 Some Reflections on the Job Scene Danny Leipziger Professor of Int’l Business, George Washington University NYU Jobs Conference, Sept , 2011

Basic Themes  What do we learn from the Latin American experience? And from Chile in particular?  What is there in the advanced countries’ experience that should raise cautionary flags for middle income countries in Latin America and beyond?  How do we connect the dots on the Great Recession and the longer run in terms of jobs and economic growth?

Latin Lessons  Maintenance of fiscal space, a new development for many countries in the region, has served them well  Jobs, even if lower paying, provide an entry point into the formal or quasi-formal sector and are the only way to deal with persistent income inequality  Some hybrid between the US labor model that was associated with rapid job creation and the Euro-model that protects more in the downturn is probably best course  Poor educational outcomes and weak innovation systems separate the region from the best performers in East Asia

Latin American Concerns  All Latin Am. countries are well below average in the OECD PISA scores, with Chile ranked the highest at #43, despite expenditure levels that are not markedly low  Most countries participating in PISA are in the 5 th or 6 th decile of respondents. Same is true for science & mathematics rankings  Regional labor productivity was 1.5% on average, well below advance countries and far behind East Asia’s 4 percent  Youth unemployment is three-times the overall average

Issues Most Relevant to Chile  Chile’s U-rate rose 2% in 2009 but reverted close to its 2008 level by 2010; still U-rate for the age cohort tended to average 12% over the past decade  Female labor force participation rates lag those in Brazil, Argentina and Uruguay ( Growth Commission Special Report) and part-time employment impediments are a problem and this may worsen the income distribution  Income distribution is stubbornly unequal as seen in Gini coefficients above.5 despite low absolute poverty rates  The innovation system, including links between business and government, has been difficult to remedy despite efforts

Some OECD Lessons  OECD Jobs Strategy speaks of innovation and technology diffusion policies to accompany education and training  Most countries now embrace knowledge-based industries  The externalities from major university centers is apparent  Governments have a fundamental role to play in coordination, management of science, functioning of financial and labor markets, and increasingly in providing signals if not a clear vision  Once jobs are lost, they are not likely to be regained

Long Run Implications of Factors Affecting Labor Market  Education has longest term effect in terms of skills enhancement and adaptability of the labor force  Innovation policy has a strong effect via TFP  Infrastructure investments influence efficiency and labor productivity  Those with better education, innovation record and infrastructure, ceteris paribus, survived the crisis better—Australia, Canada, Finland (OECD)  During prolonged recessions, hh expenditures on education slip (WB evidence for Eastern Europe) and firm R&D expenditures on innovation fall (OECD evidence) with long-term effects on potential growth rates. Infrastructure evidence uncertain.

Existing trends that the Great Recession exacerbated  In the US, poor distribution of income, got worse, and real wage declines of blue collar workers was extended to others  Incidence of shorter work weeks (Kurzarbeit), more reliance on part-time employment, that reduced real incomes  Evidence is not yet clear on whether gender disparities were exacerbated, depending on countries and sectors  Youth unemployment rose, especially in Europe—it doubled in Spain between 2008 and 2010 for aged cohort!

 Collapse of venture capital markets, already not robust in some countries, and directly linked to innovative investment  Prolonged unemployment spells that restrict labor market re- entry—high percentage of long spells  Delayed entry by the young limits long-term earnings and asset accumulation.  Asset collapses reduce confidence and the efficacy of fiscal stimulus and the usefulness of monetary easing Short-Medium term factors affecting the Long-Run

Some Modest Final Thoughts  Australia and Korea had among the largest stimulus packages ( % of GDP); among the best rated innovation systems (OECD), and had among the lowest upticks in additional unemployment during the crisis  The crisis is an outlier in Obstfeld and Gourinchas and we should therefore expect the labor market to also react badly  The Reinhart & Rogoff analysis tells us that this time is not so different historically, but for some it certainly has been, and the political economy of joblessness will be profound  The economic and social costs of joblessness in countries with limited safety nets are such that globalization may take a hard and irreversible hit