Global Prospects for Full Employment

International Conference on Concerted Strategies for International Development in the 21st Century

Bern, November 17-18, 2010  

Global Prospects for Full Employment

Discussion paper by Garry Jacobs & Ivo Slaus ^*

Abstract

The recent international financial crisis highlights the crucial role of employment in human welfare and social stability. Access to remunerative employment opportunities is essential for economic security in a market economic system. As the rise of democracy compelled nations to extend the voting right to all citizens, employment must be recognized as a fundamental human right. In total defiance of conventional wisdom, since 1950 job growth has outpaced the explosive growth of population, the rapid adoption of labor saving technologies, the manifold expansion of world trade, and the dramatic shift from manual labor to white collar work. In an increasingly globalized labour market, current nation-centric theories and models of employment need to be replaced by a human-centered, global perspective complemented by new indicators that recognize the central and essential contribution of employment to human economic welfare. Employment and economy are subsets of society and their growth is driven by the more fundamental process of social development. A vast array of unmet social needs combined with an enormous reservoir of underutilized social resources – technological, scientific, educational, organizational, cultural and psychological – can be harnessed to dramatically expand employment opportunities and achieve full employment on a global basis. This paper examines the theoretical basis, policy issues and strategies required to eradicate unemployment nationally and globally.

Introduction

Mesmerized by the magic of the marketplace and the enormous speed and complex machinery of modern post-industrial economy, we are apt to lose sight of the fact that the most essential function of any economic system is to provide sustainable livelihoods, economic security and maximum welfare to all citizens. We need often to be reminded of what was so apparent and self-evident to economists such as Smith and Ricardo – money, markets, production and growth are merely a means to an end with no essential value other than that of meeting human needs. In Smith’s words, “No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloth and lodge the whole body of the people,should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged”¹. In a world of market economies, access to remunerative employment opportunities is the economic equivalent of the right to vote in democracy and must be universally granted. A rapid, sustainable solution to the global employment challenge is imminently feasible, but it requires a new theoretical perspective and more comprehensive practical strategy. Most of all, it requires a radical change in thinking. Our view must change.

Current pessimism regarding the future of work resembles the prevailing mood in the early 1990s, which resulted from the transition of Eastern Europe to market economies following the end of the Cold War, the economic stresses associated with reunification of Germany, and the enormous growth of the labor force in developing countries. During that period 6 million jobs were lost within the European Union and unemployment averaged 11% in 1994. Nearly 22% of youth (aged 20-24) were unemployed².The employment challenge for developing countries seemed ominously greater. A study by the International Commission on Peace & Food in 1991 estimated that India would need to create a phenomenal 10 million jobs annually during the decade to eliminate unemployment and underemployment and absorb new entrants to the labor force. The gloom was aggravated by the financial crisis that paralyzed East Asian economies in 1997, leading to negative growth and widespread job losses. Yet, remarkably, by the early years of the new century, more rapid than anticipated economic recovery in Asia and Europe coupled with buoyant growth in developing countries, particularly China and India, gave rise to a more confident long term prognosis.

The world urgently needs a sound theoretical and practical approach for achieving global full employment. Even before the recent international financial crisis wiped out 34 million jobs globally and pushed an additional 65 million people below the $1.25 per day poverty threshold, growth of employment opportunities was insufficient to meet the needs and fulfil the aspirations of a large section of humanity. Today UNDP estimates about 1.75 billion people in the 104 countries it measured live in multidimensional poverty³. Of greatest concern has been the inability to generate sufficient job opportunities for new entrants to the workforce. Worldwide, youth represent 25% of the global workforce and 40% of the unemployed.⁴ Labor participation rates for women are still significantly lower than for men. As life expectancy continues to rise, an increasing proportion of the population are able-bodied experienced people willing and eager for work, but denied the opportunity due to premature retirement or age discrimination. The average unemployment rate in OECD among those aged 55-64 countries declined from 5.3% in 1999 to 4.1% in 2008, then rose following the crisis to 5.7% in 2009. Social unrest over raising the retirement age in France and rising rural unrest among the unemployed poor in many developing countries illustrate the critical importance of this issue. These facts provide clear evidence that unregulated market mechanisms are not conducive to full employment or optimal human welfare.

At the time Wealth of Nations was written, more than four-fifths of humanity were self-employed or engaged in agriculture. In the USA and UK, employment in agriculture has declined from over 70% in 1800 to 1.4% now. Today agriculture employs less than 36% of the global workforce, down from 65% just 50 years ago and still declining rapidly. In 1900, only 13% of the world’s population lived in cities. The urban population rose to 29% in 1950 and reached 49% in 2005, progressively intensifying the competition for salaried jobs. By 2030 60% of the world’s population will be living in urban areas⁵. Technological development during the 20th century has transformed the way work is done, vastly reducing or completely eliminating the need for manual labor in many areas, while creating countless new products and services that provide work opportunities of a less physical nature. The 50% increase in world trade as a percentage of world GDP following the end of the Cold War has served as an engine for job growth in both industrially advanced and lower-wage developing countries, but resulted in stressful changes in domestic labor markets⁶. Most significant of all in its impact, has been the explosive growth of population after 1950, which has nearly tripled the world’s workforce. Yet, in spite of this multidimensional coincidence of radical changes, the global economy has been remarkably successful in generating employment opportunities to keep pace with rapid and radical evolutionary changes. The current global economic recession has increased both the magnitude and the urgency of the global employment challenge. According to ILO estimates shown in Figure 1,therewere 212 million unemployed globally at the end of 2009 and recovery to pre-crisis employment levels may take another five years⁷. A slowdown in world economic growth following the onset of the international financial crisis resulted in a modest 1% rise in the global unemployment rate.

