usually include unemployment and other social

protection benefits. In most OECD countries, the stimulus provided by automatic stabilisers was larger than

that provided by discretionary fiscal measures, see OECD Economic Outlook, No. 85 Paris 2009.

03.03.2010 11

Considering the dramatic deterioration in labour market conditions around the world, this is an area

where there remains a great deal more to do.

The ILO survey provides mainly a qualitative overview of the policies adopted by countries to

respond to the employment and social concerns raised by the global economic crisis. It illustrates

the variety of measures and the emphasis given to different issues, offering some preliminary

indications on where to search for good practice and successful approaches. A quantitative

assessment would probably indicate that the bulk of spending was directed to address the

immediate financial and economic emergencies. As financial stability gradually returns and

economic prospects in many countries slowly improve, the priority should shift towards addressing

the social wounds created by the crisis and their longer term consequences.

Employment –friendly macroeconomic frameworks, coherent sets of labour market policies, and the

progressive building up of comprehensive social protections systems adapted to each country’s

circumstances and priorities should be the cornerstones of the social policy recipe for the post-crisis

world.

D. New supportive international frameworks and initiatives

Prompt, close and spontaneous cooperation among key players within the international policy

community was an unparalleled feature of the reaction to the looming financial and economic

disaster over the past two years. Such high degree of collaboration is perhaps the best

acknowledgement that tackling major global economic and social emergencies unquestionably

requires global coordination. Coordinated international support is critical to assist countries in

dealing with the social implications of the crisis. New international frameworks and initiatives have

emerged, which pay special attention to the employment and labour market policy dimensions.

Promoting a job-intensive recovery: The ILO Global Jobs Pact

The Global Jobs Pact is the ILO approach to deal with the global jobs crisis. The Pact was designed

by the members of the ILO - the governments, the workers, the employers. Its purpose is to give

guidance to national and international policies aimed at stimulating economic recovery, generating

jobs and providing protection to working people and their families. The Pact provides a practical

agenda for renewed international cooperation as well as a point of convergence for national actions

which can help combine and multiply their overall effects.

03.03.2010 12

The Pact is built around the principles of the ILO’s Decent Work Agenda. It looks at the issues of

employment generation and sustainable enterprises. It emphasizes the need for a basic social

protection floor. It calls attention to the importance of protecting and promoting rights at work in a

crisis situation. It encourages the practice of social dialogue and collective bargaining as critical tools

to identify priorities and assist in policy design and implementation. It calls for implementing

measures quickly in a coordinated manner, and for integrating gender concerns throughout.

The Pact reflects the concerns of the real economy at a time of crisis. It is not a one-size-fits-all set

of recipes. It provides a portfolio of crisis-response measures that countries can adapt to their

specific needs and situation. The measures proposed are based on successful examples and tested

policies. The Pact urges governments and multilateral agencies to consider options such as public

infrastructure investment, special employment and training programmes, broadening of social

protection and minimum wages and targeted initiatives to support the most vulnerable. It also calls

for quality public services and the strengthening of public administration, including labour

inspection, to prevent unfair competition and ensure respect for international standards. Many of

the policies advocated by the Pact have been integrated in the fiscal stimulus packages adopted by

countries, as the survey above illustrates

The Pact is forward looking. It is geared to create a long-term solution to this crisis. It recognizes the

policy failures and the weaknesses in the global rules that govern the international economy. It calls

for the construction of a “stronger, more globally consistent supervisory and regulatory framework

for the financial sector, so that it serves the real economy, promotes sustainable enterprises and

decent work and better protects the savings and pensions of people.” It also urges cooperation to

promote “efficient and well-regulated trade and markets that benefit all” and avoid protectionism.

Underlying the Pact is the acknowledgement that transfer incomes, notably social assistance and

social security benefits paid to unemployed workers and other vulnerable recipients, act as

automatic social and economic stabilizers. Those benefits not only prevent people from falling

further into poverty but also limit the contraction of aggregate demand thereby curtailing the

potential depth of a recession. While it urges countries to introduce short-term measures to assist

the most vulnerable cope with the current crisis, the Pact encourages countries, particularly

developing ones, to build foundations for stronger and more effective “systems” of social

protections. This is a powerful route to more stable and caring societies.

Right now, the ILO is engaged in providing immediate assistance to its constituents wanting to

implement the measures envisaged in the Pact, in line with national circumstances and priorities.

Technical assistance is an important element in the follow up to the Pact. The issues of resources is

03.03.2010 13

another major concern for developing countries, where implementing the Pact can significantly

reduce poverty, increase demand and contribute to economic stability. Donor countries and

multilateral agencies are called on to consider providing funding, including existing crisis resources

for the implementation of the Pact’s recommendations and policy options.

