ILO | Work In Progress

Philippe Egger

By Philippe Egger, Director of the ILO Bureau of Programming and Management

With all eyes on the unfolding Eurozone crisis and its dramatic social consequences, are there any lessons to learn from Ireland?

Ireland is a stark illustration of people paying in jobs, income and social duress for the cost of financial profligacy. But its handling of the crisis also holds some lessons for other members of the Eurozone seeking to regain competitiveness with a degree of fairness.

Ireland was one of the countries hardest hit by the Eurozone crisis. The 2008 bursting of the real estate and banking bubble was followed by an explosion of sovereign debt when the government rescued banks and took on defaulting loans at a cost of some 40 per cent of GDP. The fall in prices and drying up of credit pushed the economy into recession.

Employment and unemployment relative to GDP, quarterly data, rebased 2004 = 100. Source: ILO Statistics (Quarterly employment and unemployment) and OECD (Quarterly GDP)

The government tackled the crisis aggressively, setting the short-term priority of balancing a budget laden with bad bank loans, and pursuing a policy of “internal devaluation”, aimed at regaining competitiveness through a significant decline in prices, including wage costs. Early signs of a weak rise in exports suggest that this is having some effect.

But the social cost has been staggering.

A total of 360,000 jobs were shed between 2007 and the first quarter of 2012— a 17 per cent drop. Unemployment rose 3.3 times to 309,000 compared to 2004, reaching 14.8 per cent of the labour force. Wages and domestic demand fell, while poverty and inequality increased.

Ireland did, however, take a series of measures aimed at mitigating the painful side effects of the recovery efforts.

In particular, there are three areas where lessons can be drawn from the Irish experience.

The minimum wage, which is higher than the Eurozone average, has not been lowered;
Social dialogue led to a 2010 agreement to stop cutting public sector pay and to end compulsory redundancies;
And, while two-thirds of fiscal adjustments have come from expenditure cuts, new resources are being channelled to training, orientation and employment services for the unemployed.

These measures may inspire other crisis-hit countries in Europe looking for ideas on how to ease the pain inflicted by the crisis and the austerity measures aimed at battling it.

Guy Ryder

By Guy Ryder, Director-General of the International Labour Organization

Global youth unemployment has become a reservoir of wasted talent and a tinderbox of frustration.

With 75 million young people jobless around the world, tackling this crisis must be a key priority.

It’s no easy task. Youth unemployment is the sharpest edge of the global labour crisis and it’s also the toughest nut to crack. But it’s a challenge we must meet head on.

We have tried for quite some time to make the case about learning from countries that have youth guarantee schemes, and we should turn up the volume on this one.

The idea is to guarantee that a young person who is out of education and out of work is given a job or training, as well as counselling and guidance.

This is not a utopia. Such programmes have proved quite successful in Nordic countries as well as in Germany and Austria.

In these times of crisis, governments are obviously concerned about the additional spending, but they should bear in mind the far higher cost that would come from young unemployed people permanently losing touch with the labour market.

Youth guarantee schemes are affordable. Our research shows that they would cost less than half of one per cent of GDP in Eurozone countries. It’s a sound investment on which one can get very good returns very rapidly. In Sweden, for example, almost 50 per cent of young jobseekers got work or training as a result of the guarantee; in Norway, the success rate is even higher.

There’s also a lot to be learned from Germany’s dual education system, which combines a workplace apprenticeship and vocational training. This is not something that can be replicated wholesale elsewhere, but there are certainly lessons to be learned, elements that can be applied successfully.

And we need to give more weight to active labour market policies. Job placement, public employment services, investments in skills – all of these areas are tremendously underexploited.

All the evidence shows that if a young person is out of work for a year or more at the beginning of their career, that will affect them throughout their working life. There’s no way back for most of them.

The first thing to do is to get jobs moving globally and making sure young people get a good start in their working lives.

There is an expense and a loss of production in keeping people out of work, so let’s attack the problem at the source. We must act urgently, we must act now.

This blog entry was also published in The Huffington Post on October 1 2012

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