 

Figure 1: Global Unemployment and Real GDP growth rate 1999-2009

 

Figure 2: Global Employment & EPR (aged 25-64) for 2000-2009

Figure 2 shows that over the past decade total global employment rose by approximately 400 million but the employment-to-population ratio (EPR) declined by 0.9% from peak levels in 2007. Of course, the impact has varied significantly from country to country, especially among OECD countries. In the USA, the unemployment rate rose from 4% in 2005 to 8% in 2009 then rose further to the current level of 9.6%. As a whole the EU has fared the crisis somewhat better. Unemployment in Spain rose from 9.8% in 2008 to 16% in 2009, and in Estonia from 4.7% in 2008 to 12.3% in 2009. In 2008-09 paid employment decreased for the first time in Greece since 1991 by 1.8% or 52,281 people. The UK recorded a 2% rise in 2009. Overall, unemployment levels have risen by 30% above pre-crisis levels in the G20 nations of Europe. A slowdown in exports contributed to the closing of at least 67,000 factories across China in the first half of 2008, prompting laid-off workers to take to the streets in protest⁸.

Employment is the only meaningful option for providing a decent living to 1.5 to 2 billion people living in poverty in developing countries and for fulfilling the aspirations of an equal number of people to rise to middle class levels of prosperity in those same countries. The accelerated growth of international trade and new job outsourcing policies have led to job cuts in some sectors, fueling public resentment towards globalization and intensifying demands for quick remedial action on the home front. Expectations about rising income and better living standards have led to dissatisfaction with present stagnant living conditions, providing fuel to fundamentalist and extremist movements. In such a context India’s extraordinary initiative to provide guaranteed employment opportunities to nearly 50 million of the poorest rural workers reflects its recognition of just how vital this issue is to national security and human welfare.

The prospects for full employment in an era of rapid globalization and economic integration are of vital concern to all humanity. Piecemeal adjustments will not deliver the results at a time when radical new approaches are required. In an increasingly interdependent, single global economy and single global labor market, national initiatives, too often the spur for protectionist policies, are necessary but not sufficient. There is an urgent need for fresh thinking on the theory of employment and for the development of global models and strategies designed to achieve and sustain full employment for all humanity, based on recognition that human welfare and well-being are the primary goal and most important objective of all economic systems. A human-centered theory of economy and employment needs to be founded on the realization that human beings – not impersonal principles, market mechanisms, money or technology – are the driving force and central determinants of economic development. It is human values, attitudes and actions that determine the type of economic system we have and how it creates opportunities and distributes benefits. Human imagination, knowledge, skill and ingenuity and the social organizations we fashion are the primary resources for generating wealth and welfare. Economic development is one aspect and expression of social development, which is the process of discovering, unleashing, developing and harnessing the unlimited productive capacities of the social collective and every individual.

Right to Employment

Social transformation over the past century has radically altered the structure of society and the nature of work, as well as the sources of livelihoods and economic security. Several billion people have raised themselves from subsistence level existence to middle class security and unprecedented levels of prosperity. While political and social freedom have been vastly extended, social authority and responsibility have also proportionately increased. In the process the life of every individual has become far more subject to external factors determined by the prevailing political and economic system – factors such as military spending, public debt, taxation and interest rates, trade policies and tariff barriers, zoning, safety, environmental, and labour laws, etc. To cite one example, replacement of manual labor with mechanized processes became a prevalent central strategy for economic growth during the Industrial Revolution, giving rise to tax policies that favoured capital investment in plant and machinery, rather than job creation by investment in human resources.

In a report to the UN in 1994, the International Commission on Peace & Food (ICPF) argued that this radical social transformation necessitates a fundamental change in our concept of individual rights and social responsibilities⁹. In a highly regulated modern society, access to employment opportunities is the primary and essential means available for individuals, families and communities to ensure their survival and welfare. But their freedom to do so is severely constrained by policies and factors determined by the social collective. Today, government intervenes in virtually every aspect of society’s economic existence, restricting the freedom of the individual to seek his or her own livelihood and determining the type and number of job opportunities available. As democratic government ensures and enforces the right to vote and the universal right to education, it must accept equal responsibility to ensure remunerative employment opportunities are generated for the economic welfare of all its citizens. In view of these changes, the Commission called for recognition of employment as a fundamental human right to be constitutionally guaranteed by governments.

At the World Academy of Art & Science’s conference on the Global Employment Challenge in 2009, Winston Nagan examined the legal basis for the right to employment:

“To the extent that employment is one of the most important mechanisms for the allocation of purchasing power to the individual, the right to employment may be seen as the critical foundation of economic democracy. If society cannot assure the survival of all citizens through employment access, it may be that the state has a special obligation to provide employment opportunities for all. In short, the right to employment is not a privilege, it is a right. To the extent that economic survival is critically sustained by employment, it could be argued that the right to employment has the character of a fundamental human right”¹⁰.

The responsibility of national governments for generation of employment has long been acknowledged, even in the capitalist world. The New Deal and US Employment Act of 1946 and similar legislation in Canada, UK and Australia acknowledge that responsibility. Articles 23 and 24 of the Universal Declaration of Human Rights (1948) affirm the right to work, free choice of employment, just and favorable working conditions and protection against unemployment. These in turn served as the foundation for the development of two human rights treaties in the 1960s concerned with civil, political rights, economic, cultural and social rights, which together are generally regarded as an International Bill of Human Rights. These culminated in the ILO’s “Declaration of Fundamental Principles and Rights at Work” in 1998.

Guaranteeing the right to employment, like other human rights, is not merely a question of social justice. It is an inevitable consequence of an evolutionary movement which has driven the process of political and social democratization over the past few centuries. Rights are not freely granted out of benevolence, but rather because the force of historical events compels it. Those with the foresight to recognize the inevitable, anticipate it and foster the evolutionary movement. Those who cling to outmoded beliefs generate resistance that transforms peaceful evolution into violent revolution. Today the growing violence by whatever name at lower levels of society throughout the world is testimony to the groundswell of aspiration by an awakening humanity that will not be denied.

Our inability to achieve full employment is often raised as an objection against recognizing it as a fundamental human right. Amartya Sen rejects this view by insisting that a right cannot be contingent on our immediate capacity to enforce it. “If they cannot be realized because of inadequate institutionalization, then, to work for institutional expansion or reform can be a part of the obligations generated by the recognition of these rights. The current unrealisablity of any accepted human right, which can be promoted through institutional or political change, does not by itself convert that into a non-right”¹¹. Indeed, the rationale for the affirmation of environmental rights, as well as the rights of women and persecuted minorities, is based on the same premise.

