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Worst jobless crisis since the 1930s says ILO

The world faces its worst employment crisis since the Great De pression in the 1930s, according to the ILO in its report 'world Employment 1995'. In 1994. about 820 million people were either unemployed or underemployed throughout the world - a situation which ILO Director-General Michel Hansenne describes as 'both morally unacceptable and economically irrational'. It is creating, he says, 'an enormous waste of resources and deepening human suffering'. Hardest hit are the developing countries which account for 95% of the 820 million.

The report, prepared for the March World Summit for Social Development in Copenhagen, warns that, except for a few countries, job-creation prospects remain gloomy throughout the world. Current growth trends will not 'be sufficient to cure Europe's endemic employment ills, reverse the decline in real incomes, halt the spread of poverty and underemployment in developing countries or prevent the marginalisation of Africa'

However, if appropriate economic policies are adopted both nationally and internationally, resulting in higher growth, joblessness in the industrialised countries (35m in 1994) could be halved in the next decade and the impact felt in the developing countries Mr Hansenne argues for an international commitment to full employment, such as was made after World War II. This will provide the basis for international cooperation, without which, he says, the present crisis will not be resolved.

Four key steps need to be taken. The first concerns trade liberalisation for which the new Gatt agreement provides the framework This treaty must be fully implemented if maximim benefits are to be derived from it. Tariff cuts will increase not only North-North trade flows in menu factured goods and job opportunities in the industrialised countries, but also North-South trade, which could fuel migration of low-skilled manufacturing jobs to the South. The agreement will liberalise, in particular, northern textile and other manufactured goods markets for the developing countries. Although the South in this regard will present a challenge to the North, the situation will provide the latter with countless business opportunities enabling it to create 'the next generation of jobs'. The report calls on developing countries to abandon 'failed policies of import substitution' and end the practice of allocation of scarce capital resources which creates distortions.

The second step relates to increased international cooperation in respect of financial markets, balance of payments problems and long-term interest rates. The overall objective will be to channel more of the world's savings to productive real investments and to achieve lower interest rates which are vital for investment and job creation. Foreign direct investment (FDI), the report notes, can be a powerful spur to growth and employment. Unfortunately, the vast majority of developing nations have received little of this in recent years: although, as a whole, developing countries attracted $70 billion in FDI in 1993, 70% of this went to just 10 advanced developing countries while the 47 least-developed received only a marginal and declining percentage. The need for LDC policies that favour FDI could not be greater. These policies must include 'economic and political stability, a favourable attitude towards private enterprise, and clear and transparent policies towards investors, especially multinational enterprises.' I he report recognises that creating the right environment for investment promotion will involve extensive (and unavoidable) reforms for many countries, including labour market reforms.

The third step is the adoption of export-led development strategies, which have proved so successful in economic growth and employment in test Asia However, the report warns developing countries to guard against 'artificial promotion or protection of activities which have no hope of becoming internationally competitive., More open economic policies should guide production and trade, but they should be in line with each country's comparative advantage.

The fourth concerns the labour market. The report rejects the argument that deregulation will resolve the unemployment and poverty afflicting most of the industrialised world Proponents of deregulation, it says, point to various features of market regulation in Europe- including strong unions, stringent protection and generous welfare provision as an explanation for high unemployment levels in comparison to those prevailing in the less regulated USA.

This, it explains, overlooks the fact that labour market performance has deteriorated in all OECD countries since the first oil shock of 1974 'irrespective of differences in labour regulations' The report also rejects the view that high wages in Europe are directly responsible for high unemployment. It admits. how ever, the need for positive adjustment measures to be taken to improve labour markets, including reduction of non-wage labour costs, retraining of workers and reforming unemployment benefit systems which, it acknowledges, have a link with the duration of unemployment. Generally speaking,'a 10% increase in benefits leads to a 3% increase in the average duration of unemployment spells.' The appropriate response, in Michel Hansenne's opinion, is to 'make it more profitable for firms to hire the long-term unemployed.'

The report warns developing countries to be on their guard in seizing the opportunities presented by the new Gatt agreement They need to adopt a balanced, two-pronged strategy aimed at generating more modern sector jobs, while upgrading the skills and living standards of the vast majority of the labour force in the low-productivity rural and urban sectors 60% of urban workers in sub-Saharan Africa are engaged in unorganised activities in the informal sector. Most are vastly underemployed. Given the magnitude of poverty and underemployment in the developing countries, the report says that it 'is important that development policies should not be biased against them and that measures to reduce unemployment and poverty be given priority in government programmes. '