International support

The policy portfolio underlined in the ILO’s Global Jobs Pact (GJP) has gathered wide support from

political leaders and international organizations.

In July 2009, the UN Economic and Social Council invited member States and relevant international

organizations to make full use of the Pact and requested the UN funds and programmes and the

specialized agencies to take the Pact into account in their policies and programmes.

The UN System Chief Executive Board (CEB) had already endorsed a coherent and comprehensive

strategy for UN system-wide action to confront the crisis. The strategy draws on nine UN-System

Joint Crisis Initiatives (JCIs), each one coordinated by a lead agency working together with a cluster

of cooperating agencies. The CEB JCIs are an explicit attempt at promoting synergies and

cooperation among multilateral agencies in providing more effective assistance to countries affected

by the crisis, particularly those with the least resilience. All the initiatives are interconnected, but

each makes a distinctive contribution to the social development agenda. Two initiatives focus

specifically on, respectively, employment and social protection issues. Initiative V supports efforts to

boost employment, production, investment and aggregate demand and promote decent work for all.

Initiative VI promotes a Social Protection Floor to ensure access to basic social services, shelter and

empowerment and protection of the poor and the vulnerable.

The JCIs are mainly based on the voluntary contribution of each individual agency. At the moment,

most lead agencies have prepared programmes of action spelling out immediate and longer term

action/products. In each policy area, the main expected outcome is a widely accessible pool of

expertise, resources, capacity building and advocacy events, and networks to develop and share

knowledge, which countries can rely upon in their own policy and programme development.

Following the endorsement of the common strategy by the Conference on the World Financial and

Economic Crisis and its Impact on Development, and the Conference’s call for a coordinated

approach at country level, the United Nations Development Group (UNDG) has also been involved

by means of developing modalities to support field-based, country-owned crisis response

programmes that target the most vulnerable countries and populations and draw on the expertise,

resources and networks made available under each of the nine initiatives. Reflecting such call, the

03.03.2010 14

agencies participating in the UN Second Decade for the Eradication of Poverty (2008-2017) reviewed

their activities under the Plan of Action on “Full Employment and Decent Work for All” in order to

align them to the GJP and to provide a stronger frame to build the capacities needed to mitigate the

damage wrought by the financial crisis and shape a stronger economic and social policy framework

for globalization.

Finally, in September 2009, leaders at the G20 Pittsburgh Summit articulated their resolve to work

together to support a durable recovery that generates sustainable and balanced growth and creates

the good jobs people need. The Summit made steps toward closer coordination of macroeconomic

policies, improving international financial regulation, strengthening global institutions and

addressing energy security and climate change. Leaders noted the impact of the crisis on the most

vulnerable and on social spending in LICs and recognized the need for additional multilateral

concessional finance, increased food security and financial services for the poor. They clearly

emphasised that a sustainable route out of the crisis depend on policies to address the main

employment and development gaps. They committed to recovery plans that support decent work,

prioritize quality job growth and provide income, social protection and training support to

jobseekers. The G20 Framework for Strong, Sustainable and Balanced Growth that was launched in

Pittsburgh provides an institutional mechanism to develop and jointly review policies to, among

other things, improve social safety nets, narrow development gaps and reduce poverty.

E. Conclusion and issues for discussion

Labour market distress remains acute as a result of the crisis. There are signs of recovery in some

major industrial economies and there are countries in Asia and Latin America that have managed to

keep their economies growing albeit at a reduced pace. Nonetheless job creation has slowed and job

loss increased virtually worldwide. If the special measures taken are unwound or withdrawn too

early, the jobs crisis may worsen even further.

Overall, the prospects for sustainable growth remain weak and the global economic situation

unstable. At one end of the spectrum, high-income economies have to coordinate their

macroeconomic policies in order to rebalance surpluses and deficits in their external accounts, while

maintaining a fine line between the pressure to reduce domestic public debt and the need to

maintain social spending to absorb the social cost of recession and stimulate growth. At the other

end, poor and vulnerable countries that are particularly dependent on international financial

markets, primary commodity prices and aid and remittance flows remain exposed to the threat of

fiscal crises, ensuing domestic recession and the deepening of long-standing economic and social

scars. Middle income countries, particularly the largest ones, may find some shelter from the

03.03.2010 15

immediate consequences of the crisis in their large domestic markets, but have to readjust their

export strategy, support domestic demand, strengthen their labour market institutions and

introduce stronger social protection systems to cushion snowballing vulnerabilities. For each group,

employment is a critical challenge.