In its report, ICPF went even further in affirming that recognition of the right to employment is the single most essential and effective means that can be adopted to achieve full employment. The Commission argued that full employment is not only a desirable goal, but also an achievable goal, citing both historical evidence and social development theory in support.

“As long as we continue to believe that society is truly helpless to manage job growth, there will be strong resistance to the full employment goal. We must recognize that the present status and functioning of our economies is the result of specific choices that have been made in the past, based on priorities and values that were relevant or dominant at the time, but which we certainly are not obliged to live with indefinitely, and, in fact, are continuously in the process of discarding in favor of new values and priorities. The rapid adoption of environmentally-friendly policies around the world is positive proof of how quickly the rules, even economic rules, can change when there is a concerted will for a breakthrough… Recognizing the right of every citizen to employment is the essential basis and the most effective strategy for generating the necessary political will to provide jobs for all”¹².

In this context, India’s landmark National Rural Employment Guarantee Act (2005) assumes much greater significance¹³. The sheer magnitude of the country’s population and employment challenge – 40% living below the $1.25 per day poverty threshold in 2005, 55% as measured by UNDP’s multidimensional poverty index in 2010 – would apparently disqualify it from an initiative which guarantees a minimum of 100 days of work annually to 45 million families, affecting more than 200 million people. India has coupled its idealistic affirmation of human rights with a pragmatic recognition that ensuring sustainable livelihoods for all is absolutely essential for social stability and national progress.

Theory of Social Potential

When Adam Smith published The Wealth of Nations, economic conditions were markedly different than they are now. At that time, production had been largely dependent on labor; thus, economic growth went hand in hand with growth of employment opportunities and incomes. But in the post-industrial economy, technology can often be applied to multiply production and stimulate economic growth with little or no increase in human labor. This compels society to seek ways to redistribute the privileges and benefits associated with employment to cover all its members. Furthermore, the globalization of manufacturing and outsourcing of services blur the boundaries between national labour markets, drastically reducing the efficacy of policies designed to maximize employment at the national level. Thus, the nation-centric model and national level strategies are inadequate. In a 1996 report to the Club of Rome entitled The Employment Dilemma and The Future of Work, Orio Giarini and Patrick Liedtke exposed the inadequacy of existing theory and called for formulation of a new approach. “We have to understand why the old theories were created, where and why they fail now and then propose a feasible, more efficient alternative”¹⁴.

Most social thinkers – Marx is an obvious exception – have been constrained from evolving alternative theories by the misconception that economics is governed by immutable, universal laws and that we must necessarily accept what Nature offers and do the best we can in the given circumstances. Prevailing economic theory affirms that employment generation is a function of private and public investment, money supply, availability of credit, interest rates, public and consumer debt, prevailing wage rates, access to markets, labour productivity, technological innovation, migration, demographic trends and many other variables. There is no doubt that changes in all of these factors are related and correlated with employment, but even when these relationships are predictive, they do not constitute a true theory of employment. In their report, Giarini and Liedtke challenged the classical view of economics as a “system of models in the deterministic tradition of Newton’s world as autonomous, closed, self-regulating universe, running according to predetermined laws, culminating in a static equilibrium”¹⁵. Nobel laureate physicist Ilya Prigogine sounded a similar note saying that trying “to combine classical mechanics with human sciences was to attempt an unnatural marriage. Classical science described a static world, while human sciences deal with an ever-changing situation, where the idea of reaching an equilibrium is meaningless”¹⁶.

Human Choice

If the economic life of humanity is not determined by immutable laws of Nature, then what is it determined by? It is determined by the evolution of human civilization. It is a product of human perceptions, values, aspirations, attitudes and culture and of the social organizations fashioned in the course of social evolution, which are in turn subject to the limits of our understanding, egoistic attitudes and willing to arrive at a more adequate solution. It is the result of human choices made in the past, choices than can be altered at any time.

Economic policy fails in its efforts to reduce unemployment because it views employment and economy in isolation from the wider society of which they are a part. Employment is a subset of economy and economy is a subset of society. “Society is the whole of which economy is a part. Economy is the whole of which money, markets and employment are parts. Economics is one aspect of human life, one contributing factor to human welfare and well-being”¹⁷. Reverse the perspective and examine all the means available to accelerate social development and the opportunities for unlimited job growth become apparent.

Social development is a process that simultaneously encompasses all domains of human activity – political, economic, intellectual, scientific, educational, organizational, cultural, psychological and spiritual. Social development is a function of how intensely human beings aspire for a better life, how hard we strive to improve our knowledge and skills, how willing we are to innovate and risk, how highly we value our own self-respect and respect the value of other human beings, our capacity to lead and be led, to accept and support governmental authority, to organize and cooperate for mutual benefit. It is these intangible essentials – not intractable laws of Nature – that set the limits on human productivity, growth, employment, human welfare and well-being. A small change in public sentiment can make the difference between economic expansion and prolonged recession. A new type of organization – double-entry bookkeeping, moving assembly line, suburban shopping mall, franchising, overnight delivery system, micro-finance, e-commerce, social networking – can open up opportunities previously unimagined.

A broader social theory of employment must take into account the fact that both human needs and human capacities are not only unlimited, but infinite. The more you develop and draw upon them, the greater their velocity of multidimensional expansion. Social development is a self-augmenting process. While material resources are apparently limited, there is no inherent limit to human resourcefulness, to the creative capacity of human beings to fashion new ideas, new products, new services, new technologies, new and more effective types of social organization. Basic needs may be limited, but human aspirations and creative potentials are not. As ICPF insisted, human beings are the most precious of all resources.

