It is not impossible for politicians to reduce the West’s frighteningly high unemployment levels
LITTLE geographical imagination helps to convey the scale of joblessness in the West. If the 44m people who are unemployed in the mainly rich members of the OECD lived in one country, its population would be similar to Spain’s. In Spain itself, which has the West’s highest jobless rate (21%), the number of people without work matches the combined population of Madrid and Barcelona. In America the 14m people officially jobless would form the fifth-most-populous state in the union. Add in the 11m “underemployed”, who are working less than they would like, and it is the size of Texas.
The landscape is not uniformly bleak. Germany, for example, now has a lower jobless rate than before the financial crisis. But in most of the rich world the proportion of people unemployed, though down a bit from its peak in 2009, is still alarmingly high, even as fears mount that several countries may be slipping back into recession. And the human cost of the economic crisis is paid largely by those who are out of work, for joblessness increases depression, divorce, substance abuse and pretty much everything that can go wrong in a life.
Worse, today’s joblessness is a particularly dangerous sort. A disproportionate share of those out of work are young, and youth unemployment leaves more scars, in terms of lower future wages and greater likelihood of future unemployment. Joblessness is also becoming more chronic. In America, famous for its flexible labour market, the average jobless spell now lasts 40 weeks, up from 17 in 2007. In Italy half of those without work have been so for more than a year. Long-term unemployment is harder to cure, as people’s skills atrophy and they become detached from the workforce. Its shadow lingers, reducing future growth rates, damaging public finances and straining social order for years to come.
/> This mess will not be fixed quickly. Even if growth accelerates, unemployment will remain worryingly high for several years. Many remedies, such as retraining workers, take time. But that only makes it all the more shocking that politicians have done so little. America is stuck in a sterile debate, with the left claiming that the government is not spending enough, while the right insists that big government is destroying jobs. An increasingly unpopular Barack Obama was due to address Congress on the subject just after The Economist went to press. Across the Atlantic many of the responses to the euro crisis seem designed to drive up joblessness. The West’s leaders can and must do better.
Go for growth
The immediate priority should be supporting demand – or at least not doing harm to it. The left is right on one thing: the main cause of the current high joblessness is the severity of the last recession and the weakness of the subsequent recovery. Yet the West’s economies have embarked on contractionary policies. In some cases the fault lies with monetary policy: the European Central Bank should reverse its recent rate rises. But the main culprit is a collective, premature shift to fiscal austerity by governments.
As this newspaper has repeatedly argued, politicians need to strike a bargain with the bond markets: combine policies that cushion growth now with measures that will bring deficits under control in the medium term. Raise the retirement age, for instance, and that leaves more room to stimulate growth in the short term.
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