Policy matters, and it matters now. There is an important role for economic ministries, ministries of

labour, leaders from business and labour. Some key issues are:

1. To contribute to policies that accelerate the jobs recovery by increasing the job content of

growth. Macroeconomic and sectoral policies that support aggregate demand and investment

should be complemented with labour market interventions to facilitate enterprise creation, promote

quality education and training and activate labour supply responses. The policy reaction to the crisis

has shown that there are several tools in the box - some new, others old and rusty. After many

years of neglect, where employment was to be mainly a residual outcome of deregulation and

monetary policy, it is necessary to revisit the rationale for fiscal policy instruments and employment

creation measures, to deepen the understanding of the effects of given sets of measures, and to

enhance implementation capacities. Attention to implementation issues is particularly important,

since success may largely depend on a country’s administrative capabilities and political economy.

2. To strengthen social protection policies to reduce the damage unemployment,

underemployment, and reduced labour incomes can cause to family and community welfare. This is

important in order to minimize scarring which could permanently injure society’s capacity to reduce

poverty, progress towards the MDGs and also undermine future growth. Widening social safety nets

by means of cash transfers and employment guarantee schemes and establishing stronger systems

of social security could help consolidate the purchasing power of billions of people in the developing

world, enhancing their confidence in their future and stimulating their willingness to invest in human

capital and enterprise formation as well as to spend for domestic consumption. There are synergies

between measures to ensure social protection and those aimed at promoting productive

employment and decent work, which should be better considered. Increasing social spending in the

provision of basic welfare services – or maintaining it in the face of a crisis-induced fiscal squeeze –

could be a way to trigger private investment and employment creation in the domestic health and

education sectors, while moving forward toward achieving the MDGs and helping raise productivity

of workers with long-term benefits especially for those in the informal economy. Such policies, if

adopted in surplus countries, could contribute to redress the imbalances that currently underlie

global macroeconomic instability and uncertainty.

03.03.2010 16

3. To give special attention to women, young people and vulnerable groups. Women, young

people and other groups face particular barriers and biases concerning their employability and their

access to the labour market, and are more exposed to economic hardship in a recession. Targeted

interventions may be needed to address those barriers, including regulatory reforms, special

incentives to hiring, access to finance and business services for those engaged in self-employment,

entrepreneurship, programmes for education and vocational training, and support to organizations

that promote empowerment and voice. Young women and men constitute a growing part of the

population in developing countries. In Sub-Saharan Africa, for instance, 65 per cent of the population

is below 25 years of age. Their prolonged detachment from the labour market has long-lasting

detrimental effects on societies and the economy. There is an urgent need to target youth

employment. Within an overall employment strategy, a coherent combination of approaches seems

to have the greatest impact (e.g. integrating vocational training, apprenticeship, job sharing, work

experience schemes etc).

4. To leverage international assistance. Steps ahead have been made in setting up frameworks

to stimulate synergies among different international agencies and provide coordinated support to a

country’s social development efforts. International assistance has an important role to play in

developing knowledge on social development issues and disseminating good practice as it concerns

successful policy and institutional approaches. In the current difficult economic period, there is

growing demand in developing countries for public action on productive and decent employment

and social protection, and there is now recognition on the side of donor agencies that effective

strategies and measures in those areas are critical to foster growth and reduce poverty.20 But more

progress should be made in ensuring greater coherence between countries’ demand for public

action and the availability of financial assistance and policy space. It is particularly urgent to address

the financing gaps least developed countries and some middle income countries face in

implementing countercyclical policies, in particular in raising social spending for social protection. As

recognized by DAC: “... countries with substantial and long-standing social protection programmes

know that their effectiveness has not been just risk management, or response to crises, but rather a

long-term investment – with high rates of return – in a productive economy and society”.21

Spending

20 The Development Advisory Committee (DAC) of the OECD, which brings together 23 donor countries and

multilateral development cooperation organizations, adopted a policy statement on “The role of employment

and social protection: making economic growth more pro-poor” in May 2009, asserting that “Productive

employment and decent work needs to be a key objective of development cooperation”.

DAC also issued two

policy guidance notes on promoting pro-poor growth, based on a thorough review of evidence on employment

and social protection policies, see http://www.oecd.org/dataoecd/63/9/43514572.pdf. 21

“Promoting pro-poor growth: Employment”, OECD, 2009, p.25.