“For millennia we have tended to overlook or, at best, grossly underestimate the greatest of all resources and the true source of all the discoveries, inventions, creativity and productive power found in nature--the resource that has made minerals into ships that sail the skies, fashioned grains of sand into tiny electronic brains, released the energy of the sun from the atom, modified the genetic code of plants to increase their vigor and productivity – the ultimate resource, the human being… When we rely on external resources, we achieve the minimum because our achievement is based on what we see before us. When we rely on the inner resources, we achieve the maximum because we are constantly led to discover more of our own unlimited capacities” ¹⁸.

It was this perception that prompted former Club of Rome member and World Academy President Harlan Cleveland to affirm the extraordinary significance of three driving forces with untold power for social development and global prosperity – the revolution of rising expectations that has spread around the world after 1950, the onset of the information revolution, and the emergence of uncentralized organizations – all three founded on the most intangible of substrates, human imagination and human aspiration – and to proclaim the individual human being freely exercising human choice as the basic mechanism for liberating and productively harnessing that potential energy in society.

“The phenomenal social creativity of the past century seems to point to a source of energy, for practical purposes unlimited, in human society as well. The source of that energy is the individual human being. Under conducive circumstances, the human individual demonstrates an astonishing capacity for imagination and new creation – of new and improved material inventions, of communication networks, of social organizations and ideas, and of ways to interact with forces beyond reason and knowledge…It is the mind’s decisions that release human energy and propel it into action … The greater the value that society accords to the individual human being, the greater the freedom of choice it offers to each individual. As tradition was the technology for development of the physical society, individual human choice is the technology for the development of the mentally self-conscious society” ¹⁹.

Paradox of Unmet Needs & Untapped Social Resources

Today economic theory and practice confront an apparently insolvable dilemma. The prevailing global economic system is one in which enormous unmet social needs coexist side by side with enormous untapped social resources. On one side we have approximately three billion people with a plethora of unmet social needs living on incomes of less than $2.50 a day. So long as these billions of people lack the minimum requirements for a healthy normal life, there can be no dearth of work to be done growing food, making clothes, building homes, providing education, medical care and other essentials. At the same time the world is aflood with unutilized and underutilized resources. Daily $4-5 trillion circles the globe in search for speculative returns for an apparent lack of productive investment opportunities. Only a fraction of the world’s technological and organizational resources are harnessed for productive purposes. Upwards of 200 million people are unemployed and probably more than a billion are involuntarily underemployed. Randall Wray estimates that in the USA alone at least 25% of the work force is either unemployed or underemployed²⁰. This inability to generate gainful employment for millions of energetic, aspiring youth and richly talented, experienced elderly workers constitutes an incalculable opportunity cost, an unconscionable waste that proclaims the fallacy of current concepts and systems. Opportunities and untapped social potentials are not wanting. What is needed is a more comprehensive perspective generative of more effective policies.

Ashok Natarajan summarized the paradox and the challenge this way:

“The problem of unemployment poses a serious challenge to both economic theorists and policy-makers, because it calls into question the efficacy of the market-place as a means for achieving optimal human welfare... At any point in time society taps only a tiny portion of its creative potential. Society evolves by developing new ideas, organizations, systems, needs and ways of life. Economic growth arises as a natural result of social development and social evolution. Society is a field for interaction between people. Social potential is created by forging new and more effective ways for people to interact. Four social institutions — language, roads, cities and money — formed the basis for the evolution of civilization over thousands of years. Today our capacity for constructive interaction has multiplied a thousand-fold, yet we have only begun to understand how to utilize that greater potential”²¹.

Short term strategies to stimulate job growth by manipulation of interest rates, money supply and public spending are based on a too narrow conception of how society creates new employment opportunities. While such measures may be justified in extreme conditions, they tap only a tiny portion of the underutilized social potential. The notion that there are a fixed or inherently limited number of jobs that can be created by the economy is a fiction. Growth of employment is a natural result of the development of society. Every social advancement has some positive impact on job growth – the invention of new products (i-Pod, i-Phone) and new services (web search engines and employment exchanges), organizational innovation (micro-finance, social networking), better or cheaper communication (cell phone), changing social attitudes (working women), more years and better quality of education, greater access to information, more rapid technology dissemination and adoption, faster transportation (air travel), higher quality standards (food, cars), increased administrative efficiency, greater environmental awareness (recycling, energy conservation) and health consciousness (fitness), greater speed of any social activity, increased public confidence and entrepreneurial spirit (internet start-ups), greater openness to new ideas and more tolerant attitudes to new and different ways of life, greater freedom and respect for the individual. Some of these advances have a dual effect – eliminating jobs in older sectors and creating jobs in new fields. We readily note the impact of new technologies on existing jobs, but fail to observe the new jobs created directly or indirectly in other fields, such as education, research, product development, sales and service. It is not just advances in technology that work in this fashion. Virtually every major advance in social attitudes, institutions, values and lifestyles has a positive impact on total employment. Any measure that stimulates social development along any of these lines leads directly or indirectly to the generation of new employment opportunities²². Taken together they constitute a vast reservoir of social potential.

It was this thinking that prompted the World Academy’s Global Employment Challenge to call for formulation of a more comprehensive and integral social theory of employment that can serve as the foundation for more comprehensive and effective practices – “a theory of economics based on the premise that all members of society have a right to employment, a theory that not only affirms the right but also presents the structures and processes by which this can be achieved”²³.

When the issue of employment is viewed from an even more fundamental level, it becomes apparent that there can never be a shortage of work that needs to be done or a shortage of capacities to achieve it. Every person born into this world brings with him an inexhaustible array of unmet needs and aspirations waiting to be fulfilled and undeveloped capabilities eager to be developed²⁴. At the same time humanity is in the process of evolving from a more physical to a more mental mode of existence in which the pursuit of social, psychological and mental needs become primary. Rising levels of productivity resulting from technology, social organization, education and training make it possible for each human being to produce far more than is required for his own survival and personal consumption; and there is no inherent limit to this rising productivity. But there is also no inherent limit to the range and quantity of needs to be met. And at the higher end of the spectrum, needs such as education and medical care require higher levels of human input. No matter how fast technology advances in meeting some of these needs, human aspirations grow faster – not only for the physical necessities, but also for information, education, health care, travel, entertainment, social interaction, culture and other leisure activities. Human needs are inherently inexhaustible. So is the human potential for acquiring more education and training, greater knowledge and skill, higher levels of capacity for organization and effective social interaction, higher values, more enlightened and expansive attitudes. These – not money, markets or technology – constitute the true foundation on which human development takes place. A comprehensive and integrated theory of employment has to be predicated on a knowledge of the underlying process of social development and evolving human consciousness.

