EUROPEAN LABOUR MARKET DEVELOPMENTS IN THE CRISIS Alessandro Goglio Counsellor, Employment, Labour and Social Affairs OECD 20 November 2014, Rome Camera dei Deputati, Palazzo Montecitorio RIUNIONE DEI PRESIDENTI DELLE COMMISSIONI COMPETENTI IN MATERIA DI OCCUPAZIONE, RICERCA E INNOVAZIONE

2 Unemployment has started to decline a) July 2014 for Greece, Turkey and the United Kingdom; August 2014 for Chile, Estonia, Hungary and Norway; October 2014 for Canada and the United States; Q for New Zealand; and Q for Switzerland. Source: OECD Short-Term Labour Market Statistics Database (Cut-off date: 18 November 2014). Change in unemployment rate (percentage of total labour force) since the onset of the crisis

3 Youth unemployment has reached very high levels in some OECD countries Youth (aged 15-24) unemployment rates, Q a - Q b Note: Countries shown in ascending order of the youth unemployment rates at their peak. a) Q for Switzerland. b) Q for Estonia, Greece, Hungary, Norway, Switzerland, Turkey and the United Kingdom. Source: OECD Short-Term Labour Market Statistics Database,

4 The rise in unemployment is largely cyclical, but the structural component has increased Percentage-points change in the NAIRU since the start of the global financial crisis, a)Aggregate of 15 OECD countries of the euro area. Source: OECD calculations based on OECD Economic Outlook (database),

Among those who are unemployed, an increasing number of persons have been out of work for 12 months or more, facing a depreciation of their skills and a risk of labour market exclusion. Among those who have kept their jobs, many workers and their families have experienced economic hardship as a result of declines in the spending power of their earnings from work. 5 People have borne considerable personal, economic and social costs

6 Long-term unemployment remains persistently high Long-term unemployed of one year or more as a percentage of total unemployment, Q and Q Source: OECD calculations based on quarterly national labour force surveys.

7 Real wage growth have been essentially flat Average annualised percentage growth rate in real hourly wage a)Total compensation of employees (total wages for New Zealand) divided by total hours worked of employees in real terms (deflated using the consumer price index). b) OECD is the weighted average of the 26 OECD countries shown. c) Q to Q for Poland. Source: OECD calculations based on quarterly national accounts.

8 Many workers saw the real value of their earnings fall Incidence of real wage cuts in 2010 a as a percentage of full-time job stayers b Adm.: Administrative data. a) 2009 for Greece. b) The sample refers to full-time wage and salary workers (aged 15-64) who have been with the same employer for at least one year. c) Net earnings. d) Unweighted average (excluding results from administrative data). e) for the United States, for Spain (administrative data) and for Greece. Source: OECD calculations based on household or labour force surveys.

9 The slowdown in real wage growth was widespread, leaving wage inequality largely unchanged Earnings dispersion (D9/D1) in 2000, 2007 and 2012 Source: OECD calculations based on the OECD Earnings Distribution (database),

10 Wage adjustment also contributed to contain job losses and promote competitiveness in some Euro-area countries Growth in nominal unit labour costs, base 100 in 2000 a) Total compensation of employees divided by real GDP. b) OECD is the weighted average of 26 OECD countries. Source: OECD calculations based on quarterly national accounts.

However, wage adjustment also risks becoming double-edged sword if taken too far Wage moderation can contribute to the labour market recovery – Real wage adjustment can help limit the persistence of unemployment and prevent the build up of structural unemployment (“internal rebalancing”) – Nominal wage adjustment can enhance international competitiveness and hence promote aggregate demand (“external rebalancing”) However, if taken too far, wage adjustment can also become a double-edged sword – Real wage cuts can be a source of financial hardship for the most vulnerable and, consequently, depress consumer demand – Nominal wage cuts can engender deflationary spiral if transmitted to output prices and inflation is already very low A supportive macro-economic policy stance therefore remains key as well as structural reforms that promote productivity growth 11

12 Fixed term contracts are increasingly used for new hires Percentage of employees with no more than three months of tenure Source: OECD calculations based on microdata from the European Union Labour Force Survey (EU-LFS).

13 Workers accept temporary jobs because they cannot find a permanent one Reason for having a contract of limited duration, Percentage of employees with a fixed-term contract, excluding students and apprentices Note: Students or apprentices in regular education are excluded. Source: OECD calculations based on microdata from the European union Labour Force Survey (EU-LFS).

14 But workers on temporary jobs are less likely to receive employer-sponsored training… Estimated percentage effect of temporary contract status on the probability of receiving employer-sponsored training, 2012 ***, **, *: significant at the 1%, 5%, 10% level, respectively – based on robust standard errors. Source: OECD Survey of Adult Skills (PIAAC) 2013,

15 … and temporary jobs are not always stepping-stones to permanent work Share of temporary employees in 2008 that were employed as full-time permanent employees in 2011 Source: OECD calculations based on the European Union Statistics on Income and Living conditions (EU-SILC)

The importance of balanced protection and coordinated bargaining for both structural performance and labour market resilience Institutions favouring temporary contracts, e.g., stringent employment protection for regular workers, can hamper both: – By increasing frictional unemployment & reducing job quality; and – By increasing unemployment response to shocks and cyclical increase in overall earnings inequality Coordinated wage bargaining institutions can contribute to both: – They can foster structural outcomes by taking account of bargaining externalities; and – They can contribute to resilience by facilitating wage adjustments relative to employment 16

In sum, the labour market recovery is gaining momentum but large slack remains in a number of countries Unemployment has started to decline, but further progress is required as the job recovery has not gone very far yet People have borne considerable personal, economic and social costs that may prove to be long-lasting: – long-term unemployment remains persistently high – many workers have experienced falls in the real value of their earnings Fixed term contracts are increasingly used for new hires, but they are not an automatic stepping-stone to permanent work Not just more jobs but also better jobs are needed. The good news is that there is little sign of a trade-off between job quantity and job quality across countries 17

18 Thank you Contact: OECD Directorate for Employment, Labour and Social Affairs, via OECD Employment Outlook, via OECD Employment database, via