2. THE IMPORTANCE OF CONTEXT
Policy makers interested in improving the conditions of employment and promoting the creation of decent jobs will find in this chapter inspiration for a better future of work. A sense of priority and the inter-relations between the various elements of good labour policies in different development contexts, are, however, missing. By keeping the discussion global, the authors miss the opportunity to elaborate on the differential challenges faced by countries at various levels of development. A discussion of challenges, even with such broad groupings as developed and developing countries, would provide more specific guidance about the issues that should take priority in certain contexts. A few examples may help to illustrate this point.
2.1. Flexibility with security
The vision of societies that have a good balance between flexibility to facilitate market innovation and security for workers is an ideal to which most societies would subscribe. Progress in this direction, however, requires a different policy mix in different contexts. In developed countries, greater flexibility for business firms to innovate and for workers to choose the work schedule and tasks compatible with their own needs requires a policy agenda of reforms to labour legislation and a transition towards social protection systems delinked from the work place, extending coverage further to incorporate currently excluded groups.
In developing countries, a future of flexibility with security requires a different policy agenda. With a large proportion of workers in the informal sector and highly fragmented systems of social protection, the policy agenda is one of improving the level of productivity in the informal sector to facilitate formalization of employment while building universal and effective systems of social protection.
The vision of a future where flexibility and security would allow societies to flourish with innovation and good jobs is worth pursuing, but context matters. A nuanced discussion in the chapter to identify the realities of specific countries would have been helpful in identifying policy agendas and the sequencing of policy interventions.
2.2. New technology and globalization
Globalization and the introduction of new technology to the workplace is bringing serious challenges in all countries. Their impact, however, and the policies needed to address them, are different depending on context. In developed countries, the loss of jobs linked to globalization and to the introduction of new technology requires policies that support the updating of skills among workers and to facilitate the spread of innovation. As argued in the chapter, in the history of technological innovation job displacement is short-term. Over longer periods of time, new technologies lead to the creation of new sectors, new products and new jobs. Policies to accelerate this process will reduce the impact of automation and globalization on the life of workers and their families.
For developing countries, the challenges, and thus the policy options, are quite different. In many cases, globalization is bringing production processes that rely on low wages with weak linkages to the rest of the economy. The policy challenges in this context are twofold: one, expediting the transfer of technology from typically large exporting firms to local producers, with the aim of increasing overall productivity and thus wages. Two, facilitating the creation of value chains to improve linkages between exporting firms and local producers, with special emphasis on small and medium size enterprises. Strengthening these links would contribute to the creation of employment beyond the few jobs in exporting sectors.
In sum, nuanced analysis of policy implications in the chapter to reflect different contexts, even at the level of large country groupings, would have provided more concrete guidance.
3. MACROECONOMIC POLICIES FOR EMPLOYMENT CREATION
At a time when the most recent forecasts point to the rebound of the world economy, there is still widespread recognition of large job deficits in practically all countries.
The World Employment Social Outlook (ILO 2018) recognizes the recent recovery of economic growth in most countries and the expectation that the global unemployment rate will be 5.5 per cent in 2018. In spite of this, the ever-increasing number of people entering the labour force will keep the number of people unemployed above 192 million in 2018 with additional 1.3 million people unemployed in 2019.
Equally troubling is that the number of workers in vulnerable unemployment is projected to increase by 17 million a year in 2018 and 2019. This will leave around 42 per cent of workers in the world (1.4 billion) in vulnerable employment, 76% of these in developing countries.
Against this background, it is not difficult to argue for the importance of turning to the structural conditions that restrict the creation of good jobs. While there are various factors, well documented in the chapter, that help to explain job deficits and prevailing inequalities in the conditions of employment, at the root of the problem there is an insufficient level of aggregate demand to support conditions of full employment, even in countries where economic recovery is strongest, as discussed by Bivens (Reference Bivens2018) for the case of the United States.
Full employment and the reduction of inequalities in the conditions of employment requires appropriate management of aggregate demand to guarantee an aggregate level of expenditures consistent with full employment. The management of aggregate demand is precisely the task of macroeconomic policy and while it is not sufficient, it is a necessary condition to improve conditions for the creation of good jobs for all. It is therefore surprising that the macroeconomic conditions and policies that underpin the creation of employment are missing in the chapter’s discussion of policy instruments for the future of work.