03.03.2010 17

for social protection in developing countries is too easily seen by financial institutions not as a

productive long-term investment, but rather as an indicator of greater fragility and financial risk. It is

now clear that private financial investors, quite apt at spotting opportunities for speculative

investment with high short-term returns, do not excel in weighing up long-term investment

opportunities nor in assessing financial risks – after all, in the spring of 2007 risk premiums were at

all-time lows. Greater foresight and much greater engagement from multilateral financial

institutions are needed.

5. Finally, for the medium term, the international community needs to build the institutions to

reduce the damage to social development a more volatile global economy can cause. One lesson

from the current and previous crises is that automatic stabilizers can more promptly cushion the

effects of a recession in a country and mitigate the transmission of the effects abroad. A global

economy needs a global approach to automatic stabilizers.

03.03.2010 18

ANNEX

Table 1. Unemployment rate October 2009 and change from the corresponding month of 2008

Country Latest period

Source

Unemployment rate

(%)

Change on

year (%)

Unemployment

rate

(female)

Change on

year

(%)

Mauritius May-09 LFS 7.2 -0.2 11.9 -1.6

South Africa May-09 LFS 23.6 0.5

Argentina May-09 LFS 8.8 0.8

Brazil Aug-09 LFS 8.1 0.5 9.9 0.3

Canada Aug-09 LFS 9 2.5 9 1.8

Chile Jun-09 LFS 10.8 2.4 11.5 1.4

Colombia May-09 LFS 11.7 0.6 15.2 0.9

Mexico May-09 LFS 5.2 1.7 4.8 0.9

Peru Aug-09 LFS 8.3 -0.1 4.8 0.9

US Aug-09 LFS 9.6 3.5 8.9 2.5

Uruguay Jul-09 LFS 6.9 -0.6 9.3 -0.9

Australia Aug-09 LFS 5.5 1.6 5.4 1.1

China Dec-08 Est. 4.2 0.2

Japan Jul-09 LFS 5.4 1.6 4.8 1.1

Indonesia Feb-09 LFS 8.1 -0.3

Korea,

Republic of Aug-09 LFS 3.7 0.6 3 0.5

Philippines Jul-09 LFS 7.6 0.2 7.6 0.4

Thailand May-09 LFS 1.8 0.4 1.8 0.6

Czech

Republic May-09 LFS 6.3 2.1 7.4 2.2

France Feb-09 LFS 8.9 1.5 9.2 1.5

Germany Jul-09 LFS 7.6 0.3 7.3 0.1

Hungary May-09 LFS 9.6 2 9.2 1.3

Ireland Feb-09 LFS 10.1 5.5 6.7 3.1

03.03.2010 19

Source: ILO Department of Statistics, http://laborsta.ilo.org

The data shown are those available to the ILO on 15 October 2009. They have been received or drawn from official national

statistical services, publications and web sites. The data are based on national definitions, are not seasonally adjusted, and

have not been adjusted or altered by the ILO.

Italy Feb-09 LFS 7.9 0.8 9.5 0.5

Latvia Feb-09 LFS 9.4 2.9 6.8 0.5

Netherlands May-09 LFS 3.3 0.5 3.3 0.1

Poland May-09 LFS 7.9 0.8 8.4 0.7

Romania May-09 LFS 6.3 0.7 5.2 0.6

Russian

Federation Feb-09 LFS 8.5 1.4

Spain May-09 LFS 17.9 7.5 18.3 6

Sweden Aug-08 LFS 8 2.8 7.6 2.1

Turkey Jun-09 LFS 13 3.6 13.1 2.7

Ukraine Mar-09 LFS 9.5 2.4

UK Feb-09 LFS 7.1 1.9 6.1 1.4

03.03.2010 20

Table 2. Inventory of measures taken in a sample of 54 countries

1: Stimulating labour demand

Country

Groupings

(54

countries)

Fiscal spending on

infrastructure

Public

employment

Targeted

employment

programmes

New support to Small

enterprises and micro-

entrepreneurs

Ad

dit

ion

al

spe

nd

ing

o/w

Em

plo

ym

en

t

crit

eri

a

o/w

Gre

en

crit

eri

a

Intr

od

uct

ion

of

ne

w p

rog

ram

me

s

Re

cen

t e

xpa

nsi

on

of

exi

stin

g

pro

gra

mm

es

Acc

ess

to

cre

dit

Acc

ess

to

pu

blic

ten

de

rs

Su

bsi

die

s

Ta

x re

du

ctio

ns

Low

Income

(10)

8 1 0 1 3 1 7 0 4

Lower

Middle

Income

(10)

