Council meeting,

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LATEST LABOUR MARKET DEVELOPMENTS AND SOME POLICY CHALLENGES

Council meeting, 11 July 2013

Paul Swaim

Directorate for Employment, Labour and Social Affairs OECD

Council

11 July 2013

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Labour market prospects remain grim in the Euro area but some improvement in the United States

Unemployment rates, 2007 Q4-2014 Q4

Shaded area refers to the OECD economic projections.

Source: OECD calculations based on the OECD Economic Outlook Database.

3 4 5 6 7 8 9 10 11 12 13

OECD area Euro area

United States

Japan

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Wide dispersion in unemployment rates and

new record highs have been reached in several countries

Unemployment rates

^a

before the crisis, at its peak

^b

and in Q1 2013

^c

0 4 8 12 16 20 24 28

%

Pre-crisis trough Peak Q1 2013

Note: Countries are shown in ascending order by the unemployment rate at its peak.

*: Information on data for Israel: http://dx.doi.org/10.1787/888932315602.

a) For Israel, the series have been chained to take into account the break in series in 2012.

b) Trough (peak) dates are defined as the start of the longest spell of consecutive increase (decrease) of the quarterly unemployment rates since Q4 2007.

c) Q4 2012 for Switzerland; Q2 2013 for Canada and the United States.

Source: OECD calculations based on the OECD Short-Term Indicators Database (Cut-off date: 5 July 2013).

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Youth have been hit particularly hard by the crisis and youth unemployment remains high in most countries

Youth unemployment rates

^a

December 2007-May 2013

^b

0 5 10 15 20 25 30 35 40 45 50 55 60 65

%

December 2007 May 2013

Note: Countries are shown by ascending order of the youth unemployment rate in April 2013.

a) For Israel, the series have been chained to take into account the break in the LFS series of the year 2012.

b) February 2013 for Greece, Turkey and the United Kingdom; March 2013 for Chile, Estonia Hungary, Norway and Slovenia; May 2013 for Canada and the United States; Q4 2012 for Switzerland; Q1 2013 for New Zealand.

Source: OECD calculations based on the OECD Short-Term Indicators Database (Cut-off date: 5 July 2013).

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The long-term unemployed now account for one in three unemployed persons in the OECD area

Percentage of unemployment,

^a

Q4 2007 and Q1 2013

^b

Note: Countries are shown by ascending order of the incidence of long-term unemployment in Q1 2013.

a) Data are not seasonally adjusted but smoothed using three-quarter moving averages. OECD is the weighted average of 32 OECD countries excluding Chile and Korea. For Israel and Portugal, the series have been chained to take into account the breaks in the LFS series of the years 2012 and 2011, respectively b) Q4 2011 for Israel; Q4 2012 for the European Union, the euro area, France and Switzerland.

0 10 20 30 40 50 60 70 80

%

Q4 2007 Q1 2013

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During the first phase of the crisis, market income inequality rose considerably

Percentage point changes in the Gini coefficient of household market and disposable income, 2007-10

-4%

-2%

0%

2%

4%

6%

8%

Market income inequality (↗) Disposable income inequality

Note: Data refer to the working-age population

Source: OECD Income Distribution Database, www.oecd.org/social/income-distribution-database.htm.

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The risk of poverty has risen most for children and youth

Percentage point changes in relative poverty, 2007-10

Source: OECD 2013, Crisis squeezes incomes and puts pressure on inequality and poverty. www.oecd.org/social/inequality.htm - 2

- 1 0 1 2 3 4

%

Total (↗) Children (aged 0-17) Youth (aged 18-25)

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Social spending, especially for working-age people, is the most-frequently cited item in consolidation plans

Major programme measures in fiscal consolidation plans, by domain (based on 2011 and 2012 surveys)

Note: A questionnaire was submitted to countries in December 2011 to update The OECD 2010-11 report on fiscal consolidation strategies. Based on country responses and publicly available sources, information was collected for 31 countries.

Explanation: 70% of countries plan to cut welfare spending in 2012. Welfare includes working-age social transfers, such as unemployment benefits, social assistance, disability benefits, child benefits, etc. Pensions comprise old-age pensions.

Source: OECD Fiscal Consolidation Survey 2012, and OECD (2011), "Restoring Public Finances: Fiscal Consolidation in OECD Countries".

0 10 20 30 40 50 60 70 80

%

Plan 2011 Plan 2012

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 Particular attention to the design of consolidation measures

o Evidence from past episodes that resulting burden is not borne evenly

 Unemployment benefits have played a crucial role as an automatic stabiliser

o Margins for savings in this area are still small in the current economic context.

 With increasing long-term unemployment, social safety-nets are essential for averting steep increases in poverty and inequality

 Labour market activation strategies should be pursued, while adapted to the evolving labour-market challenges

 Youth need to be actively supported to avoid long-term scarring effects

o In line with the OECD Action Plan for Youth, support should emphasise activation and focus on NEETs

 Key structural reforms of social protection systems should continue

o Especially in pensions and health care as each represent ~30% of total public spending

The challenge now is to achieve consolidation while

addressing growing social needs

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