Historical Record 1950 - 2007

Theory accords with reality. A day may soon come when we look back on periods of high unemployment as a short term anomaly of adjustment that occurred during the transition from agrarian-industrial to post-industrial service society. Employment as we know it today is a relatively recent phenomenon. The past two centuries broke a pattern of agrarian economy that had been dominant since the dawn of agriculture 10,000 years ago. The Industrial Revolution ushered in a period of radical transition. England was the first to make that transition. Employment in agriculture fell from 73% in 1800 to 11% of total employment by 1900, at a time when agriculture still represented 40% of total employment in France, Germany and USA, and probably as much as 75% globally. Between 1870 and 1970, agricultural employment in the USA declined from 50% to 4% of the workforce, yet all these workers and three times as many additional new entrants to the workforce were absorbed in other types of work. However real the short term problems may be, they should not distort our perspective of these significant achievements or the longer term prospects.

The 20th century brought radical changes in all aspects of human existence. Although the Industrial Revolution had its origins a century earlier, over the last 100 years and especially the last 50, the impact of rapid technological development has spread throughout the world. Technology has always been regarded as a mixed blessing. Each new advance has raised resistance from those who fear that machines will progressively eliminate the need and therefore the opportunities for gainful employment in manufacturing. The growth of world trade, aggravated by the increasing disparity between wage levels of the richest and poorest nations, raises similar anxieties today. Computerization and outsourcing have recently added to these concerns by enabling large scale export of some types of service-related jobs as well. Rapid population growth over the last six decades has compounded these fears with visions of hundreds of millions of low wage workers in developing countries competing with one another for limited jobs at home and export opportunities abroad. Adding to this already heavy burden, energy prices have soared by more than seven-fold in constant dollars since the mid-1970s, confirming fears that a race for scarce resources imposes impenetrable limits on job growth²⁵.Indeed, it is easy to cite examples in which each of these factors individually and in combination has resulted in job losses or displaced employment opportunities that appear to justify our worst fears. Conventional wisdom and prevailing belief systems strongly support gloomy predictions of a world without work and severe limits to job growth. Therefore, it is essential that we examine the historical record to confirm or reject this prognosis.

When we examine the facts, we find that a broader social theory conforms with what has actually taken place. The history of the 20th century tells a remarkable story that belies these fears and compels us to re-examine underlying assumptions. Figure 3 depicts global changes in population, working age population and employment from 1950 to 2007, just prior to the onset of the financial crisis. During this period a mind-boggling4.2 billion people were added to world population, a growth of 168% in less than 60 years. The working age population (aged 25-64) increased even faster, rising by 2 billion or191%. Yet during the same period, total global employment increased 233%, rising from 900 million to 3 billion²⁶,²⁷.

 

Figure 3: Global trends in population and employment 1950-2007

In addition to unprecedented job growth, the last half century has also been a period in which the quality of jobs available worldwide has improved dramatically due to the progressive shift from manual work to mental work, indicated by the falling percentage of the world’s work-force employed in low-wage agricultural jobs. Globally,employment in agriculture declined from 65% in 1950 to 36% in 2007.

Employment growth in the USA fully reflected this long term trend. Throughout the 20th century, the USA has aggressively adopted every labor-saving technology that it could invent or borrow from abroad. It has also been one of the economies most open to the impact of international labor migration, as well as foreign competition in both manufacturers and, more recently, service outsourcing. Yet over the last 100 years, employment in the United States has grown by nearly 100 million jobs or 400%. Between 1990 and 2007 alone, the US economy created an additional 25 million jobs.

 

Globally, this broad historical trend maintained its positive momentum right up to the onset of the current recession. From 1996 to 2007, global population increased by 16% within a single decade, but total global employment grew by an even faster 17%²⁸. Figure 4 shows that the world added 400 million jobs in 12 years, while the employment-to-population ratio (EPR aged 15+) declined slightly as a result of rising levels of tertiary education²⁹. According to ILO, the world will need to create another 440 million additional jobs by 2010 just to absorb new entrants to the labor force³⁰.

This remarkable performance defies simplistic explanation by existing theory. It necessitates a re-examination of underlying assumptions about the relationship between economic growth, employment, demography, technological change, and social development by adopting a wider perspective of employment and economy.

Regional Disparities

Of course, these composite figures veil wide national and regional disparities. Figure 5 shows the employment performance of OECD countries over the past five decades³¹. Since 1960 the working age population has grown four-fold, while the EPR for age 25-64 has risen from 40% to 72%, reflecting the large-scale induction of women into the work force. More people are working than ever before, but in absolute numbers more people are unemployed, because the population is larger and a higher proportion of the population seeks jobs³². From 1997-2007, the EPR for OECD countries actually rose slightly, while unemployment fell from an average of 7.8% to 6.4%³³.These broad trends mask considerable differences in the performance of individual OECD countries in 2009. The EPR (25-64) ranges from a high of 83% in Iceland and Switzerland to a low of 49% in Turkey and 64% in Hungary and Italy. The adult unemployment rate ranges from a high of 16% in Spain and 12% in Estonia and Turkey to a low of 2.2% in Norway and just over 3% in Netherlands and Korea. Youth unemployment rates vary from 38% in Spain and around 27% in Estonia, Slovak Republic and Hungary to 7.3% in Netherlands, 8.2% in Switzerland and 9.1% in Japan

Figure 5: OECD Employment Trends 1960-2008

Net job creation ranged from an annual rate of 7% in Luxembourg to -9% in Ireland and -7% in Spain. During the first half of 2010, unemployment rose further for some of these countries and declined for others. Youth unemployment rates among the G20 currently average twice the rates for adult unemployment³⁴.