In its text-book formulation, the chief objective of macroeconomic policy is maximizing the level of national income consistent with full employment and price stability. This objective was modified in very fundamental ways when, in the 1980s, price stability became the over-riding concern of policymakers. The new orthodoxy calling for fiscal consolidation, liberalization and privatization gained strength in policy decisions around the world when introduced by multilateral institutions and international banks in the form of conditionality for debt relief and financial support following two oils shocks in the 1970s (United Nations 2017). The Washington Consensus, as the new orthodoxy was known, narrowed the focus of fiscal and monetary policies to inflation targets with no regard for its employment impact. In this view, price stabilization was to stimulate private investment and thus, job creation. Narrow inflation targets, combined with fiscal austerity, deregulation of capital markets and privatization would provide the investment-friendly environment needed for employment creation and improved labour conditions.
The realities of the Great Recession in recent years with the persistence of protracted unemployment and under-employment are bringing back attention to the role of macroeconomic policies in generating the level of aggregate demand needed for the creation of full employment and good jobs. Issues related to adequate financial regulation, flexible inflation targeting, exchange rate and foreign exchange management, and effective management of fiscal policies are part of the tools at government's disposal to improve economic stability, stimulate job creation, and reduce inequalities (Parissoto and Ray 2017).
Indeed, many other factors and policy areas are also important for the creation of good jobs and they are well reflected in the chapter. Policies for delinking social protection from the job place and ensuring proper workers’ representation are certainly important. These policies, however, are not sufficient in providing good jobs for all if households, business and institutions do not generate enough demand. Both fiscal and monetary policies play a fundamental role in stimulating a level of aggregate demand that is consistent with full employment and making sure aggregate demand is spread evenly across regions and sectors within a given country for balanced and inclusive growth and employment creation (Bivens Reference Bivens2018).
The right combination of fiscal, monetary and exchange rates policies for employment creation largely depends on the specific context of each country.
Monetary policy, mainly concerned with the management of interest rates, can be set to induce the right level of borrowing and thereby, consumption spending and productive investment. At times of depressed aggregate demand, however, decreasing interest rates has a limited impact on consumption and investment, as illustrated in recent years. After a short period of fiscal stimulus in 2008, governments in developed countries relied mainly on loose monetary policies to stimulate the economy. Interest rates were kept low for several years without producing adequate growth rates.
Fiscal policy has the potential of stimulating aggregate demand through taxes and government expenditures. There are large debates about the most effective ways of stimulating employment creation through fiscal policy. Reducing taxes of higher income groups with a low marginal propensity to spend may be ineffective. But increasing government expenditures on infrastructure, education, on-the-job training or direct employment generation can strengthen the economy and, if well targeted, will increase job opportunities for disadvantaged workers and regions. Targeted fiscal policies for the construction of economic and social infrastructure and to support productive investment are critical for making sure such regions have the resources to generate sufficient employment opportunities. Responsible fiscal policies can be a powerful tool to increase aggregate demand and expand employment creation directly but also by inducing higher levels of productive investment with additional impact on employment creation.
Similarly, exchange rate policies have proven to be an effective tool to strengthen the creation of employment and reduction in inequality. While not all countries can use their exchange rate to stimulate exports at the same time, the historical experience of many countries illustrates the effectiveness of exchange rate management for stimulating exports and creating employment.
Indeed, management of macroeconomic policy for full employment does not exhaust the agenda for the creation of good jobs for all but achieving a level of aggregate demand that is consistent with full employment is a sine qua non condition for good employment outcomes. Bringing the macroeconomic framework to the policy discussion for good jobs and well-functioning labour markets remains challenging. The IMF has recently argued that ‘fiscal stimulus to support demand is no longer a priority. . . when economic activity is already pacing up’ (Financial Times 2018). Once again, attention is turning to paying off debts. There is enough experience in past decades to illustrate the limitations of narrow policy targeting. Emphasis on narrow macroeconomic aggregates with no concern for the conditions of employment will, once again, prove unable to guarantee good jobs for all.
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1. INTRODUCTION
The authors of Chapter 7, The Future of Work, have made a thorough review of recent labour market trends. In telling a global story, the authors provide a vision of the future of work that should guide policy initiatives for the creation of desirable jobs for all. This vision is one where economic growth is consistent with ecological sustainability; with full and fair employment and no discrimination; where workers control their time and tasks; and where there are inclusive labour market institutions. The policies that the authors put forward to advance this vision include flexibility in the rules related to employment protection to avoid deeper segmentation of the labour market; the creation of social protection systems to cover all workers; the provision of broad access to education and skill formation at different stages of life; the guarantee of equal opportunities and non-discrimination; and respect for collective bargaining.
