Unemployment

High-Level Expert Group Meeting

19 December 1985

Paris, France

Chaired by Jacques Chaban-Delmas

The mandate of the Expert Group was to formulate initial proposals for new policies to lower the level of unemployment in the developed countries, while ensuring that such policies remain compatible with faster growth and higher employment in the developing world.

I. RECOGNlZlNG THE lSSUE

There is a need to recognize the alarming state of employment throughout the world and in particular in the industrialized nations. The problem is political and economic, but also has wider human significance. It is also a universal issue, which expresses the growing .interdependence in the world today. Wherever it arises, unemployment means a major handicap in terms of the wastage of resources, and also forms an obstacle to development.

At the end of 1985 there were almost 31 million unemployed in the countries of the OECD, and some 20,000 jobs would need to be created each day in those countries to return to the 1979 level of unemployment by 1991. The short-term and long-term prospects, based on scenarios of relatively low economic growth of the type now being experienced, are in fact that initially there will be a rise in the number of unemployed, as the population increases and productivity rises: by the end of 1986, unemployment could increase by 250,000 or 500,000, with the increase mainly affecting Western Europe and Japan. Generally speaking, unemployment rates should remain stable but high: about 8.25% of the active population in the countries of the OECD as a whole, but 11% in European countries.

It would be wrong to conclude that the relative stabilization of unemployment rates means that the phenomenon is becoming less acute. The relative stabilization of unemployment levels in Europe, and the slight fall expected in the United States are accompanied by the accentuation of particularly worrying trends. One is the increasing segmentation of the employment market, which poses a major threat for our societies, alongside those who have a job or have hope of finding one, there is a growing mass of young people, women, and older workers put out of work by economic conditions or technical changes, who have received unsuitable training or no training at all. Moreover, those without a job usually remain in this situation for long periods in Europe (the situation is different in the United States and Japan); for example, a quarter of the British unemployed in 1984 had been in this position for more than two years, and in the Netherlands more than half the unemployed had not found work for more than a year. Surveys have shown that the likelihood of a person finding work decreases proportionally as the period of unemployment increases. Motivation to find work is gradually eroded, a particularly serious matter for the youngest members of the unemployed, and the damage caused to human potential is considerable and in some cases irremediable.

The employment situation is very serious in the industrialized countries, and indeed is no less so in the developing nations. In the Third World, there are currently 500 to 700 million workers who are out of work or seriously underemployed (the figures vary according to the criteria adopted). To achieve something close to full employment by the end of the century (even allowing for low levels of productivity and income), after taking the increase in population into account, about a billion jobs need to be created. The enormity of this figure compared with the scale of the employment problem in the North, and the opposite demographic trends in the industrialized and developing countries, clearly foreshadow the risks of confrontation which would arise if unsuitable approaches were adopted to employment problems. Perhaps there has already been too much complacency with regard to population problems, particularly in the Third World.

Imposing in scale, the employment problem - throughout the world and in the industrialized countries in particular - is at the same time, although perhaps less obviously, a social cancer. It attacks the very bases of our societies, which are founded on the work ethic. Work takes on such importance in terms of individual and collective psychology that being deprived of it constitutes a traumatism whose consequences can be irreversible for individuals, as we mentioned earlier, and serious for our societies and the values on which they are founded. Political regimes are running a serious risk. Even in countries with a long tradition of democracy, there is only a short distance between democracy and its opposite, and the sense of exclusion felt by those consistently refused a job by the economic system could trigger violence and ultimately result in dictatorship.

The disruptive effects of unemployment are not limited to national frontiers, for they also complicate and hinder international relations in whatever form. The main cause of national selfishness, and in particular of protectionism, is the fact that no success has been achieved in dealing satisfactorily with unemployment by policies of adjustment aimed at achieving growth, and not merely at re-establishing overall economic balances.

II. AN APPROACH

The participants at the meeting agreed that the seriousness of current unemployment problems was to a large extent the result of the insufficient attention paid by governments up to now to the issue of employment, and that we were today paying the price of inappropriate policies applied in the past which may have activated unemployment. Too much importance has been attached to solving short-term problems (inflation being one of them) without taking due account of the mid- and long-term impact of the policies pursued. In terms of general political philosophy, economic growth and employment in the North and in the South are closely interdependent. To reverse current trends, the experts believe that some major policy decisions, whether concerted or not, must be taken.

International measures

The group agreed that the increased interdependence of national economies was such that a new perception of employment problems was necessary, transcending the frontiers of each state. International considerations are now at the forefront of issues in all fields, and international co-operation has become a necessity. In particular, the economy of one country cannot be stimulated and unemployment rolled back in one country, unless the world as a whole is moving in the same direction.

