Job recovery in times of constrained public finances
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The document discusses the divergent economic recoveries across countries following the global financial crisis and common recession. It argues that tailor-made fiscal and labor market policies are needed to boost employment, as financial stress remains high and stimulus becomes more cost-effective. Specifically, it recommends targeting long-term unemployment aggressively with the most effective policies, as stimulus measures lose effectiveness over time.
![Employment friendly macroeconomic frameworks Job recovery in times of constrained public finances Ekkehard Ernst Principal Economist, International Institute for Labour Studies [email_address]](https://image.slidesharecdn.com/ernstilo-undp2010v97-110104020033-phpapp01/85/Job-recovery-in-times-of-constrained-public-finances-1-320.jpg)
Job recovery in times of constrained public finances
- 1. Employment friendly macroeconomic frameworks Job recovery in times of constrained public finances Ekkehard Ernst Principal Economist, International Institute for Labour Studies [email_address]
- 2. Overview Common crisis Divergent recovery Tailor-made policies Alternatives?
- 4. The trade crisis has affected everybody in the short run... Correlation of trade flows in OECD countries Global trade collapse
- 5. ...but in the long-run, investment will follow too... Deleveraging of households and firms has already started
- 6. ...as long as financial markets remain stressed Financial stress index in 2009
- 8. The sovereign debt crisis has brought divergence... Variation of government bonds long-term rates in the Euro area (2001-2010)
- 9. ...and caused global fiscal consolidation Stimulus vs. consolidation packages
- 10. Problems on the labour market become entrenched Increase in long-term unemployment (2009Q1 to 2010Q1, in %)
- 12. Three main principles Policy intervention necessary as long as financial stress is high Stressed financial market conditions increase fiscal multipliers This makes fiscal policy interventions particularly cost-effective Use fiscal space where available Fiscal space also depends on the multiplier Especially in emerging economies, these multipliers might be large There, even small amounts of fiscal stimulus can make a difference Switch to most effective (labour market) policies Avoid unemployment to become entrenched as much as possible Target long-term unemployment more aggressively Large expenditure necessary as policies loose effectiveness
- 13. Fiscal policies most effective when financial stress is high Policy effectiveness in job creation, at different levels of financial stress
- 14. Fiscal stimulus can have a strong impact, especially in emerging economies...
- 15. ...but effects change depending on the instrument used
- 16. IV Alternatives?
- 17. Additional spending could be a win-win option Exit scenarios from the crisis in advanced G20 countries
Editor's Notes
- #5: Note: The chart displays the average correlation of OECD countrys world trade exposure with respect to the overall OECD average world trade. Both trade weighted and unweighted averages are displayed. The correlation coefficient is based on a rolling 24 months window of deviations of trade from trend. Source: OECD, Monthly Trade Statistics, 2010; own calculations
- #6: Note: The chart displays the average correlation of OECD countrys world trade exposure with respect to the overall OECD average world trade. Both trade weighted and unweighted averages are displayed. The correlation coefficient is based on a rolling 24 months window of deviations of trade from trend. Source: OECD, Monthly Trade Statistics, 2010; own calculations
- #7: Source: OECD (2009) Fiscal Packages Across OECD Countries: Overview and Country Details, OECD Paris, March; Andes, Scott and D. Castro(2009) "Driving a Digital Recovery: IT investments in the G-20 Stimulus Plan" The Information Technology and Innovation Foundation, September; Robins, N., R. Clover and C. Singh (2009) "Building a Green Recovery" May 2009, HSBC Global Research, New York; Reid, Patricia (2009) "Oppurtunity in the Times of Crisis: Stimulus Packages and the Green New Deal Working Policy Paper August 2009, Canada-Europe Transatlantic Dialogue: Seeking Transnational Solutions to 21st Century Problems; Meyer-Ohlendorf, N., B. Gorlach, K. Umpfenbach, M. Mehling (2009) "Economic Stimulus in Europe - Accelerating Progress towards Sustainable Development" Background Paper, ESDN Meeting, Prague June 2009; Zhang, Y, N. Thelen and A. Rao (2009) "Social Protection in Fiscal Stimulus Packages: Some Evidence" A UNDP-ODS Working Paper, New York September 2009; Ministry websites of various countries and other national sources.
- #9: Source: OECD, Economic outlook 86
- #10: Source: National sources
- #11: Source: National sources
- #14: Souce: WoW 2010, ch. 3
- #15: Souce: WoW 2010, ch. 3
- #16: Note : The chart presents the contributions (in %) to unemployment in- and outflows of different fiscal and labour market policies. Contributions are calculated with respect to the average spending shock across the country sample for each individual policy. Short-term effects are based on exogenous interest rates, long-term effects take the impact of an increase in government debt on real long-term interest rates into account. Source: WoW 2010, ch. 3
- #18: Source: IILS, 2010. Promoting employment recovery while meeting fiscal goals, Geneva