My comments will focus on two issues. The first is that the authors’ general, global policy recommendations are not very useful in identifying priorities. Progress towards the vision proposed by the authors will require different policy instruments depending on countries’ context. The second issue refers to the absence of a discussion about the role of macroeconomic policy as a main determinant of job creation. I argue that the prospect of societies offering good jobs for all largely depends on their capacity to maintain a level of aggregate demand consistent with full employment, which therefore should be a key objective of macroeconomic policy.
2. THE IMPORTANCE OF CONTEXT
Policy makers interested in improving the conditions of employment and promoting the creation of decent jobs will find in this chapter inspiration for a better future of work. A sense of priority and the inter-relations between the various elements of good labour policies in different development contexts, are, however, missing. By keeping the discussion global, the authors miss the opportunity to elaborate on the differential challenges faced by countries at various levels of development. A discussion of challenges, even with such broad groupings as developed and developing countries, would provide more specific guidance about the issues that should take priority in certain contexts. A few examples may help to illustrate this point.
2.1. Flexibility with security
The vision of societies that have a good balance between flexibility to facilitate market innovation and security for workers is an ideal to which most societies would subscribe. Progress in this direction, however, requires a different policy mix in different contexts. In developed countries, greater flexibility for business firms to innovate and for workers to choose the work schedule and tasks compatible with their own needs requires a policy agenda of reforms to labour legislation and a transition towards social protection systems delinked from the work place, extending coverage further to incorporate currently excluded groups.
In developing countries, a future of flexibility with security requires a different policy agenda. With a large proportion of workers in the informal sector and highly fragmented systems of social protection, the policy agenda is one of improving the level of productivity in the informal sector to facilitate formalization of employment while building universal and effective systems of social protection.
The vision of a future where flexibility and security would allow societies to flourish with innovation and good jobs is worth pursuing, but context matters. A nuanced discussion in the chapter to identify the realities of specific countries would have been helpful in identifying policy agendas and the sequencing of policy interventions.
2.2. New technology and globalization
Globalization and the introduction of new technology to the workplace is bringing serious challenges in all countries. Their impact, however, and the policies needed to address them, are different depending on context. In developed countries, the loss of jobs linked to globalization and to the introduction of new technology requires policies that support the updating of skills among workers and to facilitate the spread of innovation. As argued in the chapter, in the history of technological innovation job displacement is short-term. Over longer periods of time, new technologies lead to the creation of new sectors, new products and new jobs. Policies to accelerate this process will reduce the impact of automation and globalization on the life of workers and their families.
For developing countries, the challenges, and thus the policy options, are quite different. In many cases, globalization is bringing production processes that rely on low wages with weak linkages to the rest of the economy. The policy challenges in this context are twofold: one, expediting the transfer of technology from typically large exporting firms to local producers, with the aim of increasing overall productivity and thus wages. Two, facilitating the creation of value chains to improve linkages between exporting firms and local producers, with special emphasis on small and medium size enterprises. Strengthening these links would contribute to the creation of employment beyond the few jobs in exporting sectors.
In sum, nuanced analysis of policy implications in the chapter to reflect different contexts, even at the level of large country groupings, would have provided more concrete guidance.
3. MACROECONOMIC POLICIES FOR EMPLOYMENT CREATION
At a time when the most recent forecasts point to the rebound of the world economy, there is still widespread recognition of large job deficits in practically all countries.
The World Employment Social Outlook (ILO 2018) recognizes the recent recovery of economic growth in most countries and the expectation that the global unemployment rate will be 5.5 per cent in 2018. In spite of this, the ever-increasing number of people entering the labour force will keep the number of people unemployed above 192 million in 2018 with additional 1.3 million people unemployed in 2019.
Equally troubling is that the number of workers in vulnerable unemployment is projected to increase by 17 million a year in 2018 and 2019. This will leave around 42 per cent of workers in the world (1.4 billion) in vulnerable employment, 76% of these in developing countries.
Against this background, it is not difficult to argue for the importance of turning to the structural conditions that restrict the creation of good jobs. While there are various factors, well documented in the chapter, that help to explain job deficits and prevailing inequalities in the conditions of employment, at the root of the problem there is an insufficient level of aggregate demand to support conditions of full employment, even in countries where economic recovery is strongest, as discussed by Bivens (Reference Bivens2018) for the case of the United States.
