Employment strategies for industrial nations

In the industrial countries, the phenomena of jobless growth coupled with persistently high rates of youth unemployment and of chronic unemployment among the poorer sections will not be eradicated by even the most optimistic rates of economic expansion or mere incremental adjustments within the context of present attitudes and policies. Although the problem has been aggravated by a variety of short- and medium-term factors whose effects will gradually dissipate over time - defense cuts, recession, East European economic crisis, German reunification, etc. - the present job crisis among Western nations is largely structural in nature. Although conditions vary from country to country, the crisis impacts most heavily on the unskilled, young people, urban poor, ethnic minorities and older workers. Specific programmes to effect structural changes will have to be introduced in order to ensure a fair opportunity to all, especially minority youth, to lead economically active lives. It is in this context that the European Union, the United States and other Western governments have been considering ambitious proposals for addressing this issue. The Australian government has unveiled a $4.6 billion jobs package to reduce unemployment from 10 per cent to 5 per cent by the end of the decade by encouraging training for the young, the unskilled and the long-term unemployed. Recently the OECD has presented the main planks of an employment strategy to stimulate economic growth in the industrial nations, make labour markets more flexible, increase productivity, and revamp employment and unemployment security provisions.

The relative success of the US economy in creating jobs during the past decade has prompted other countries to emphasize the importance of policies to increase the flexibility of wage rates and bring down the price of labour by reductions in the statutory minimum wage. The main effect of this policy is likely to be a movement of jobs between nations, however, not a significant increase in the total number of jobs available. In fact, measures which reduce wage incomes could have the perverse effect of reducing aggregate purchasing power and employment.

Economic growth is recognized as an essential, though not sufficient, condition for higher rates of job growth - but fears of inflation constrain industrial countries from trying to stimulate faster expansion of their economies. The primary impact of moderate levels of inflation would be to encourage an outflow of investment to more stable currencies. How ever, if the industrial nations all agreed to relax their monetary policies, this effect could be minimized.

The real constraint on job creation in the industrial nations is not the price of labour, but the need for increased capital investment, partly to counter the effects of reduced military spending and the drastic fall in output and demand in Eastern Europe. Increasing public investment to stimulate employment is constrained by widespread concern about rising levels of public debt. Recent reports state that the gross debt of OECD countries has risen from 35 per cent of GDP in 1970 to 70 per cent in 1993. But this figure is of questionable significance. The gross debt includes the debt held by government departments and public agencies as well as by private institutions and individuals. When the government-held portion is deducted, the actual net debt of these countries is approximately half the gross debt, which means the net interest burden for servicing the debt, is also only half. Furthermore, it is not clear that a comparison of debt to GDP is a very meaningful index. Debt is a cumulative measure of stock, while GDP is an annual measure of flow. When the total debt of OECD countries is compared to the total capital stock of these countries, the debt is equal to a relatively modest 15 per cent of the current capital stock of these nations.

In contrast to the recommendations made by the OECD, the Delors Plan for stimulating employment in Western Europe, which was recently rejected by member countries of the European Community, called for a large increase in public investment in expensive communication and transportation infra structure projects as a means of creating more jobs in the near term and increasing the competitive ness of European economies by improving their infra structure. Instead of investing in ambitious, high-tech projects whose future impact on job creation is unclear, the industrial nations should make substantial increases in public investment to improve the tools of the work force by lending to promote small enterprises together with increased public investment in education and training, which will stimulate short-, medium- and long-term job growth.

The recommendations set forth in this report are based on the conviction that nothing less than a legal commitment of the society to guarantee employment is justified and nothing less will be sufficient to solve the problem. Only then can the requisite political will be generated to push through effective measures. We do not advocate a return to state socialism or expansion of the public sector. As in the case of the environment, the changes needed are in the priority given to achieving different social objectives in the formulation of government policy.

Recommendations to Achieve Full Employment in Industrial Nations

Earlier we noted long-term trends that suggest the recent rise in unemployment in the West does not necessarily forebode, and need not necessarily result in, chronically higher rates of unemployment in these countries. Granted that the necessary political and social commitment is forthcoming, there are a range of strategies which, taken in the proper measure and combination, can dramatically accelerate job growth and reduce unemployment. Each of these strategies has proved effective in stimulating employment, though none by itself may be sufficient to solve the problem. A comprehensive, total approach, rather than partial and half-way measures, is needed. No industrial country can claim that it systematically exploits all the potential benefits of the strategies in this list. This should be the highest priority of every Western government today.

Promote small businesses

All the publicity given to the impact of down-sizing by major corporations has obscured the fact that the top 500 US firms employ less than five per cent of the US workforce. It is also the smaller firms that are responsible for job growth. Businesses employing fewer than 20 workers presently account for 57 per cent of new job creation in Europe. Based upon the successful examples of many developing countries that have stimulated growth in this sector, there is vast scope for expanding services to support new enterprises through better access to management and employee training courses, credit and R & D facilities; by testing and certification for those who want to start businesses; and by establishing business incubators to provide work space and shared services as well as technical, financial and marketing expertise to start-up companies.

