The global economy appears to be poised for very modest growth in 2016 and 2017. According to the IMF-WEO, October, 2016, the global economic growth is projected to decline to 3.1 per cent in 2016, rebounding to 3.4 per cent in 2017. Global economic activity has been slowing down from the beginning of 2015. This deceleration in growth performance is largely attributed to slowing down of economic activity in the Chinese economy and commodity exporting countries. Meanwhile, low energy prices have driven the current deflationary situation in many industrialised developed economies, in particular Japan. All these have also negatively impacted on trade and investment and more importantly, employment.
Overall economic outlook appears to be of very slow growth for advanced economies, achieving below 2.0 per cent for 2016 and 2017. Emerging market and developing economies are expected record much better growth prospects this year at 4.2 per cent rising to 4.6 per cent in 2017, according to the IMF -WEO, October, 2016 report.
The World Bank (WB) economic growth forecast appears to be even more conservative as outlined in its Global Economic Prospects, June, 2016 issue, than that of the IMF (International Monetary Fund), but expects global growth to pick up in 2018. It also points out that while the commodity-exporting countries are struggling to adjust to the falling prices but growth windfall for commodity importing countries are very modest. The WB also does not think there will be improvements in the labour market indicating the current very high level unemployment will continue.
The current global economic climate is further clouded by leading central banks' inability to keep advanced economies on track. This has resulted in increasing financial volatility resulting from changes in monetary policy in leading economies like the USA, Japan and the European Union (EU). The lingering effects of the Global Financial Crisis (GFC) are still very visible. IMF's Global Financial Stability Report, October, 2016 indicated that over 25 per cent of banks in advanced economies (about $11.7 trillion in assets) would remain weak and face significant structural challenges. Obviously this will seriously undermine these banks' ability to support growth. In effect, if the global economy takes a dive these banks will face an existential threat to their survival. Now many have recoined the old adage about big banks from "too big to fail" to "too weak to survive". The situation in the banking sector in developed countries has reached a point now that any potential rise in interest rates and governmental support are unlikely to benefit these banks.
Such a low rate of economic growth has serious implications for employment growth in a situation where the current labour market outcomes are already very dismal, in particular youth unemployment. Classical economists emphasised supply side factors as the main cause of unemployment while Keynesian economists emphasised aggregate demand in determining unemployment. Arthur Okun (Yale University) in 1962 established the statistical negative relationship between output and unemployment. This is known as Okun's law. While there appears to be conditions where the law holds quite well but in some other cases it does not. But overall, the law provides a theoretical as well as empirical basis to investigate the relationship between economic growth and employment.
The rise in unemployment in many developed countries can be attributed to the recessions that occurred between 1980 and now. But at the same time it appears that there are other factors also at play such as technological changes, structural changes in the economy causing skill mismatch; occupational immobility and others such as increased financialisation of the economy and its growing importance in particular. This rise of the finance industry has coincided with the declining importance of manufacturing resulting in where a low employment industry has been increasingly replacing a traditionally high employment industry.
The International Labour Organisation (ILO) in its World Employment and Social Outlook, 2016 suggests that this weak world economic growth has failed to lead to an improved labour market. There were 197 million people unemployed in 2015 and by 2019 this figure will rise to 212 million. A very high proportion of these unemployed are in South Asia which includes Bangladesh. It further emphasises that without creating quality jobs, the goal of ending poverty by 2030 will not be met. The report further highlights the prospect of rising unemployment resulting from slower economic growth and widening income inequality and subdued investment. Of those who are employed, a large proportion of them are underemployed and many of them are looking for full-time employment. In advanced industrialised countries, there has been a growing trend in the casualisation of jobs with serious implications for their income as well as retirement and health benefits.
Globally 73 million youth are registered unemployed. It is estimated that 600 million more young people are expected enter the job market in the coming decade with only 200 million jobs waiting for them. The youth unemployment situation does not look like going to improve in the foreseeable future.
The average unemployment rate in the EU is 10 per cent but with wide variations across countries in the north and the south Europe where the unemployment rate is much higher than the EU average. Of the total unemployed, 48.5 per cent are long-term unemployed. Casual and part-time employees account for 17 per cent. But the youth unemployment is a staggering 67 per cent. In the USA, the official unemployment rate is 4.5 per cent (the real unemployment rate is 9.9 per cent) and youth unemployment stands at 11.5 per cent (2.6 million). In the USA, now 40 per cent of employees are casual and expected to rise to 45 per cent in 2017.
A very recent study by a group of economists from Harvard University and the University of California, Berkley found that the "American (USA) dream is collapsing'' (I am not absolutely sure what this oft-repeated term the "American dream'' is all about, even academics who use the term use it without defining it. But I presume it means social and economic upward mobility. But that is the dream in every country in the world) as data revealed that half of the children born in the 1980s grew up to earning less than their parents at the same age indicating the space for economic mobility is shrinking. The economists say the rising income inequality resulting from increasing concentration of income among the richest US citizens explains 70 per cent of steady decline in absolute mobility from the baby boomers generation to millennials while the slowdown in economic growth explains the remaining 30 per cent. This is fairly a common picture across most developed economies. Above all, much long-term unemployed ceased to look for work after a certain period of joblessness, causing the labour participation rate to fall, thus the official unemployment rate looks much lower than the actual unemployment rate.
In developing countries the picture is even grimmer where the vast majority of jobs are in the informal sector which is marked by casualised or part-time employment with very low wages and very low productivity. There are close to 200 million unemployed in the world (a little less than the total population of Bangladesh, Nepal and Sri Lanka) and rising where a quarter of them are in East Asia. South Asia, where Bangladesh belongs, accounts for 28 million. The nature of unemployment in developing countries is very chronic and long-term. A vast majority of workers in developing countries (accounting for almost three-quarters of the world workforce) are seriously underemployed and engaged in low productivity activity. Most just manage to survive. Underemployment is the hallmark of employment situation in these countries. It is the lack of capital and skills and other complementary resources in relation to the total population and labour force far more than aggregate demand that cause this very high level of unemployment in the developing world. Such an employment situation only leads to a poverty trap that can linger over generations.
Youth unemployment has now emerged as the most crucial economic and social issue of our present time. This is also an issue which deeply concerns both developed and developing countries. The negative consequences of prolonged youth unemployment both at the individual level and the societal level are very well documented. But such unemployment also has negative impacts on economic growth and productivity. There is always a strong possibility of negative spill-over effects affecting political and social stability and to the future generations. Countries in South Asia face largest youth unemployment (similar situation also exits in Sub-Saharan countries). Bangladesh being part of this region faces challenges both in terms of size and share of the youth population. Vulnerable employment such as self-employment and unpaid work are also very high resulting in people working but very poor at the same time. Even wage employment in Bangladesh can be informal and very low paid marked by very low productivity. Understanding youth labour outcomes in Bangladesh in particular is essential in developing appropriate policies to secure decent work and earning for them. Failure to address the youth unemployment problem will pose a threat to not only economic welfare of the country but also the very political stability along with complete breakdown of social cohesion.
The writer is an independent economic and political analyst.