Full employment and the reduction of inequalities in the conditions of employment requires appropriate management of aggregate demand to guarantee an aggregate level of expenditures consistent with full employment. The management of aggregate demand is precisely the task of macroeconomic policy and while it is not sufficient, it is a necessary condition to improve conditions for the creation of good jobs for all. It is therefore surprising that the macroeconomic conditions and policies that underpin the creation of employment are missing in the chapter’s discussion of policy instruments for the future of work.
In its text-book formulation, the chief objective of macroeconomic policy is maximizing the level of national income consistent with full employment and price stability. This objective was modified in very fundamental ways when, in the 1980s, price stability became the over-riding concern of policymakers. The new orthodoxy calling for fiscal consolidation, liberalization and privatization gained strength in policy decisions around the world when introduced by multilateral institutions and international banks in the form of conditionality for debt relief and financial support following two oils shocks in the 1970s (United Nations 2017). The Washington Consensus, as the new orthodoxy was known, narrowed the focus of fiscal and monetary policies to inflation targets with no regard for its employment impact. In this view, price stabilization was to stimulate private investment and thus, job creation. Narrow inflation targets, combined with fiscal austerity, deregulation of capital markets and privatization would provide the investment-friendly environment needed for employment creation and improved labour conditions.
The realities of the Great Recession in recent years with the persistence of protracted unemployment and under-employment are bringing back attention to the role of macroeconomic policies in generating the level of aggregate demand needed for the creation of full employment and good jobs. Issues related to adequate financial regulation, flexible inflation targeting, exchange rate and foreign exchange management, and effective management of fiscal policies are part of the tools at government's disposal to improve economic stability, stimulate job creation, and reduce inequalities (Parissoto and Ray 2017).
Indeed, many other factors and policy areas are also important for the creation of good jobs and they are well reflected in the chapter. Policies for delinking social protection from the job place and ensuring proper workers’ representation are certainly important. These policies, however, are not sufficient in providing good jobs for all if households, business and institutions do not generate enough demand. Both fiscal and monetary policies play a fundamental role in stimulating a level of aggregate demand that is consistent with full employment and making sure aggregate demand is spread evenly across regions and sectors within a given country for balanced and inclusive growth and employment creation (Bivens Reference Bivens2018).
The right combination of fiscal, monetary and exchange rates policies for employment creation largely depends on the specific context of each country.
Monetary policy, mainly concerned with the management of interest rates, can be set to induce the right level of borrowing and thereby, consumption spending and productive investment. At times of depressed aggregate demand, however, decreasing interest rates has a limited impact on consumption and investment, as illustrated in recent years. After a short period of fiscal stimulus in 2008, governments in developed countries relied mainly on loose monetary policies to stimulate the economy. Interest rates were kept low for several years without producing adequate growth rates.
Fiscal policy has the potential of stimulating aggregate demand through taxes and government expenditures. There are large debates about the most effective ways of stimulating employment creation through fiscal policy. Reducing taxes of higher income groups with a low marginal propensity to spend may be ineffective. But increasing government expenditures on infrastructure, education, on-the-job training or direct employment generation can strengthen the economy and, if well targeted, will increase job opportunities for disadvantaged workers and regions. Targeted fiscal policies for the construction of economic and social infrastructure and to support productive investment are critical for making sure such regions have the resources to generate sufficient employment opportunities. Responsible fiscal policies can be a powerful tool to increase aggregate demand and expand employment creation directly but also by inducing higher levels of productive investment with additional impact on employment creation.
Similarly, exchange rate policies have proven to be an effective tool to strengthen the creation of employment and reduction in inequality. While not all countries can use their exchange rate to stimulate exports at the same time, the historical experience of many countries illustrates the effectiveness of exchange rate management for stimulating exports and creating employment.
Indeed, management of macroeconomic policy for full employment does not exhaust the agenda for the creation of good jobs for all but achieving a level of aggregate demand that is consistent with full employment is a sine qua non condition for good employment outcomes. Bringing the macroeconomic framework to the policy discussion for good jobs and well-functioning labour markets remains challenging. The IMF has recently argued that ‘fiscal stimulus to support demand is no longer a priority. . . when economic activity is already pacing up’ (Financial Times 2018). Once again, attention is turning to paying off debts. There is enough experience in past decades to illustrate the limitations of narrow policy targeting. Emphasis on narrow macroeconomic aggregates with no concern for the conditions of employment will, once again, prove unable to guarantee good jobs for all.
ACKNOWLEDGEMENTS
I am grateful to Alex Voorhoeve for very useful comments to an earlier draft and to the participants of the workshop on the Report of the IPSP in the London School of Economics on 8 June 2018 for stimulating discussion.