Reduce business failures

New businesses create most of the jobs, but they destroy most of them too, by going out of business. The failure rate of new businesses is extremely high in most industrial nations. In Italy, roughly 50 per cent fail in the first year. Of the more than 600,000 new business start-ups in the United States each year, 40 per cent close within 12 months, 80 per cent within five years, and 80 per cent of the remainder in the subsequent five years. Expanding programmes for management training, small business education and counseling, marketing assistance and financial management can bring down the failure rate dramatically.

Voluntary part-timism

Increasing the flexibility of working hours will serve the interests of both businesses and workers. Encouraging voluntary part-timism by removing the artificial barriers to job sharing created by employment laws, social security tax laws, administrative procedures and trade unions would raise the morale and productivity of those who prefer to work less, while creating openings for many who are now without jobs. In the Netherlands, voluntary part-timism has been identified as the biggest single potential for creating new jobs, capable of reducing the country's unemployment by up to 50 per cent. Proportionately reducing working hours and salaries can spread the existing work more evenly over more people. Evidence suggests that reduced working time can raise productivity significantly. Extending vacation time and medical leave in the United States nearer to levels which the Europeans enjoy would create many more job openings. Work or job sharing is not an ultimate answer in itself, but it can have a beneficial short-term impact, allowing time for longer-term measures to take effect. As a minimum, governments should remove the artificial barriers to job-sharing created by employment laws, administrative procedures and trade unions. Social security tax systems should also be modified to remove the in-built bias that increases the taxes of those who hold multiple, part-time jobs, rather than one full-time job. Such constraints limited part-time jobs to around 10 per cent of the total in Belgium, France, Italy and Spain compared to around 25 per cent in Britain and Denmark.

Modify tax policies

The present income and payroll tax system raises the real cost of labour relative to other resources, such as capital and energy, and thereby discourages job creation. It heavily taxes people for working, which indirectly raises the cost of labour and reduces the number of jobs. At the same time the system provides investment and depreciation incentives that encourage industry to shift from labour-intensive to capital-intensive modes of production. Much of the shift from labour to capital might not be economically justified were it not for the in-built bias in this system. Low levels of taxation on the depletion of non-renewable energy resources in the United States is another distorting influence that makes machine-driven activity more cost-effective than it would otherwise be.

Analyze job impact of government policies

Almost every government policy has a direct or indirect impact on employment. Often the relationship is not recognized or intended. An analysis of the impact of major public policies on employment at the local, state and nation level can result in avoidance or removal of significant legislative and administrative roadblocks to job growth. Require employment assessment of new policy initiatives prior to adoption.

Re-orient social security programmes toward re-employment

OECD countries spend 2-3 per cent of GDP on labour market policies, most of it to support the unemployed. The United Kingdom spends nearly $14,000 a year on every unemployed person. The United States spends three times as much on welfare payments as it does on retraining the unemployed. For three decades, Sweden achieved the highest employment rate among OECD countries based on 'the passionate belief in full employment' and 'the right to work' and on active policies to generate work for all, rather than payments to the unemployed. Drawing lessons from the Swedish model, introduce a comprehensive programme of education and vocational preparedness for the unemployed, compulsory retraining for those who are unemployed for more than six months, and a strictly managed penalty system for unemployed persons who refuse successive job offers and do not seek retraining.

Improve labour market information and job placement systems

Labour markets are becoming more and more fluid. One in ten jobs is now replaced in OECD countries every year. This makes the strengthening of job placement systems a crucial element in any full employment strategy. Lack of access to information about job or training opportunities retards re-employment. Sweden operates one of the most extensive and efficient employment services, in close cooperation with business, that is responsible for filling 60 per cent of total job vacancies. Improve labour market information systems within and between countries by increasing the accuracy and comparability of data, requiring mandatory reporting by businesses of all sizes, and freely exchanging information between cities, states and countries on successful employment-generating strategies.

Raise minimum standards for education

Higher education increases productivity, raises personal expectations and consumption, and generates additional jobs in education and elsewhere. Lack of qualifications, inadequate and out-dated skills commonly characterizes the long-term unemployed. There is a strong positive correlation between higher education and higher incomes. The employment rate for college graduates in the United States is 75 per cent versus 48 per cent for high school drop- outs; at the height of the recent recession, 3.2 per cent of college graduates were unemployed compared with 11.4 per cent of high school drop-outs. Only 57 per cent of 18-year-olds in the OECD countries are pursuing formal education. The Japanese built their highly competitive workforce by raising the educational attainments of the bottom half of their primary and secondary school population. Raising the minimum compulsory level of education, as Belgium did in the mid-1980s from 16 years to 18, slows the entrance of young people into the labour market, better equips them for employment and in creases the demand for teachers. Extending compulsory education by two years or doubling the teacher- student ratio in the United States could generate several million additional jobs in teaching. A national commitment to raise the minimum standard, the average level and the quality of education can act as a great medium-term stimulus to job creation.

