I.M.F. Calls for Countries to Focus on Jobs

NYT:

Rising long-term unemployment, especially among young people, poses the next big threat to the global economic recovery, the International Monetary Fund warned on Monday.

Slower growth is forcing governments to expand social safety nets and stimulate job creation even as they rein in finances. But with hundreds of millions of people unemployed worldwide, Dominique Strauss-Kahn, the managing director of the I.M.F., said the financial crisis “won’t be over until unemployment significantly decreases.”

Mr. Strauss-Kahn urged governments to start factoring back-to-work policies into their overall equation for stoking growth. He added, in remarks at an employment forum with the International Labor Organization, that a failure to halt persistent high joblessness could fan social tensions in several countries and restrain growth over time.

Youth unemployment in the 33 countries that belong to the Organization for Economic Cooperation and Development has risen 18.8 percent from 2007 to 2009, or by about four million people, with the sharpest hits in Spain and Ireland, according to agency calculations.

The percentage of people in the 33 countries out of work for 12 months or more was stuck at around 24 percent last year, down from more than 30 percent a few years ago, but still too high for many policy makers.

While governments hit by the financial crisis have had to tighten their belts, in part to address investor concern about rising debt, countries that need to rebuild credibility should first reallocate spending to get the long-term unemployed and young people back into the labor market, said Olivier J. Blanchard, the I.M.F.’s chief economist.

“Within any given budget, this is probably more useful than spending the money to build some road to somewhere,” he said in an interview.

Countries that have so far avoided the harsh judgment of financial markets could afford a small increase in debt to ward off persistent joblessness, Mr. Blanchard said. He added that such a move could pay for itself in the form of increased economic activity.

The European Union said on Monday that growth in Europe this year was already starting to cool, after rising more quickly than expected in the winter and spring to an estimated 1.7 percent, from 0.9 percent. The pace is weakening as government stimulus measures fade and austerity programs kick in, while businesses remain reluctant to hire.

Policy makers at the conference referred to the prospect of rising long-term unemployment as a crisis, especially for millions of young people who were finishing their education and eager to work, but who found themselves shut out of the labor market.

Youth unemployment, in particular, is taking on greater urgency as governments look for ways to finance the pensions and health care of large numbers of retirees in coming years, especially in developed countries.

Perhaps the bigger danger, conference participants said, is that a psychology of permanent unemployment could set in, especially among the young, setting the stage for what Mr. Strauss-Kahn said would be “a lost generation of people disconnected from the labor market.”

A persistent inability to drive employment would pose other undesirable challenges for societies, he said, including rising health risks and health care costs, and educational challenges for children of unemployed parents, especially in lower-income countries with poor safety nets.

Juan Somavia, the director general of the International Labor Organization, said 210 million people were looking for work around the world after the financial crisis, and that 440 million jobs would need to be created in the next 10 years.

Politicians speaking at the conference, including Prime Minister George A. Papandreou of Greece and Prime Minister José Luis Rodríguez Zapatero of Spain, did not discuss how their countries or others with shaky finances would pay for the immense costs of a wish list that included increasing training for the unemployed and propelling job creation for the private sector.

But Mr. Papandreou, who has slashed pensions and wages as part of an austerity plan, referred repeatedly to billions of dollars that banks and corporations had stashed away in offshore tax havens. He said that an eventual repatriation of these funds could help offset governments’ efforts to repair the human costs of the financial crisis.

Flushing out that money, the subject of an apparent new push by some European governments, will be a challenge, he acknowledged.

The average length of time that the typical unemployed person has been looking for work has jumped in several countries in the last year. In the United States, for example, it has hit a high of around 35 weeks.

Mr. Blanchard of the I.M.F. said the United States, too, should consider subsidies to help the long-term unemployed, even as a heated political debate takes place over the best way to allocate funds to reduce joblessness and take care of those out of work.