by C.P. Chandrasekhar and Jayati Ghosh, Triple Crisis
Note: This article first appeared at TheHinduBusinessLine.com
In the desperate search for evidence that the global recession has bottomed out and the recovery has arrived, the story told by the long-term trend in unemployment levels and rates is being missed.
Early this year, the International Labour Organisation (ILO) had noted that the global unemployment rate was close to 6 per cent, implying that 197 million people were unemployed, even ignoring the 39 million who had dropped out of the workforce, discouraged by persistent failure in job search.
But that aggregate figure concealed a picture that was far worse in the advanced economies where the crisis had originated and spread. There were at least 12 advanced economies where the unemployment rate was 8 per cent or more, and seven in which the rate was 10 per cent or more.
In fact the rate varied widely, peaking at 25 per cent or close to that in Spain and Greece. That is the level unemployment had touched in the US at the bottom of the Great Depression.
What is more, during the years in which the world had ostensibly put the crisis behind it, unemployment has risen in many.
There are three countries (Spain, Greece and Ireland) in which the unemployment rate has risen by 10 percentage points (pp) or more between 2007 and 2012, and another three (Cyprus, Portugal and Estonia) where the increase between those dates was between 5 and 10 pp (Chart 4).
Finally, in 14 out of the 35 advanced economies covered by the IMF’s World Economic Outlook dated April 2013, the unemployment rate in 2012 was at its highest since 2007. In terms of jobs, in many countries the crisis is intensifying, not retreating.
And, things only seem to be getting worse over time. According to the most recent figures, the unemployment rate has crossed 27 per cent in Spain, with more than 2,500 firms filing for bankruptcy in the first quarter of 2013.
YOUTH BEING BATTERED
The problem is not just that the incidence of unemployment is uneven across the advanced countries. It is also that it is extremely uneven across age groups, or more importantly, generations.
The generation that has entered the labour force over the last five years is the hardest hit.
In a just-released report, the International Labour Organisation has once again underlined the fact that the youth of today are damaged in a way that has not happened for a long time in the history of capitalism.
At 12.6 per cent in 2013, the global youth unemployment rate, which is 1.1 percentage points above the pre-crisis level, is also just short of its post crisis peak of 12.7 per cent in 2009.
Things don’t change for the young. As many as 73.4 million young people were unemployed across the world in 2013, or 3.5 million more than in 2007. Add on regional differences and some young people are being battered.
In Greece, joblessness among those between 15 and 24 years of age who are not reporting as working at all was 54.2 per cent in 2012. It has reportedly jumped to 64.2 per cent in February. Put otherwise, two out of every three young persons in Greece is unemployed in a strict definition sense.
Even in Switzerland, which reports the lowest youth unemployment among countries covered by the ILO, the rate in 2012 stood at 6.2 per cent as against the aggregate unemployment rate of 2.9 per cent.
HORRIFIC LIFE EXPERIENCE
The worst record of youth unemployment is in West Asia and North Africa, which was seen as partly explaining the “Arab Spring”. But things have been bad there for long. It is in the Developed countries and the European Union that the deterioration has been worst since 2008, with the unemployment rate among the youth rising from 13.3 per cent to 18.1 per cent in 2012.
The problem is that much unemployment is “long-term” in nature, with many having been out of work for more than a year and even more at least for more than six months.
The result is some stop looking for work and drop out of the workforce; others lose the skills or the employment record needed to find work.
These, of course, are just the bare numbers that tell a sad story. Actual life experience can be horrific.
According to reports, the Red Cross estimates that 26 per cent of the Spaniards it supports cannot afford a meal with protein more than three times a week and 43 per cent cannot afford heating in the winter.
For many that is not even the principal issue, since they have no place to heat. In 2012 alone, 91,622 Spaniards lost their homes to foreclosure. With life bad and no reason for hope, responses vary from suicide to anti-state protest and a return to the worst forms of right-wing violence against minorities and immigrants. Underlying the lack of hope is the dominant policy response, which emphasises austerity.
Countries spending less in the aggregate because of the unemployment rises are asked to reduce their spending even more, often by directly slashing public sector employment.
The justification premise here is that most of the world’s economies are overcome by serious macro-economic imbalances in the form of high budgetary deficits and large government debt.
So what is needed, it is argued, is to trim that debt by sharply curtailing deficits.
What is rarely underlined is the fact that debt levels rose because of the need to bail out banks and the financial sector, which were responsible for the crisis in the first instance. Those not responsible are being called upon to bear the burden of that “adjustment”.
The problem is that austerity does not help resolve more fundamental problems. Expenditure cuts at a time when unemployment is high are a sure recipe to increase unemployment further, as experience has shown time and again.
And since high and rising unemployment results in lower tax revenues, meeting deficit reduction targets requires further cuts in expenditure, resulting in even lower employment.
That austerity is being embraced in this fashion is indeed surprising since the lesson the Great Depression taught many is that the principal symptom of ‘internal’ macro-economic imbalance, of “grand market failure”, was unemployment.
Economists bought into the idea, popularised after the Depression by Keynes, that the equilibrium that capitalist economies find routinely is one where aggregate demand and output are not sufficient to ensure that the available labour force is employed in full.
Ensuring internal balance required the state to increase its autonomous expenditure, thereby boosting aggregate demand, output and employment.
Needless to say, in economies that are open, increases in domestic demand and absorption can result in increased imports and a widening trade deficit. The idea then was that such ‘external imbalance’ needed to be addressed by appropriate trade and exchange rate policies.
The new orthodoxy seems to be that the lead indicator of internal macro-economic imbalance is not unemployment, but a deficit on the government’s budget and a ‘high’ level of public debt.
That, in this view, is what needs correcting in the short run, with as many rounds of austerity as required.
Resorting to short-term measures such as enhanced government spending would, by delivering unsustainable deficits and public debt and high inflation, only muddy the water.
A ‘STRUCTURAL PROBLEM’
If austerity does not work, as evidence from Europe and elsewhere makes clear, it must be because countries are not being austere enough.
The result of that perspective has been periodic rounds of austerity that keeps unemployment high and even rising — even after output, though low, has stopped contracting. Keep doing it, even if it does not work and hurts most those who had nothing to do with the mess the world is in, seems to be the neoliberal catechism. What about unemployment then? That, argue the new messiahs, is not evidence of crisis but a “structural problem” that needs correcting in the long term. In other words, there are structural bottlenecks that prevent the labour force from adjusting to exogenous changes such as technological transitions and shifts in tastes. It may require re-skilling to ensure labour mobility from sunset to sunrise industries or from vanishing jobs to emerging ones.
It may also require removing factors leading to wage or labour rigidities that undermine the competitiveness of firms and nations.
The problem is that there are no signs whatsoever of new jobs or new dynamism in the sunrise industries in the advanced countries of today. Countries such as Germany that do create jobs, steal them from countries already shedding jobs, such as Spain and Greece, by invading their markets.
References to the long-term and the structural then become the veil used to cover up the fact that the Great Crisis has not yet been resolved. Capitalism found in World War II a solution after the Great Depression.
Hopefully, we won’t need a war of that dimension this time around.