Recovery Without Employment

Recovery Without Employment

The developing world at this yearend 2009 is emerging from the most violent recession since the deflation of the 1930’s, with growth of 0.9% in the United States and 0.2% in the Europe of the Twenty-seven. The end of the recession, however, comes nowhere near marking emergence from the crisis. The recovery is fragile – dependent as it is on inventory restocking and cash-for-clunkers – and unbalanced: economic activity is growing 8.9% in China, 6.1% in India, 2.9% in Korea and 1.9% in Brazil, while the recession persists in the United Kingdom and Spain.

Above all, the return to positive growth does not prevent continuation of the rise in unemployment, which is touching 10.2% in the United States and will affect over 10% of the active population of developed countries in 2010 – that is, 57 million unemployed – versus 5.6% in 2007. This increase, unprecedented since the beginning of the 1980’s, is the direct consequence of the combined collapse of credit and economic activity in 2008, but it is also an artifact of four more structural factors: the explosion in the number of discouraged would-be workers, which brings the real unemployment level in the United States to 17.5%; the rise in long-term unemployment (20% in the United States as well as in Europe); the extremely elevated unemployment rate among youth (21% in the United States, 25% in France, close to 50% in Spain); and the hemorrhaging of industrial employment in developed countries – with the exception of Germany.

With the recovery, the employment market registers signs of improvement: a reduction in those signing up for unemployment benefits, the beginning of job creation in the public services sector, stabilization of hours worked, a rebound in temporary work. But the period of convalescence will be very long. First of all, because of the gap between the timid renewal in hiring and the scope of job destruction. In 2010, the United States is supposed to recreate 100,000 to 150,000 jobs a month; it’s eliminated 7.3 million jobs since the end of 2007.

On top of that, companies have tried to limit lay-offs to maintain their human capital and their savoir-faire, by concentrating adjustments on temporary workers, subcontractors, partial unemployment and reduction in hours worked. The consequence of those strategies has been a drop in productivity (-2.2%), that will have to be made up before new hiring takes shape. Finally, deindustrialization and acceleration of the swing of production towards Asia will eliminate entire swathes of Northern countries’ active populations from the employment market.

Thus will three kinds of unemployment add to one another and take root in developed countries for a variable length of time depending on the quality of economic policies. Cyclical unemployment, linked to the 2008-2009 recession and extended by the long-term decline in growth – the latter inescapable consequence of public and private debt reduction. Structural unemployment, caused by deindustrialization and outsourcing to emerging economies. Technological unemployment, resulting from the conversion of development models and from the displacement of certain production or activity methods.

This return of permanent mass unemployment in the developed world entails major risks. On the economic level, emergence from the crisis will come up against inadequate consumption. On a social level, poverty and exclusion will experience strong growth. On a political level, the destabilization of the middle classes will renew political extremism, borne along by nationalist and xenophobic impulses. On the international level, protectionist pressure will be stronger.

Consequently, the battle against the establishment of permanent unemployment must become the priority of economic policy, along six poles: discretion in the normalization of economic support policies; coordination of strategies for emergence from the crisis, especially within the European Union, in order to limit non-cooperative initiatives that reinforce sudden and violent displacements of activity; reindustrialization of developed countries, given the multiplier effect manufacturing production on productivity and employment; refocusing the battle against unemployment around training and return to work; targeting social protection towards the most vulnerable (temporary, part-time and subcontracting workers); and, finally, preservation of the connection between youth and marketable work.

Nicolas Baverez is an economist and historian.

Translation: Truthout French Language Editor Leslie Thatcher.