Developing Countries

Much wider disparities exist among developing countries. Figure 6 shows changes in the EPR (age 15+) for different regions of the developing world. The EPR in East Asia has declined by 3.5% over the past decade, a period in which working-age population (WAP) of the region rose by 17%. The drop in EPR is primarily due to significant growth in secondary and tertiary education. For example, over the past decade, the tertiary enrollment rate (TER) rose from 7% to 23% in China and from 23% to 32% in Malaysia. South Asia experienced a 1% decline in EPR, while WAP rose 27%. Other regions have all experienced a rise in EPR over the decade in spite of substantial population growth. Since 1991, Sub-Saharan and North Africa, Latin America and the Caribbean have experienced annual job growth of 2.8% or more, resulting in a 50% increase in total employment compared to a 46% increase in working age population³⁵.

 

Figure 6: EPR ages 15+ for developing countries 2000-2009

 

 

Figure 7 provides an overview of global job growth during the period 1991-2007. Employment in Brazil grew by a phenomenal 85% during this period, Egypt by 63%, India by 47%, China by 40% and Korea by 35%.

 

Figure 7: Overview of global job growth during the period 1991-2007

 

 

Panel A shows the net job growth by region. Panel B shows the cross-country dispersion within each region. The Middle East and North Africa recorded the largest percentage growth. Growth in Asia and the Pacific was much slower, but accounted for more than 50% of total world employment generation from 2000 to 2007.

As a group, the countries of Central and Eastern Europe and the former Soviet Republics have been the poorest performers. They experienced serious deterioration in employment following the end of the Cold War in the transition to market economics. This trend began to reverse after 1999, until halted by the recent crisis. Total employment in Russia rose only 5% between 1991 and 2007, but the EPR (age 25+), which had declined from 65% in 1992 to 55% in 1999, rose back to 62% by 2008. Hungary’s EPR fell from 50% to 46% before rising back to 49%. Poland followed a similar pattern³⁶.

Engines of Job Growth

Three significant trends will strongly influence global employment prospects in the coming decades – rapid economic growth in the developing world, demographic trends in OECD countries and rising levels of education worldwide.

Job Exports

The traditional nation-based perspective of employment fails to take into account the enormous positive impact of global economic growth on job creation, because many of those jobs are created in other countries. Jobless growth is a misnomer. When the impact of domestic growth on total employment is taken into account, the most economically advanced countries are actually running a net negative unemployment that is not immediately apparent, because we focus only on jobs created in the domestic economy. High income countries are net job exporters. These jobs, in turn, spur a rise in incomes, soaring levels of consumer demand and demand for more sophisticated technologies produced elsewhere. Thus, this generation of jobs in other countries is a powerful engine for both continuous expansion of the global economy as well as for continuous global job growth.

While it is difficult to accurately estimate the real impact of job exports, the USA is most probably the highest net job exporter and easiest example to document. The US currently employs about 12 million workers in its own manufacturing industries, accounting for about 9% of total domestic employment. In addition it generates approximately 21 million jobs in 12 low cost developing countries, including China, Korea, Mexico, India and other Asian nations. This approximate figure may be taken to represent the net addition to the US workforce after offsetting America’s own manufacturing and service exports to the world. If service imports, such as IT and business outsourcing, are also taken into account, the total net overseas job creation may be closer to 24 million. This is a rough estimate, but it should be sufficient to illustrate the point that as incomes rise, net job creation occurs both domestically and internationally. If correct, it means that America produces 18% additional jobs overseas and that in normal times it is running a net negative unemployment rate (after deducting domestic unemployment) equal to 12 or 13% of total domestic employment.

The phenomenon of job exports helps explain the remarkable fact that total global employment has more than kept pace with population growth and technological development during the past six decades. Higher incomes and greater demand for goods and services, both domestically and internationally, enable people in more prosperous nations to generate far more work for other people. Granted that the net contribution to global employment by most countries is probably much lower than the USA level in both absolute and relative terms, nevertheless the principle should hold universally. As living standards continue to rise in many middle income countries, they too will become net job exporters. This is true for low wage developing countries as well. India-China cross-border trade has recently crossed $52 billion. Over the next two decades, these two giant economies, representing 40% of the world’s people, will create hundreds of millions of new jobs, both domestically and internationally.

Demographic Trends

The world is now in the early stages of another demographic revolution, which promises to have tremendous impact on the future of employment worldwide. This revolution is the result of a steep and steady decline in the birth rate and an increase in life-expectancy in the more economically-advanced countries. Life expectancy in Western Europe has risen from 46 years in 1900 to 80 years in 2007³⁷. The result of this trend is a reduction in the number of young people entering the job market and a surge in the size of the elderly retired population. Already 50% of the population in industrialized countries is in the dependent age groups, which includes those under 15 and those over 64³⁸. Over the last decade, the old-age dependency ratio – the percentage of people aged 65 and above compared to the number of people aged 15-64 – in these countries has risen from 19% to 22%^39.

Table I gives the projected growth of the working age population for Europe and the world during the first half of the 21st century. It shows that the labor force in Europe will level off by 2010 and begin to decline thereafter. Already population growth has become negative in some countries. These trends will have enormous impact on the future of employment. The EU’s labor force is expected to shrink by about 0.2% a year between 2000 and 2030. The old age dependency ratio will rise from 22% in 2000 to 35% in 2025 and 45% or 50% in 2050. As the old age population grows, the working age population will shrink. The EU25 is expected to lose an average of one million workers a year during this period. The table also shows that over the next 15 years, the world working age population is projected to increase by another 800 million, slightly less than the one billion increase over the previous 15 years, signalling a gradually decline from the peak population growth pressure experienced in recent decades.

