Jobs and Growth: Can’t Have One Without the Other?

By Min Zhu

(Version in Español, in عربي))

As Frank Sinatra crooned about love and marriage, so it seems about jobs and growth:

“This I tell ya, brother, you can’t have one without the other.”

The IMF’s latest World Economic Outlook projects global growth of 3 ½ percent this year. To the person on the street, what matters is how this growth translates into jobs and wages. The news on the jobs  front, unfortunately, remains grim.

Five years after the onset of the Great Recession, 16 million more people are likely to remain unemployed this year than in 2007. This estimate is for a set of countries for which the IMF forecasts unemployment rates; adding in some countries for which the International Labour Organization provides forecasts only boosts the number.

The bulk of this increase in unemployed people has been in the so-called advanced economies (the IMF’s term for countries with high per capita incomes), as shown in the chart below.

Why isn’t the jobs picture better?  Quite simply, it’s because the growth picture isn’t very good.

Consider Chart 2, which shows how for advanced economies the change in unemployment rates expected between 2011 and 2012 correlates with the IMF’s forecasts for growth this year.

Countries such as Cyprus, Greece, Italy, the Netherlands, and Spain, where GDP is expected to decline in 2012 are the ones where unemployment is expected to increase this year.

In Iceland, New Zealand, and the United States, where GDP is expected to grow, unemployment rates are expected to decline.

While these declines are welcome, unemployment rates are still expected to remain high in most advanced economies this year.

The average unemployment rate in these economies is expected to 7 ¾ percent, with several populous economies such as the United States, France, the United Kingdom at or above this average.

Policy response

The need to bring down these high unemployment rates is paramount.

That’s why the IMF stated in its recent World Economic Outlook that “the highest priority, but also the most difficult to achieve, is to durably increase growth in advanced economies, and especially in Europe.”

Specifically, policies must be strengthened to solidify the weak recovery and contain the many downside risks.

In the short term this will require:

  •  more efforts to address the euro crisis;
  • a temperate approach to fiscal restraint in response to weaker activity;
  • a continuation of the very accommodative monetary policies; and
  • ample liquidity to the financial sector.

4 Responses

  1. I think the IMF-led troika has misled us in this respect. This is with particular reference to their failed bailout programs concerning the bailout strategy which they pursued in respect of countries in the eurozone — Greece, Portugal etc. Their unbearable austerity conditions and terms worsened the growth-unemployment situation. not only in those countries, but also in France, the UK, Italy, Spain and others in the European Union.

    But, I am sorry to say that institutions like the IMF believe that they can make no mistakes, do no wrong or say no wrong. The unemployment rate in Spain today is around 25%, which is probably the highest among the 17-member euro zone. If the writer here wishes to know something more, then I invite attention to the results of the French presidential elections only yesterday.

    If I am correct, it was our President, Mr.Obama, who cautioned the European economies at the last Toronto summit of the G-20 to go slow about the austerity measures, about which they were so enthusiastic. Please check up the record, if you have time. In particular, I remember his speech pleading the emerging economies to spend on developing safety nets for the poor, and advised the others not to go fast with austerity measures like they forced upon Greece. And the results are obvious. All this happened in Europe under the nose of the IMF/ECB/EU. ‘Troika’ and yet they are not repenting about the bad choices they made.

  2. But, before we can dream of growth, and of job creation, we must put the sparkplugs back into the economic engine.

    Those sparkplugs, the risk-takers, the “risky” small business and entrepreneurs, were forcedly removed by the regulators when they decided to base the capital requirements for banks on the perceived risks of default, as if those perceptions were not already discriminated for sufficiently by the banks.

    And what these regulations delivered, as should have been expected, are the dangerous obese bank exposures to what is officially perceived as not-risky, and, for us, and for economic growth, and for job creation, the equally harmful anorexic exposures to what is officially perceived as “risky”.

  3. It is very interesting and useful to compare unemployment and growth between advanced and developing countries. I strongly believe that one factor that should be taken into account is the difference in labor standards between them too. For example in some Latin American and in most Asian nations there is a lot of underemployment and very little good employment. Perhaps if labor standards were similar between the advanced and the developing world unemployment figures would be closer than we think.

  4. Absolutely correct about jobs and growth. Now if governments want to stimulate growth and therefore create jobs then that is great and the way it should be. But because the governments still bow down to the wealthy elite minorities, jobs will not be created because these elites will just take the stimulus money and keep it for themselves. It is time that governments take control over some of the projects to ensure it is for the majority in providing jobs.

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