It’s all about people: Jobs, equality and trust

More than five years into an economic crisis which has taken on several names–from subprime crisis and financial crisis to great recession–no term accurately depicts the fundamental result of this economic turbulence: people facing hardship.

Reversing the damage caused by the crisis remains a major challenge. Most governments have to focus on strengthening public finances while restoring growth and boosting employment at the same time. To make it happen, policymakers must embark on a path of structural reforms and invest in new sources of growth, like innovation, skills, knowledge-based assets and green growth. In doing so, governments must make it clear that people, the real victims of the crisis, are at the centre of their actions. Otherwise, public trust will continue to erode as citizens lose confidence in markets and in the ability of governments and institutions to deliver efficient and equitable solutions to their problems. Furthermore, citizens continue to feel that the distribution of burdens and rewards is skewed in favour of the well-off and interest groups that exert an undue influence over public policy.

Restoring trust requires more open and transparent government, strong institutions and clear rules combined with initiatives to help citizens better understand policy tradeoffs. Amid social tensions, prioritising key programmes that ensure effective protection of the most vulnerable without endangering financial sustainability will be key.

Job creation has to be a priority. In the OECD area, more than 15 million people have been unemployed for over a year. In the euro area alone, the jobless rate has reached a record high of 12%. The most vulnerable have been hit hardest, low-skilled workers and immigrants for example. Nearly 8 million young people are neither in employment nor in education or training. This generation has lost its foothold on the first rung of the career ladder and could be scarred for life by lower wages and precarious employment. It is important for countries to make youth employment their priority, and we are ready to contribute by discussing and adopting an Action Plan for Youth at our OECD Ministerial Council Meeting in May.

Governments must be smart in setting labour market policies. Job search assistance and career guidance to promote the transition from school to work should remain the first line of support for many of the unemployed. Preventing the long-term unemployed from becoming demoralised or losing their skills will require effective education and training programmes. Tax policy can help by expanding earned income tax credits for example, or by removing disincentives to work and by reforming job protection rules that create a split between regular and precarious work contracts.

Joblessness and precarious employment are helping to fuel inequality. Today, the gap between rich and poor in OECD countries is the widest in many years. The average income of the richest 10% of the population is about nine times that of the poorest 10%, up from seven times 30 years ago. This trend risks getting worse as governments cut spending, unemployment persists, and many of the long-term unemployed lose their welfare benefits.

Gender adds a layer to inequality. Women’s contributions to economic growth should be leveraged. All countries should address cultural barriers and promote women’s participation in society, business and the public sector. They should also implement practical measures to improve access to good and affordable formal childcare, strengthen parental leave entitlements for both parents and encourage more familyfriendly workplace benefits and working arrangements. The Norwegian experience shows that quotas for women in executive and supervisory boards can work. We will therefore update and upgrade our Recommendation on Gender Equality at the May ministerial meeting.

The need to cope with the immediate impacts of the crisis must not blind us to the longer-term goal of fostering sustainable and inclusive growth. We must invest in education and training to foster innovation and ensure that citizens are equipped to succeed in a world of global value chains where knowledge capital is the greatest asset. Basic education needs to give more attention to employability and bring the world of work into curricula. Vocational education and training systems need flexibility to respond to fast-changing labour market needs. All reforms must be designed with the dual purpose of getting young people into work while underpinning their career development. The OECD Skills Strategy will help countries deliver better policies in this area.

Tax policy can also play a role in reducing inequality, for example by ensuring that wealthier individuals contribute their fair share, improving tax compliance, eliminating tax deductions, and reassessing the role of taxes on all forms of property and wealth. Multinational enterprises must also pay their share, and be discouraged from the aggressive tax planning and shifting profits to tax havens that erode the tax base and enable many to pay little or no tax at all. Base erosion and profit shifting constitutes a serious risk to tax fairness, tax sovereignty and tax revenues for countries around the globe. As G20 statements and OECD reports have made clear, a co-ordinated international approach with the co-operation of all stakeholders is needed.

Domestic concerns should not weaken our resolve to reduce inequalities among countries. The OECD Development Strategy recognises the continuing importance of aid, but it emphasises that development means improving policymaking and implementation, and integrating actions across a wide range of activities, both at national level, such as innovation, taxation or education, and internationally, for example, access to global value chains through trade and foreign investment.

We must also face up to environmental challenges and harness greener sources of growth. We know that climate change is becoming the single most important challenge facing humankind in the years to come. We will continue to “go national” with our support to countries to implement our Green Growth Strategy.

As part of this effort to promote inclusive growth, the OECD has embarked on a highly ambitious multi-dimensional initiative called “New Approaches to Economic Challenges”, or NAEC. The project aims to draw lessons from the crisis, upgrade our analytical frameworks while looking for new approaches to better address economic and social challenges. NAEC is also about understanding better the tradeoffs, complementarities and unintended consequences of the policies that can be put in place to improve economic performance, make growth inclusive and green, and enhance the overall well-being of citizens.

Under the banner “It’s all about people: jobs, equality and trust” our annual ministerial meeting and OECD Forum in May will gather ministers from 40 countries, joined by leaders from business, labour unions, civil society and academia to propose solutions. In this OECD Yearbook, the ministerial chair, Norwegian Prime Minister Jens Stoltenberg, reminds us of the task before us.

We are living a time of exceptional challenges. Let us also make it a period of exceptional global co-operation, stemming from a common understanding that we live in a highly globalised world, and that we are all the better for it. It is all about people!

References and recommended sources

Secretary-General of the OECD

OECD Forum 2013 Issues

Employment

It’s all about people: Jobs, equality and trust