Avoiding the slow growth trap
G20 Summit

Avoiding the slow growth trap

Serious after-effects of the global financial crisis remain evident as G20 leaders gather in Antalya, seven years after their first meeting in the aftermath of the collapse of Lehman Brothers. Annual economic growth throughout the G20 as a whole averaged only 3.2% over the past three years, well below the rate of 4.1% registered in the pre-crisis period.

The G20 unemployment rate rose from 5.1% to 6.0% between 2007 and 2009, and has remained elevated at 5.8% through to 2015. Labour force participation rates have declined in several G20 countries, in part because discouraged workers have left the labour market. Overall, employment growth remains well below pre-crisis levels across all members of the G20.

Against this backdrop, G20 leaders in Brisbane in 2014 set the ambitious goal of raising G20 aggregate gross domestic product (GDP) by more than 2% by 2018 (over the projected level forecast by the International Monetary Fund in October 2013). They have repeatedly emphasised the importance of ensuring that growth produces more and better-quality jobs.

With growth undershooting that forecast in 2014 and 2015, and expected to remain sub-par in 2016, there is little prospect of a fall in aggregate G20 unemployment rates in the near future.

Particular concerns are long-term and youth unemployment, both of which are higher now than before the crisis in most G20 countries. The unweighted average youth unemployment rate was 20% across G20 economies in 2014, and considerably higher elsewhere.

Progress on youth employment requires a comprehensive strategy, including policies to facilitate the transition from school to work and strengthen quality employment and apprenticeship opportunities, as well as action to improve employability, equal opportunities and entrepreneurship. It is encouraging that in Antalya, G20 leaders are expected to adopt a 2025 target of 15% for reducing the share of young people who are most at risk of being left permanently behind in the labour market. The main focus for following up on this commitment is young people with low skills and qualifications, those who are neither in employment nor in education or training (NEET), and the low-skilled who are either NEET or informally employed.

The quality of jobs created is an important indicator of labour market performance. In G20 countries where there is data, much of the net new employment created between 2009 and 2014 was part-time. Figures only indicating employment generation may thus overstate the extent of labour market recovery. Since part-time jobs generally offer lower average earnings, lower levels of job security and weaker social-protection coverage, this type of job creation provides less support to aggregate demand. This shows also that growth is yielding fewer hours of work, even if it is true that the number of jobs has increased.

Recent economic growth in emerging G20 economies has been associated with a decline in jobs paying below $4 per day. This suggests that productivity growth between 2007 and 2014 was associated with welcome reductions in the number of workers in poverty, or near the poverty line. However, if jobs created in emerging economies are mostly in the informal economy, the impact on growth will be less robust. Such workers are far less likely than wage- and salaried-workers to benefit from regular incomes, or to have access to social protection.

In emerging G20 countries, 51% of workers were in vulnerable employment in 2014, a reduction of 3.9 percentage points since 2009. Vulnerable employment is a proxy indicator for informality. It measures the share of own-account workers (who work on their own or with a partner in a job that could be considered self-employed, and do not engage any employees) and contributing family workers in total employment. Nearly 56% of workers in emerging G20 countries (excluding China) were engaged in vulnerable employment in 2014, a decline of 3.1 percentage points since 2009. Although this is a sign of favourable labour market trends, the high numbers of workers who remain in vulnerable employment show that the informal economy continues to be stubbornly large, and a significant ongoing challenge.

The current growth trajectory, if unchanged, will not by itself create enough quality jobs. The substantial jobs gap and persistent weakness in job quality, wages and incomes continue to have negative effects on consumption, living standards, investment and government budgets. Ultimately, this means lower global aggregate demand.

Addressing this challenge at their meeting in Ankara in September, the G20 labour and employment ministers recommended a set of policy principles for their leaders to promote more equal economies and fair societies, strengthen social cohesion, and better integrate vulnerable and disadvantaged groups into the economy and the labour market. They recognised that joblessness and underemployment place downward pressure on wages and contribute to increased inequality, and are significant factors in the underlying weakness of aggregate demand in many economies.

The long-term trend of rising inequalities in many G20 economies negatively affects current and potential growth, and is often associated with slow wage growth when compared with productivity gains, and a decline or stagnation in the labour-income share in some countries. Tackling inequalities is therefore important for achieving both stronger economic growth and the creation of better jobs and more inclusive societies.

The labour and employment ministers therefore focused on measures that both reduce inequalities and arrest the falling labour income share. They agreed to:

Strengthen labour-market institutions (social dialogue, collective bargaining, wage-setting mechanisms and labour legislation) based on respect for the ILO’s Declaration of Fundamental Principles and Rights at Work.
Reduce wage inequality through policy tools such as minimum wages and the promotion and coverage of collective agreements, and ensuring fair wage scales and that work pays.
Improve employment outcomes for women, youth, older workers, persons with disabilities, migrants and other vulnerable groups in the labour market by strengthening access to effective, active labour market policies.
Improve job quality by fostering the transition of workers from the informal to the formal economy and tackling labour market segmentation.
Ensure equality of opportunities to participate in education, training and lifelong learning (including apprenticeships), especially for those with low to middle incomes, in order to obtain and adapt the skills needed in the labour market, and to reduce intergenerational transmission of inequality.
Promote universal social protection, taking into account the counter-cyclical role of social policies, and providing support to the unemployed and underemployed in order to ensure an effective transition to quality employment.

Alongside investment in infrastructure and macroeconomic measures to foster job-rich growth, this policy package, pursued with vigour across the G20, could stop the global economy’s potential slide into a slow-growth trap. The ILO will certainly be working with its global constituency of employers, unions and governments to support this drive.