Continuous training

Technological development is dramatically speeding up the rate at which old skills become obsolete and new ones are needed. Education and training must become a life-long process for workers. In a number of countries, high levels of unemployment coexist with shortages of particular skills, reflecting significant mismatches between supply and demand for skills. The deficiencies in government-operated training programmes can be partially overcome by providing greater incentives to private firms to invest in training new and existing employees. Studies have found that a 10 per cent increase in expenditure on training can boost productivity by an average of 3 per cent over two years and by as much as 30 times the cost of training. Yet even today, only a relatively small number of companies conduct regular, ongoing training programmes. Launch a nationwide public educational programme on the tremendous potential gains in productivity from increased training. Support initiatives by providing incentives to intensify training programmes for all employees by every type of commercial and non-commercial institution in order systematically to upgrade the technical, vocational, organizational and managerial skills of the workforce.

School-to-work apprenticeship programmes

The transition from school or college to work can be long and difficult. Germany's apprenticeship programme equips nearly 70 per cent of all teenagers with employable skills before they enter the workforce. Two-thirds of the UK workforce has no vocational or professional qualification, compared with only 25 per cent in Germany. There is growing support in the United States for establishment of a national youth apprenticeship training programme that combines classroom schooling with on-the-job skills training to ensure a smooth transition to employment for those who do not pursue higher education.

Link demilitarization to urban employment

The military possesses both the expertise and the physical infrastructure for training large numbers of people in a wide range of technical, vocational and social skills. Building upon successful US Defense Department programmes that re-deploy soldiers to assist troubled inner city youth, closed military bases can be converted into large training centers operated by military teaching staff for instructing and housing urban unemployed youth during an apprenticeship period.

Promote integrated urban development programmes

The Atlanta Project is a bold attempt to evolve a new type of organization to address the problems of inner city poverty and unemployment. The inner city of Atlanta, Georgia, has been divided into clusters in which members of the local community work closely with the staff of major corporations, voluntary agencies, religious groups and a wide range of government agencies to identify and promote employment opportunities and other poverty-alleviation activities.

Promote organizational innovation

In recent years, large firms have made significant strides in improving their speed, efficiency and flexibility of response to changing market conditions by restructuring operations into independent companies and autonomous profit-centres. Small firms need to develop new types of organizations to help them acquire some of the benefits of larger size. An innovative experiment has been launched by two dozen small precision-manufacturing, defense contractors in the state of Kansas, with the support of the US Defense Department, to combine their technical, organizational and marketing resources for diversification into non-defense production. Initiatives of this type can help strengthen the 12,000 small tool and die-making companies in the United States as well as millions of other small companies in other industries and other countries.

National service organizations

National service programmes can be very successful vehicles for providing training and valuable work experience to youth before they enter the labour market. Service in activities designed to improve education, health and the environment can be of immense benefit to the country, while slowing the pace of new entrants to the workforce. The United States recently established AmeriCorps to strengthen and expand service and educational opportunities by providing educational grants to youth in exchange for community service in the fields of education, environment, human services and public safety. Participants receive a limited wage while serving, plus a post-service educational award for higher education.

Pay the unemployed to work, rather than not work

The high costs of welfare programmes, the negative incentives they provide to job seekers and the harmful psychological consequences of unemployment can be mitigated by modifying welfare programmes to require that the able-bodied unemployed either train or work in exchange for welfare payments. The type of work given may be varied depending on both the qualifications and the training needs of the individual - for example, as assistants in child education, or care for children and the elderly or environmental protection. If properly administered, these programmes have proved successful in reducing costs, imparting new skills and identifying false welfare claims. Redirect welfare expenses for creating jobs, rather than encouraging idleness, by paying welfare recipients to carry out public service activities in return for welfare payments. This requires the identification of employment-intensive programmes that provide clear benefit to the community without interfering with existing business, such as the US Civilian Conservation Corps that built the US National Parks system in the 1930s. Expanding or upgrading the educational system would be a priority area.

Make income distribution more equitable

The number of jobs available is directly related to patterns of income distribution. In Japan and other dynamic Asian economies, the ratio between the bottom and top pay is as much as 5 or 10 times lower than in the United States. A highly skewed income distribution results in lower levels of overall demand, growth and job creation. Lopsided income distribution fuels speculative investment, more and more of which goes overseas. The average wages for production workers in the United States are the lowest they have been since 1967, with 18 per cent of full-time workers not earning enough to keep a family of four out of poverty, up from 12 per cent in 1979. Income redistribution in the industrialized countries requires structural adjustments similar to those which the West has advocated for developing countries. A 'maximum wage' law can be introduced, requiring firms to pay taxes on exorbitant executive compensation.