OECD, Directorate for Employment, Labour and Social Affairs Organisation for Economic Co-operation and Development InterTrade Ireland Economic Forum 25 November 2011 The jobs crisis: stylised facts and policy challenges 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 but has been stuck at around 8.2% since January 2011  And it is far from over

Part I  What are the labour market impacts of the crisis?

The unemployment impact so far differs greatly across countries Percent of the labour force Note: All data are seasonally adjusted. Latest data: July 2011 for Greece, Norway and Turkey; July-September 2011 for Northern Ireland; August 2011 for Chile and the United Kingdom; 2011 Q2 for Estonia, Israel and Switzerland; 2011 Q3 for Iceland and New Zealand (OECD harmonised unemployment rate data are not available on a monthly basis for the last five of these countries). Source: OECD Main Economic Indicators and Northern Ireland Statistics & Research agency.

Different margins of adjustment in the labour market: Employment vs. hours Total percentage change from GDP peak to 2010 Q4 5

Who have suffered the most during the jobs crisis? Percentage change of employment over 2008 Q2 to 2011 Q2 IrelandOECD Data are not seasonally adjusted. OECD is the weighted average of the OECD countries excluding Chile. Australia, Japan and New Zealand are also excluded for statistics by education and also Australia, New Zealand and the United States for statistics on permanent and temporary workers. Source: OECD calculations based on quarterly national Labour Force Surveys.

Who have suffered the most during the job crisis? (cont.) Percentage change of employment over 2008 Q2 to 2011 Q2 United KingdomNorthern Ireland n.a.: Not available. Data are not seasonally adjusted. OECD is the weighted average of the OECD countries excluding Chile. Australia, Japan and New Zealand are also excluded for statistics by education and also Australia, New Zealand and the United States for statistics on permanent and temporary workers. Source: OECD calculations based on quarterly national Labour Force Surveys.

Recessions not only hurt lots of people, but also take a long time to fix Harmonised unemployment rates (% of total labour force) in Ireland, January 1970 to September

UK has succeeded in cutting structural UNR Harmonised unemployment rates (% of total labour force) in the United Kingdom, January 1970 to September

Northern Ireland has been very successful in cutting UNR Harmonised unemployment rates (% of total labour force) in Northern Ireland, 1970 Q1 to 2011 Q2 (calendar quarters) 10

Long-term unemployment is rising rapidly in the countries with the biggest unemployment crisis Share of long-term unemployed (more than one year) in total unemployment, second quarters of 2008 and 2011 Data are not seasonally adjusted. OECD is the weighted average of 32 OECD countries excluding Chile and Korea Q Q4 for Israel and Mexico. Source: OECD calculations based on quarterly national Labour Force Surveys.

Youth unemployment is a major concern Percent of labour force, persons aged 15-24* *16-24 for Northern Ireland and the United Kingdom. The series for Northern Ireland is not seasonally adjusted. OECD is the weighted average for 32 OECD countries. Source: OECD calculations based on quarterly national Labour Force Surveys.

Bottomline on the stylised facts  Ireland has a massive UNR challenge to overcome  NI has not  But both parts of the island share some common LM challenges: High long-term unemployment High youth UNR 13

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, 2009 OECD is the unweighted average for 32 OECD countries. Minimum value calculated excluding Mexico. Employment incentives corresponds to the sum of expenditures for employment incentives, job rotation and job sharing, and start-up incentives. Source: OECD Labour Market Programmes Database.

Part III  SOME KEY CHALLENGES FACING LABOUR MARKET POLICIES IN BOTH PARTS OF THE ISLAND

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 (e.g. UK, Neth, GER).  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 to jobs 17

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 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 18

CHALLENGES FACING IRELAND, NI ON THE ACTIVATION FRONT  OECD (2009) showed that the intensity of activation in Ireland was relatively weak prior to the crisis;  The FAS debacle was a disaster.  Recent creation of the National Employment and Entitlements Service (NEES) is a potentially important step in the right direction but a long hard road lies ahead  High LTU share in NI suggests that activation is not very effective there either It has a relatively high B/U ratio, well above UK average  NI has not opted for the new Work Programme model of sub-contracting with private employment service providers like rest of UK in order to improve its activation record 19

CHALLENGES FACING IRELAND, NI 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 in both parts of the island: 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 20

CHALLENGES FACING IRELAND, NI 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 of potential clients 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. 21

Concluding remarks  Governments are intervening actively to minimise the scale of the jobs crisis  Some have been more successful to date than others  With the recovery stalling, 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 and lower youth UNR; NI’s challenges are to cut LTU and high youth UNR  The crisis is an opportunity to radically rethink its LM and training policies and institutions in order to promote more and better jobs.

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FURTHER READING (Cont.) 24