Meeting our challenges

How can we increase employment and strengthen social cohesion? The prime minister of Norway argues that we need urgent action to ensure that an entire generation of young people remains connected to the labour market. We must also address the issue of income distribution to protect the vulnerable and guarantee greater equality of opportunity across our societies.

Many countries are facing serious economic challenges in the aftermath of the global financial crisis in 2008, and even more so as a result of the current euro crisis. The advanced economies may have a prolonged downturn to contend with. In Europe, unemployment remains high, and is even increasing in some countries. A common experience is that high unemployment levels have a tendency to become persistent. A whole generation of young people may never gain a proper footing in the labour market. Measures to prevent this are urgently needed. Unemployment is the most important cause of social exclusion and poverty.

The OECD has done a lot of valuable work both on wellbeing and on income distribution and growth. We welcome this, and hope that the work now under way on “New Approaches to Economic Challenges” will bring us even further in understanding these connections. We also very much look forward to the analysis and results of the OECD Programme for the International Assessment of Adult Competencies (PIAAC), which will be published later this year. This study, the most comprehensive international survey of adult skills ever conducted, will give us vital new insights into how our education systems and labour markets work together.

Labour is our most valuable resource. High employment is a top policy priority in most countries. Some groups with weak ties to the labour market, such as young people and immigrants, are more exposed to labour market fluctuations than others. Young people have been particularly hard hit by the crisis in Europe. Just before the global financial crisis, youth unemployment in the euro area was about 15%. Now rates have passed 21%, and there are few signs of the trend reversing. In some European countries only around half of young people who want a job have been able to get one.

Studies show that long spells of unemployment when young can impair a person’s work performance later in life. Inactivity due to unemployment erodes skills and weakens the ties between the individual and the labour market, and ultimately society at large. Therefore, we must address high youth unemployment before it becomes a persistent problem.

Societies have always needed the skills, ideas and energy of young people in order to revitalise the labour force and drive their economies forward. Youth unemployment is not only a waste of human resources and talent–it also hampers renewal and regeneration.

Better and more inclusive education systems are necessary to meet these challenges. The OECD’s Programme for International Student Assessment (PISA) survey highlighted the importance of basic skills. Norway and several other countries have made efforts to enhance our primary and lower secondary education systems to better ensure that young people acquire the basic skills they need to enter the world of higher education and work with confidence. In the long term, this is the most effective means of reducing the number of students who leave school early.

At the same time, it is valid to ask whether more education automatically translates into better economic and social outcomes.

In many countries and sectors, we see employers who cannot find the people they need, even though we are witnessing a peak in unemployed or underemployed young people. Developing better vocational education and training is important in order to resolve this situation. Well-designed vocational programmes, preferably combined with apprenticeships that effectively link work-based and classroom learning, can provide young people with precisely the kinds of skills that employers need, and at the same time ease their transition into working life and encourage them to stay in school. The development of well-functioning and flexible labour markets is also a crucial factor.

In line with OECD recommendations, labour market programmes have been strengthened in many countries and short-term work schemes have been extended. Targeted labour market programmes can help to prevent groups with weak ties to the labour market becoming passive and discouraged, and losing their skills.

Increasing female participation in the labour force is another important topic that the OECD should focus on. There has been a tremendous increase in the participation of women in paid work in most OECD countries during the last 50 years, but there are still large differences between member countries. Labour market participation has been the key to economic independence for women in many countries. Not only have women been able to develop and use their professional skills, but female employment is also crucial for a country’s economic performance. This may prove especially important in the years to come as an ageing population places an increasingly severe burden on public finances.

In many countries, there is growing consensus that assessments of economic performance should focus not only on income growth, but also on income distribution.

The Nordic countries have fairly flexible labour markets that have proved effective in reallocating labour from declining low-productivity industries to emerging high-productivity industries. A comprehensive welfare state combined with active labour market policies is an important enabling factor in this respect.

Welfare schemes in the Nordic countries ensure equal access to social insurance benefits and to important services like education and health care, and thus also promote equal opportunities. This social safety net makes the labour market more flexible and the economy less vulnerable to shocks. This again facilitates structural changes in the economy and encourages willingness to take economic risks.

For countries with fiscal restraints, consolidation may be necessary. But such measures must be fair and carefully designed to protect the most vulnerable. This is important, not only to secure a broad consensus for the necessary consolidation, but also for the sustainability and stability of future growth.

Several of the Nordic countries went through deep crises during the mid-1990s. A banking crisis combined with the need to make large cuts in governmental budgets led to a sharp increase in unemployment and reduced demand from households and firms. One of the reasons for the success of the subsequent rebalancing effort was the close co-operation between governments and the social partners, which fostered a common understanding of the need for reforms. Another important factor was the fact that the burden-sharing was perceived as being reasonably fair. This strengthened the public’s confidence in the governments’ ability to deal with the crisis and get the economies back on more sustainable growth paths.

The topic of this yearbook–inclusive growth and restoring trust–is therefore both timely and well chosen. We expect the OECD to develop a road map for continuing its important work in helping countries to tackle these important policy challenges.

References and recommended sources

The office of the Prime Minister of the Norwegian Government

OECD work on Norway

OECD work on employment

OECD Forum 2013 Issues

Employment

Meeting our challenges