10 6 3 4 3 3 6 0 7

Upper

Middle

Income

(17)

16 3 3 4 4 4 16 3 16

High

Income

(17)

13 8 10 4 5 5 11 2 15

Total 47 18 16 13 15 13 40 5 42

03.03.2010 21

2: Supporting job seekers, jobs and unemployed

Country

Groupings

Helping the unemployed to find

a job

Employment retention

measures

Measures to

protect the

unemployed

Ad

dit

ion

al t

rain

ing

me

asu

res

Incr

ea

sed

ca

pa

city

of

pu

blic

em

plo

ym

en

t

serv

ice

s

Ne

w m

ea

sure

s fo

r

mig

ran

t w

ork

ers

Wo

rk-t

ime

re

du

ctio

ns

(da

ily,

we

ekl

y,

mo

nth

ly,

an

nu

al,

un

pa

id l

ea

ve

)

Pa

rtia

l un

em

plo

ym

en

t,

tra

inin

g m

ea

sure

s

pro

mo

te p

art

-tim

e w

ork

Wa

ge

re

du

ctio

ns

Ext

en

sio

n o

f

un

em

plo

ym

en

t b

en

efi

ts

Ad

dit

ion

al s

oci

al

ass

ista

nce

/ p

rote

ctio

n

me

asu

res

Low Income (10) 4 1 1 1 1 1 1 1

Lower Middle

Income (10)

6 5 4 3 1 1 2 2

Upper Middle

Income (17)

11 8 2 7 7 3 7 6

High Income (17) 13 11 8 4 6 3 7 9

Total 34 25 15 15 15 8 17 18

3: Expanding social protection and food security

Country

Groupings

Social protection Food security

Ta

xes

red

uct

ion

Ad

dit

ion

al

cash

tra

nsf

ers

Incr

ea

sed

acc

ess

to

he

alt

h b

en

efi

ts

Ch

an

ge

s in

old

-ag

e

pe

nsi

on

Ch

an

ge

s to

min

imu

m

wa

ge

Ne

w m

ea

sure

s fo

r

mig

ran

t w

ork

ers

Intr

od

uct

ion

of

foo

d

sub

sid

ies

Ne

w s

up

po

rt t

o

ag

ricu

ltu

re

Low Income (10) 1 4 5 3 2 1 2 4

Lower Middle

Income (10)

1 5 7 4 5 4 3 4

Upper Middle

Income (17)

5 12 3 10 7 2 1 3

High Income (17) 9 8 5 7 4 1 3 1

Total 16 29 20 24 18 8 9 12

03.03.2010 22

4: Social dialogue and rights at work

Country

Groupings

Social dialogue Rights at work

Co

nsu

lta

tio

n

me

cha

nis

ms

on

cri

sis-

resp

on

ses

Ag

ree

me

nts

at

the

na

tio

na

l le

vel

Ag

ree

me

nts

at

the

sect

or

lev

el

Ad

dit

ion

al

me

asu

res

take

n t

o f

igh

t la

bo

ur

tra

ffic

kin

g

Ad

dit

ion

al

me

asu

res

take

n t

o f

igh

t ch

ild

lab

ou

r

Oth

er

cha

ng

es

in la

bo

ur

leg

isla

tio

n

Incr

ea

sed

ca

pa

city

of

lab

ou

r a

dm

inis

tra

tio

n/

lab

ou

r in

spe

ctio

n

Low Income (10) 4 1 0 0 0 1 0

Lower Middle

Income (10)

8 2 0 2 1 3 0

Upper Middle

Income (17)

12 8 1 0 1 4 5

High Income (17) 8 7 5 0 0 4 2

Total 32 18 6 2 2 12 7

List of countries covered in the ILO survey*

• Low income Kenya, Mali, Senegal, Tanzania (United Rep. of), Rwanda, Uganda, Bangladesh, Cambodia, Nepal, Viet Nam (10)

• Lower middle income Nigeria, Honduras, Egypt, Jordan, China, India, Indonesia, Pakistan, Philippines, Ukraine (10)

• Upper middle income South Africa, Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Mexico, Peru, Uruguay, Malaysia, Latvia, Poland, Romania, Russian Federation, Serbia, Turkey (17)

• High income Canada, Caribbean* (Bahamas, Barbados, Trinidad and Tobago, Jamaica), United States, Bahrain, Saudi Arabia, Australia, Japan, Korea (Rep. of), Czech Republic, France, Germany, Hungary, Ireland, Italy, Netherlands, Spain, United Kingdom (17)

* The ILO survey covered four countries of the Caribbean computed as one entity and classified as high income.