In this respect, it was noted that rates of growth achieved in the United States have had an extremely positive impact on the rest of the world. However, the difficulties facing the U.5.A. should not be under-estimated, as they mean that we cannot continue indefinitely to regard as the only locomotive of world development. The situation will remain difficult in political terms, even if the budgetary deficit problem is resolved: the issues of the value of the dollar and interest rates will not be resolved at a stroke, and the risks of inflation have not disappeared. lt is therefore necessary that the efforts of the United States should be backed by the rest of the world. No doubt the United States needs to put its affairs in order, but the other industrialized countries also need to adopt less timid and hesitant policies, now that inflation has fallen considerably.

To this end, a minimum level of international concertation in the choice of objectives is necessary for action to be taken, and the adoption of an international employment objective would be particularly desirable. Up to now, concertation has been very limited. However, the climate may be changing, and it has been said, particularly after the talks in Washington and Seoul in September and October 1985, that "the United States has joined the world", and is now ready to play a part in that concertation.

The problems of development in the South must be taken into consideration as international measures are devised. Action in respect of the Third World is not only a matter of charity, but of exchange and reciprocity; it is essential for development even in the countries of the North. Although may be misleading to consider the countries of the Third World on the one hand, and the industrialized nations on the other, as forming homogeneous groups, the experts nonetheless believed it was possible to formulate s number of observations of general scope.

Thus, although overall an economic upturn and a rollback of unemployment in the industrialized countries are necessary for an upswing in economic growth and employment in the developing countries, the industrialized countries cannot themselves create a durable upturn in their economies without development in the countries of the South. Moreover, the absence of development in the South gives rise to considerable risks for the peace of the world, and imperils democracy in countries which believe in liberty and human values.

The struggle against protectionism, which is important in the context of the economic relations between the countries of the North themselves, takes on fundamental significance in terms of its implications for the South. There is however s need to abandon the current hypocrisy of denouncing protectionism while continuing to practice and promote it. "Access to markets of the North of products like textiles as well as agricultural products like sugar, which are of crucial importance to the developing countries, is severely limited. It is urgently needed to roll back protectionist measures affecting products that are of particular importance for employment in the poorer countries and for heavily indebted countries." In this connection, agriculture must not be considered as a taboo subject by the countries of the North: the dumping of agricultural products by the industrialized countries in the countries of the South has disastrous effects on Third World economies, and helps to reduce the priority granted to agriculture, when in fact this should be one of the very bases of their development.The interdependence which characterizes the current situation means that international exchanges must be governed by an ethic, and that problems be dealt with in a framework of precise legal rules, and not be settled by the balance of power.

Moreover, resource transfer policies (concerning both capital and know-how) are indispensable to ensure that the upswing spreads to the developing countries. Developments over the last few years have not borne out the "trickle down" theory. The handling of debt issues must be considered in this light, although it is essential that the transfer issue is not limited only to the case of the debtor countries (there should be no confusion between the terms Third World and debtor countries). From this viewpoint, the Seoul talks and the presentation of the Baker Plan were opportunities to recognize that the South must be helped to re-establish its situation through growth. The decisions taken marked a step in the right direction, although many observers are still highly skeptical and many questions remain to be resolved, particularly the issues of modes of adjustment and conditions (could it not be suggested in this connection that creditors also should comply with some conditions?). ln addition to higher loans, lower interest rates and an increase in public development aid (perhaps in a form inspired by the Marshal Plan?) would probably be the most effective contributions the North could make to the development of the South in terms of finance. The opportunity which emerged st Seoul must not be missed, although the South also needs measures of a non- financial nature: the raising of the price of basic commodities is one example, and the Common Fund must be rapidly implemented to this end.

Technological progress also constitutes a potential danger for the transmission of the upswing to the developing countries. These countries have not yet been able to absorb the fruits of the first industrial revolution, and one may well ask how they will come to terms with the fruits of the second (and automation in particular). The North is currently developing high technology which the countries of the Third World cannot assimilate unaided, and which will probably not affect the great mass of poor people, particularly in rural zones: the new technology is after all generally labour saving. Moreover, current technological developments can be extremely damaging to the exports of the South, as they use only limited quantities of raw materials, while microbiology for example constitutes a direct threat to plant and animal production.

National measures

Most of the international measures to which reference has just been made are explicitly or implicitly complementary to national measures; indeed, if national measures are not taken, insurmountable political and economic problems will arise. The experts agreed that the extreme heterogeneity of national situations made it particularly difficult to make any generalizations about orientations or recommendations to be formulated; in particular, the quite specific aspects of the Japanese and United States situations cannot be ignored. The participants nonetheless considered that a range of pertinent observations could be made, and could contribute to the development of specific policies aimed at increased employment.

