OECD, Directorate for Employment, Labour and Social Affairs Organisation for Economic Co-operation and Development National Adult Literacy Conference The Royal Hospital Kilmainham, Dublin, 8 th September 2010 The jobs crisis in OECD countries: some stylised facts John P. Martin Director for Employment, Labour and Social Affairs, OECD

The jobs crisis  An unprecedented crisis OECD-area UR jumped from 25-year low of 5.8% at the end of 2007 to a post-war high of 8.8% in October Since then, it has dropped a bit (8.5% in June 2010)  While recovery is underway, the jobs crisis is far from over OECD UR projected to show little change this year, before dropping slowly through next year, but could still be 8% by end 2011  Bold action needed to tackle high and persistent unemployment Individuals in jobless households 5x more likely to be poor on average Social costs go well beyond the loss of income (e.g. health, crime etc.) High risk of hysteresis effects

Part I  What are the labour market impacts of the crisis? Historical patterns and recent trends

The unemployment impact so far differs greatly across countries Percent of the labour force * March 2010 for Greece, April 2010 for Norway, Turkey and the United Kingdom, May 2010 for Sweden, 2010 Q1 for New Zealand and Switzerland, 2010 Q2 for Iceland (OECD harmonised unemployment rate data are not available on a monthly basis for the last three of these countries).

Different responses of employment to output declines Total percentage change, 2007 Q4 to 2009 Q4

Different margins of adj. in the labour market: employment vs. hours Total percentage change, 2007 Q4 to 2009 Q4

The current crisis is the worst in recent decades Index base 100 = OECD area unemployment rate at the preceding business-cycle peak (based on output gap), quarterly data Source: OECD Economic Outlook, May 2010.

Recessions not only hurt lots of people, but also take a long time to fix Harmonised unemployment rates in the United States, January July 2010

Recessions not only hurt lots of people, but also take a long time to fix Harmonised unemployment rates in Germany, January June 2010

Recessions not only hurt lots of people, but also take a long time to fix Harmonised unemployment rates in Ireland, January June 2010

Who have suffered the most during the recent recession? Percentage change of employment over 2007 Q4 to 2009 Q4 Panel A. OECD weighted averagePanel B. Ireland

Part II  How have OECD countries responded to the crisis on the labour market policy front?

Resources available for LM policies differ across OECD countries Passive and active labour market programmes (expenditures as a % of GDP) in OECD countries, 2008

Discretionary changes in labour market policy in response to the economic downturn Number of OECD countries that have taken different types of measures Measures to support labour demand for job seekers and vulnerable workers Measures to help unemployed find work Income support for job losers and low-income earners Other training measures

Part III  SOME KEY CHALLENGES FACING LABOUR MARKET POLICIES

THE NEED TO ADAPT ACTIVATION POLICIES TO THE JOBS CRISIS/EMERGING RECOVERY  Over the past decade, major efforts made in many OECD countries to implement activation policies to get jobseekers off benefits and into work. Where they were well-designed and implemented effectively, they worked.  But the jobs crisis presents important threats to activation strategies: -Risk of reduced intensity of interventions in the unemployment spell (less job-search controls; fewer in-depth interviews; less action plan follow-up etc.) as PES resources do not keep step with rising UN inflows and stocks  -Vacancy flows decline, resulting in a lower number of direct referrals 16

THE NEED TO ADAPT ACTIVATION POLICIES (Cont.)  Overriding goal: prevent job losers from becoming disconnected from the labour market -Core element of activation regimes and mutual obligation principle should not be allowed to lapse or be overly diluted -For those at risk of LTU, re-employment services need to be adapted to specific conditions of slack LM -Shift to somewhat from a “work-first” to a “train-first” approach (OECD evidence suggests that the benefits to investing in training programmes for the unemployed rise in a deep recession) -Training for the unemployed should remedy basic skill deficiencies and have a strong workplace component 17

CHALLENGES FACING IRELAND ON THE ACTIVATION FRONT  OECD (2009) showed that the intensity of activation strategy in Ireland was relatively weak prior to the crisis.  The FÁS debacle came at just the worst moment when we most needed a high-performing PES.  However, the recent amalgamation of FÁS Employment Services with the benefit agency under DSP is a potentially important step forward so long as an effective governance system is put in place with clear quantifiable objectives and a performance management system that rewards good employment/career outcomes.  Worries:  Training is an important ALMP. How to ensure effective co-ordination and delivery of effective training to FAS/DSP clients?  How to resource adequately FÁS/DSP at a time of serious public finance constraints?  How to ensure that the new integrated agency delivers performance-oriented results? 18

CHALLENGES FACING IRELAND ON THE VET FRONT  Main burden of rising unemployment has fallen on youth and the low- skilled (many of whom have weak literacy and numeracy skills).  While the weak labour market is encouraging many youth to stay on longer in education and training, this poses a huge challenge to our VET system to cope with rapidly rising demand and maintain/improve quality.  Need a fundamental rethink of the apprenticeship system: Too narrow in terms of occupations (e.g. dominant focus on construction, few services) Too few women apprentices Inappropriate sharing of the costs between apprentices, firms and the public purse.  A fundamental redesign of the apprenticeship system could be inspired by the good practices in Australia and Switzerland 19

CHALLENGES FACING IRELAND ON THE VET FRONT (Cont.)  Need to expand the role of on-the-job training in many VET programmes.  Much greater emphasis needs to be put into remedying basic skills deficiencies among working-age adults. This will require much more systematic screening by FAS/training providers for potential literacy and numeracy training For those diagnosed with insufficient literacy/numeracy skills, basic skills support will need to be an integral part of their VET courses. 20

Concluding remarks  Governments are intervening actively to minimise the scale of the jobs crisis  Some have been more successful to date than others  With a sluggish recovery underway, governments must not reduce their efforts to tackle high and persistent UNR and some countries may have to do more  Ireland faces a massive challenge to cut high and persistent UNR  The crisis is an opportunity to radically rethink its LM and training policies and institutions in order to promote more and better jobs.

FURTHER READING 22

FURTHER READING (Cont.) 23