Jobs. Jobs. Jobs. Getting the Labor Markets Working Again

By Olivier Blanchard

The sharp and persistent rise in unemployment in advanced economies since the 2008-09 financial crisis is a hotly debated policy issue.  Rightly so:  High persistent unemployment has major human and economic costs, from loss of morale to loss of skills.  More broadly, it seems to undermine the very fabric of society.

Against this backdrop, the theme for the IMF’s 13th Jacques Polak Annual Research Conference, “Labor Markets through the Lens of the Great Recession,” could not be timelier. This year’s conference program weaves together a number of contributions by researchers both inside and outside the IMF, aiming to shed light on those labor market issues that are central to the current economic and social landscape.

Cyclical vs. structural

Peter Diamond, Nobel Prize winner in Economics and Professor of Economics at MIT, will give the keynote Mundell-Fleming lecture on the controversial issue of cyclical vs. structural unemployment.

Peter will explore whether and how we can use the information contained in two widely used tools, the Beveridge curve relation between unemployment and vacancies, and the matching function, which relates hires, unemployment, and vacancies.   His contribution will help us understand both the usefulness but also the limits of these tools, and give clear indications on how we should extend our research in the future.

The remainder of the program consists of 12 papers on key dimensions of labor markets and income distribution, and on the role of trade and financial globalization in labor market outcomes around the globe.

Just to give you a flavor of what to expect, here are some of the questions that we will be discussing:

  • Has the relationship between employment and output growth (the so-called “Okun law”) changed in recent years? To what extent is such a relationship stable over time and significantly homogeneous across countries?
  • What is the role of skills mismatch in unemployment? Is the Beveridge curve shifting significantly over time and, if so, how do social policy (namely, unemployment insurance) and skill mismatch account for such shifts?
  •  What is the relationship between growth and income and wealth inequality? Do rising top income shares exacerbate economic fragility? And if so, how far should and could fiscal policy go in trying to mitigate it?
  • Do contractionary monetary policies systematically increase inequality in labor earnings and consumption?
  • How far does imperfect financial intermediation help explain fluctuations in employment and asymmetries in job creation between small and large businesses?
  • How large has been the impact of trade integration with large emerging markets (China, India, and others) on employment and income distribution in advanced countries?
  • What are the stylized facts about fast employment recovery “miracles”? Do recoveries tend to benefit more those who lost their jobs in the first place through “employment recalls” at the expense of new entrants in the labor force? How crucial have been labor market reforms and regulation in fostering employment recoveries?

In addition to the Mundell-Flemming lecture, the conference will feature two other events. George Akerlof – Nobel Prize winner in Economics and Senior Advisor in the IMF Research Department– will deliver the opening remarks to the conference, sharing his views on the nature of unemployment and main trade-offs in job creation policies.

The conference will conclude with an Economic Forum on “Policies and Jobs.”  A panel of experts,  Ricardo Hausmann (Harvard University and former finance minister of Venezuela), Adriana Kugler (chief economist of the U.S. Department of Labor), Lawrence Katz (Harvard University), and Martin Rama (head of the World Bank 2013 WDI report on jobs), will discuss current labor market policy choices  both in advanced and in emerging countries.

As in the past, we hope that research presented at this conference will contribute to new policy thinking here at the IMF and elsewhere, and that you can find time to read the papers posted online, and via the broadcast of the Economic Forum at or by commenting here.

4 Responses

  1. nobody able to solve the world’s financial problems. Big question here is not what is the solution, but why no-one can can find it? just think about this idea —(world as one country) and think about this —policy is the enemy of civilization and prosperity, the suffering of the people of the world come out of the dirty womb policies; believe the big question is not what but why !!

  2. We have our banks operating with regulations which determine that they can lend to those considered as not risky, “The Infallible”, holding much less capital than when lending to those considered “The Risky”’, like the not so good rated or unrated small businesses and entrepreneurs.

    That of course translates into to banks being able to earn a much higher expected risk-adjusted return on equity when lending to “The Infallible” than when lending to “The Risky”.

    And that result in an odious and dangerous regulatory discrimination against much of our job generators, those already naturally discriminated against by the banks, by means of being charged higher interest and receiving smaller loans

    I am amazed that IMF is not capable of exploring what abandoning the current capital requirements for banks based on ex-ante perceived risk of default of the borrower for capital requirements based on job-creation-potential-ratings would do for job creation.

    Frankly, would reducing the current capital requirement for a bank by for example 40 percent if lending to a small business that has a special potential of creating jobs for our youth be too risky? Of course not!

    What is really risky is risk-aversion increase in our banks that regulators caused and that led and leads them to dangerous excessive exposures to “The Infallible”… holding little or no capital. Had that been knowingly done on purpose, I guess it could qualify as an act of high treason.

  3. The reason for the rise in unemployment in advanced countries is because large companies that would employ many people, many graduates and educated people now offshore and outsource the jobs to “slave” labour hired in other countries and agencies, and if they can’t offshore jobs then they import slave labour to replace their own workforce.

    Small businesses can’t take the load of people as medium to major corporation can and so if people don’t have jobs, they don’t have money, thus not spending at small businesses and that means small businesses close down which just adds to more unemployment.

    Giving tax cuts does nothing; in fact it just makes more profits for the business elites because they will still offshore/outsource the jobs!

    What governments need to do it stop bowing down to the business elites and change the laws for the majority to prosper!

  4. –It (unemployment) seems to undermine the very fabric of society — Olivier Blanchard

    It has already undermined the social fabric in some of the EU countries like Spain and Greece. Unemployment, especially among the young population, has achieved dangerous proportions. Economic growth should mean job creation but the problem is that population growth has far exceeded the opportunities provided by the labour markets. Moreover income distribution (allegedly under a capitalistic system) has been immorally unequal. As it is academically said that one percent has dominated the rest of the ninety-nine percent. For the required harmonization, some tough political decisions are needed to protect the have nots and burden the haves. Let us wait for some feasible outcomes which our thinkers are likely to give us at the coming Jacques Polak Annual Research Conference.

    Expectations listed by Olivier are not so ‘great’ that those cannot be achieved. What is fundamentally needed is political stability plus moderate financial austerity.

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