 

Table 1: EPR ages 15+ for developing countries 2000-2009

 

 

A study by the UN Population Division estimates that the 47 nations of Europe would have to admit 161 million migrants during the period 2005-2050 in order to prevent the decline of the working age from 2005 levels, a net average of 3.6 million migrants per year during those 45 years. A World Bank Study in 2003 estimated that 68 million immigrants will be needed to meet Europe’s labor requirements during the period from 2003-2050. These figures are only scenario projections, but it is evident that, unless major policy initiatives are taken, the net result will be a dramatic decline in the relative size of the working age population in Europe and a shortage of workers to fill the available jobs. Recognition of this fact is already prompting major policy shifts within the EU. In an effort to lift 20 million people out of poverty, the EU has committed to raising the overall employment rate within the region from 69% to 75% of those aged 20-64 by 2020. Similar trends will prevail in other countries. The same UN study estimated that Japan would need to admit 647,000 immigrants annually for the next 50 years in order to maintain the size of its working population at the 2000 level. By 2013, labor-force growth in the United States will be zero. Prior to the financial crisis, studies forecast that the US would have a shortage of 17 million working age people by 2020 and that China will be short of 10 million.

India’s working age population will rise by about 135 million by 2020, which is projected to generate surplus of 47 million workers, but there is evidence to suggest that even in India, the surpluses may prove illusory. , Reliable data on employment growth in India is confined to the formal sector, which represents less than 10% of total jobs. Empirical evidence suggests actual job growth is far higher than official measures. Otherwise with more than seven million new job seekers entering the labor market each year, unemployment would have swelled enormously in recent years; whereas in fact both urban and rural employers report increasing difficulty attracting the workers they need. As indirect evidence of a tightening labor market in India, salary levels in the formal sector are rising at 14% annually and are projected to be the fastest rising in Asia. Wages of unskilled workers in some non-metropolitan and rural parts of the country are rising even more rapidly.

Projected job shortages in developing countries are based primarily on anticipated domestic economic growth and demographic trends. They do not fully take into account the growing demand for jobs created by rising economic prosperity in other countries.

Education, Skills & Employment

Earlier in this paper we have argued that apart from short term fluctuations resulting from changes in public sentiment and economic policy, job creation is a function of a complex array of social variables working through a largely invisible process of social development. Of all the factors mentioned, education is of greatest importance and may well turn out to be the single most reliable indicator of long term growth of employment opportunities. The importance of education is most clearly reflected in the link between levels of education and unemployment rates. A study prior to the recent recession in the U.S revealed that those with a high school diploma earned 42% more and had an unemploy¬ment rate 36% less than those with¬out a high school diploma. In the Czech Republic, 23% of people who failed to finish secondary school are unemployed, compared to just 2% of university graduates. University graduates in Norway enjoy a 26% earnings premium over people who only finished secondary school. In Hungary that figure rises to 117%⁵¹.

 

Figure 8: Global Skills Shortage

This same difference exists with respect to unemployment levels for skilled and unskilled workers. In the USA those aged 19 and under have an unemployment level that is four times higher than those aged 25 and above who took the time and effort to improve their skills by training. The employment rate for people with low-skills is only 49% in Europe, compared to 83% for those with high levels of skill. The differential gap between these two categories of people is 35 points in Belgium, Ireland, Italy, Finland and the U.K. The employment rate for women with low-skills in Europe is only 37% and in Italy it is as low as 27%.

 

Figure 9: Skills Shortage by Country 

Moreover, the problem of unemployment co-exists with a massive shortage of employable skills as reflected in research by Manpower Inc. shown in Figures 8 & 9. Studies in OECD and developing countries reveals that high levels of unemployment and a severe shortage of skilled workers commonly exist side-by-side. Nor are skill shortages confined to the high tech industries. In the USA, high tech industries employ only 5% of the work force. The skill shortage is also prevalent in basic manufacturing industries, such as the tool and die industry, so that many firms are forced to invest in expensive, computer-based machines or outsource the work to overseas suppliers. Plumbers, electricians, masons, carpenters and other skilled craftsmen are also in short supply. By recent count there is a shortage of at least 126,000 nurses in the U.S. By the year 2020 a shortfall of 400,000 nurses and 200,000 doctors is projected⁵³,⁵⁴.

The situation in most European countries is similar. Wall Street Journal reported that there were 600,000 unfilled jobs in Germany in 2007, of which 40,000 were jobs for engineers and other skilled people⁵⁵ . Another survey revealed that 80% of small firms in Germany find it very difficult to mobilize the skilled labor force that they require. The Cologne Institute for Business Research (IW) has projected that the labor shortage will reach alarming proportions by the year 2050, as it will be compounded by demographic changes that will shrink the labor force by another 30%⁵⁶.

The developing countries present a similar situation. Though India produces more than 500,000 technical graduates annually, corporations are finding it difficult to recruit sufficient skilled personnel⁵⁷ . Here too, the skill shortage spans a wide spectrum of industries and types of jobs. A 2007 study by the Federated Indian Chambers of Commerce & Industry estimated a shortage of 500,000 MDs, one million nurses, and 500,000 engineers. They also projected a shortfall of 80% for doctorate and post doctorate scientists in biotechnology, 65 to 70% in food processing, 50 to 80% in banking and finance, and 25% for faculty in education. The study also found a severe shortage of top pharma scientists. Shortages also exist for middle-level and junior scientists, factory workers, machine operators, mechanics, carpenters, masons, painters and plumbers⁵⁸ . Figure 8 presents the results of global surveys conducted by Manpower Inc., one of the world’s largest recruiting and employment agencies, showing the percentage of employers reporting difficulties in finding people with the skills needed to fill vacant positions. Employers reporting the most difficulty finding the right people to fill jobs are those in Japan 76%, Brazil 64%, Argentina 53%, Singapore 53%, and Poland 51% as shown in Figure 9⁵⁹

The rate of social development exceeds the rate of human resource development. All evidence points to an ever increasing rate of social change in future. Therefore, unless a concerted effort is made to consciously accelerate human capital formation, the gap will continue to increase. Left unaltered, this trend would be enough to account for rising levels of unemployment in the midst of unprecedented prosperity.