There is a consensus of opinion that there can be no solution to the problem of unemployment without an upturn in growth. "To what extent monetary or fiscal policies could contribute more actively to stronger sustainable growth in Europe is a contentious issue. It would seem that there is relatively little room for manoeuvre on the fiscal side: attempts to strengthen demand through fiscal reflation would almost certainly compromise medium-term objectives and could therefore prove counter-productive even in the short term. Some modest action in certain countries might however be possible and helpful. As regards monetary policy there may be increasing scope for action to bring interest rates down if weakness of the U.S. dollar persists; and such scope could be used without compromising inflation objectives. It seems clear that U.5. action on the budget would tend to enlarge the scope for bringing down interest rates generally."

It should, however, be emphasized that higher growth does not necessarily lead to correspondingly higher creation of jobs. Low levels of job creation can be the result of high labour costs, which trigger rationalization, and cutbacks in the number of people employed. The investment made in Europe up to now has been essentially aimed at increasing productivity, and not at development. Over the last three or four years, Europe has failed to adapt to changing circumstances; this has resulted in resistance to change and the development of the "wrong" type of investment: investment which saves on labour costs. However, it would seem that the limits of increased production without the creation of jobs will soon be reached, and today almost everywhere increased production is bringing with it recruitment (although often made in a very prudent way: temporary staff, part-time jobs, sub-contracting, and so on).

What can governments do to ensure that this policy is increasingly effective? Perhaps above all it is moderation in wages and labour costs (including those which are not linked to wages, such as social security costs) which has an essential part to play. A well-chosen fiscal policy can undoubtedly also be effective in this respect. But the solution to today's problems - in a world where competitivity is the key to success - lies in increased flexibility and in strengthening the adaptability and resilience of the economy in the face of changes. This involves combating rigidity in each market wherever it appears, and not only in the employment market: flexibility is just as necessary in the products market as in the capital market.

The flexibility of the employment market is undoubtedly indispensable if the desired change is to be achieved; it is generally understood to include - in addition to flexibility in wages and the adjustment of relative wage levels - encouragement for geographical and professional flexibility, and more flexible legislation concerning hiring and redundancy. This has been particularly clear in recent experiences in the U.S.A. and Japan. However, although some rigid structures do need to be smoothed out, this must not be used as an opportunity to dismantle trade unionism, as this would call into question the social benefits workers have achieved. Flexibility must be accompanied by measures aimed at social reinsertion, organized after concertation between government, employers and workers.

"These policies will over time bring unemployment back to more acceptable levels. Public opinion should understand that it will take time (for many countries into the nineties) before the appropriate policies for sustainable growth and job creation will show substantial results. Meanwhile major efforts should be made to stop the process of segmentation of the labour market, referred to above. Special action is needed to get the long-tern unemployed back to work. Co-operation between governments, employers and labour should make it possible to create special facilities in the field of training, labour costs, etc."

Transitional jobs, preferably including a degree of training, should facilitate the integration of newcomers to the employment market, but more generally, in the face of a changing labour force with new aspirations, the possibilities offered by new forms of employment (part-time work, work sharing, employment by several employers at once, and so on) should be explored and encouraged.

The search for new solutions is all the more important in that the long-term impact of the current rapid technical advances (and particularly the development of microelectronics, which is also affecting the service sector) is difficult to determine; there is clearly a need to make in-depth studies in this field, but in any case the problem of adaptation will remain serious. If there is an effort to reach consensus and not confrontation between labour, management and government, this should enable the achievement of harmonious and socially acceptable growth.

The discussion could not cover all the aspects of the subject. Centered mainly on problems as seen from the industrialized North, it should clearly be accompanied by a similar and complementary discussion from the viewpoint of the countries of the South. Despite these limitations, some key ideas have emerged.

In the first place, it is imperative that urgent measures be taken to cut unemployment; any failure to do so, and any excessive delay in achieving this aim would place democracy, our societies, and the human values on which they are based in mortal danger. The measures to be taken, which should tend to bring back flexibility in the economies of the industrialized countries, must be based on a national consensus, achieved by the joint contributions of government, labour and employers.

Secondly, economic growth is a necessary condition but not a guarantee of increased employment; this means that not only is faster growth in the industrialized countries indispensable, and which inflation is still an important concern - concerted reflationary policies are needed -, but also that special attention must be paid to the problem of overcoming unemployment, which is unlikely to show any spontaneous tendency to improve.

Thirdly, the employment issue is today an international matter: it can only be dealt with effectively in a framework of co-ordinated national policies; when policies are being developed, their implications for the countries of the South - whose development is conducive to that of the industrialized countries - cannot be ignored.

The participants hope that their discussions will make a positive contribution to the work of the lnterAction Council; they trust that the Council will agree that employment is one of the major problems of the day, and join in calling for immediate action.