Life-long Livelihood

Historically, work may have been associated with physical labor, hardship and self-sacrifice, an unavoidable necessity for our welfare, rather than an essential factor for our well-being. At least for many people, this is no longer the case. Employment is not merely a source of economic security. Long after all material needs and aspirations have been met, people seek social and psychological fulfillment through work. In contemporary society, employment is a source of social identity, status and recognition. It is a field for forging cooperative social relationships and interaction with other people. It is also an opportunity for continuous learning and for exposure to the challenges that develop our capacities, keep us growing and youthful. For many people, retirement means to lose one’s identity and sense of usefulness, which is one reason why it is often associated with a rapid deterioration in energy and health.

The present conception of employment and retirement does not recognize the social and psychological benefits of work. In addition, it overlooks the immense value of human capacities – human capital – wasted when people are prematurely retired long before the end of their productive lifespan. Unlike machines which deteriorate with age, human beings learn and mature over time, and often make their greatest contributions late in life, when accumulated experience has distilled into wisdom. Moreover, in a world in which the majority of children are still denied access to quality education and so many other human needs are left unmet, it is unwise and wasteful to neglect or prematurely discard this precious resource. Currently employment starts after the completion of education and is terminated abruptly with retirement at age 65. Fuller utilization of our most experienced human resources necessitates a very different structure, which might include the commencement of work experience at an earlier age before the completion of education and extend the working life much longer, with a gradual reduction in working hours according to economic need, health and personal choice⁶⁰ .

Measuring Employment & Human Welfare

Traditional measures of economic growth and welfare do not take into account the impact of unemployment on human welfare and well-being. With the exception of WISP, the Weighted Index of Social Progress, broader composite indices also exclude this key measure. Eurostat monitors six individual variables related to employment and unemployment, but has not incorporated them within a broader index of economic welfare. Unemployment is closely linked with income inequality, a crucial determinant of how the benefits of social productivity are distributed among the population. Low levels of unemployment are linked with lower levels of income inequality, as well as higher levels of economic growth, more education and better health⁶¹ . Broad measures of inequality such as the gini coefficient tell us about income distribution among different income groups, but do not reveal the true extent of deprivation among the unemployed with little or no income or prospects of earning, the very group most susceptible to social ostracism, crime, drug abuse and social unrest.

In this paper we have argued that access to remunerative employment opportunities is essential for both individual economic security and social stability. In a market economy employment is the principal means by which most people gain access to the goods and services required for their sustenance, security and economic welfare. Hence unemployment is a severe form of deprivation and any measure which disregards it is inherently inadequate.

One reason for this omission is the difficulty in obtaining accurate and reliable data regarding real levels of unemployment and underemployment, even in OECD countries. In the absence of suitable job opportunities many people who want and need to work drop out of the labour force and are no longer counted among the unemployed. Many others are involuntary part-time workers unable to find full-time jobs. A study in Australia in 2003 found that 25% of part-time workers sought on average 37.5% longer worker hours. ILO maintains a database of studies designed to estimate underemployment among different sectors and regions with countries. Results ranged from a low of 1.1% of total employment time in USA to 13.9% in Argentina. These studies of specific groups and locales do not accurately assess the larger problem. Even this data is not available for many countries. There are also a growing number of healthy, active, experienced elderly workers who are forced to retire or discriminated against in spite of their qualifications and capabilities. An increasing number of youth in countries such as Croatia seek to make a ‘career’ of education simply because they are unable to find attractive job opportunities. Educated, talented women in many countries are denied equal pay to men, are prevented from seeking work outside the home or are discouraged from pursuing a career after marriage. In countries such as India where the vast majority of workers are employed in the informal sector, even basic estimates of total employment and unemployment are inadequate and official figures may grossly underestimate the number of jobs being created as well as real levels of unemployment. ILO estimated unemployment in India at 2% in 2000, while a task force of Indian experts concluded the actual figure was 7.3%.

In a separate paper, the authors have attempted to formulate a composite Human Economic Welfare Index (HEWI) which explicitly incorporates employment-related measures within a composite index of economic welfare. HEWI includes sub-indices to measure household income and savings, government human welfare-related expenditures, income inequality, employment, education and fossil fuel energy efficiency. Country performance on HEWI is expressed in international US dollars as average per capita real human economic welfare. The Full Employment Index (FEI) takes into account total, youth, adult and long term unemployment rates (TUR, YUR, AUR, LUR), employment-to-population ratio (EPR), and net job creation (JCR) and assesses their impact on overall economic welfare at the country level. FEI1 consists of Employment-Population Index (EPI), Adult Employment Index (AEI), Youth Employment Index (YEI) and Job Creation Index (JCI). FEI2 also includes a Long-term Employment Index (LEI) except for countries in which data is unavailable (*).
Table 2 shows the FEI scores for 28 economically advanced and developing countries, including all G20 nations, for the year 2005, prior to the onset of the recent crisis. FEI scores range from a high of 97% for Mexico and 96% for Korea, China and India to a low of 83% for Croatia, 80% for Poland and 69% for South Africa. The table also shows that the factors contributing to the total FEI score vary considerably between countries. Brazil, India, Mexico and USA scored highest on net job creation. Brazil, China, Indonesia and Korea reported the highest EPR. Youth unemployment rates varied widely from a low of 7% in Mexico to a high of 54% in South Africa, where youth constitute 33% of the labour force. The inclusion of FEI in the composite HEWI resulted in a reduction in the overall measure of human economic welfare by 4% in Korea, China and India, and 31% in South Africa. Of course, the accuracy of FEI depends on the reliability of the ILO data on which it is based.

Table 2: FEI values for the year 2005

 

Until more reliable data is generated at the national level, it can only be considered indicative and utilized to reflect the significant impact of employment on overall human welfare. Between 2005 and 2009, the FEI for USA fell from 94% to 91%, as a result of a doubling of total unemployment in the country, but this decline underestimates the real impact of underemployment which is reflected by rising levels of income inequality as measured by another subindex of HEWI.

Analyzing a combination of employment-related variables gives a much clearer picture than simply relying on the unemployment rate. Two countries with identical unemployment rates may differ widely in the percentage of the population employed or in the rate of new job creation. For example, Algeria recorded the second highest unemployment rate (15%) in 2005 among the countries examined, but it also recorded the highest rate of new job creation (9%).