L20 Antalya Summit: Inequality and income share
Remarks by Angel Gurría,
14 November 2015
(As prepared for delivery)
Dear Marie-Claire (Carrère-Gée),
Dear Cathy (Feingold),
Ladies and Gentlemen,
14 November 2015 - Angel Gurría, OECD Secretary-General, speaking at the L20 Summit in Antalya, Turkey
Current labour market situation and outlook
While labour market conditions are improving in the G20 economies hardest hit by the crisis, the recovery remains very slow. According to our latest Economic Outlook, released last week, global growth is expected to weaken to around 2.9% this year – well below its long-run average. Unemployment remains unacceptably high, particularly in some Euro area countries: more than 1 in 5 workers are unemployed in Spain and more than 1 in 10 workers are unemployed in France and Italy. Economic downturns in Brazil and Russia have catalysed significant increases in unemployment. Across the world, many people are underemployed or in low‑paid, poor quality, unstable jobs. They deserve a better future.
Without vigorous and ambitious policy action for stronger, sustainable and more inclusive growth, this situation is unlikely to improve significantly in the short‑run.
High and persistent levels of labour market slack in many G20 economies raise particular concern about two groups: youth who fail to make a successful transition from school to work and job losers who fall into long-term unemployment.
The latter is a particular problem in advanced G20 economies: in the OECD area, 9.6 million people have been out of work for two years or longer. Even as labour market conditions recover, those with long spells of joblessness run a very serious risk of seeing their human capital weaken and their skills atrophy, and becoming permanently marginalised as employers tend to favour the short-term unemployed and new graduates.
Youth who finished their schooling during this prolonged crisis are particularly vulnerable. More than one in five of all youth are Neither in Employment, nor in Education or Training (NEET) in Indonesia and Italy; around one in four in Turkey and India; and nearly one in three in South Africa. The OECD Employment Outlook 2015 shows that workers’ long‑term career prospects are largely determined during the first 10 years of their working lives. Governments must act now to avoid a permanent increase in the number of workers stuck in chronic joblessness or moving between unemployment and low‑paid, poor quality, unstable jobs.
The OECD’s Employment Outlook shows that job quality remains a major challenge in emerging economies, where earnings are substantially lower and their distribution is much more unequal compared with advanced G20 economies. Labour market insecurity is also much higher and working conditions poorer. For example, over 20% of all Turkish workers work 60 hours per week or more compared with only 6% of workers in the OECD area on average. Many workers remain trapped in informal, poor quality, jobs: in urban China less than one-third of informal workers each year shift into formal employment; this rate falls to below 10% in Turkey. In this context, I am pleased the G20 Ministers of Labour and Employment have adopted the G20 Framework for Promoting Job Quality, which draws from OECD analysis.
Curbing the rise in inequality and promoting inclusive growth
To a considerable extent, good labour market performance depends upon strong and steady economic growth. But there is also a crucial role for policies that expand opportunities for workers and create better jobs, ensuring that the entire population benefits from economic growth.
Across the OECD area, the average income of the richest 10% of the population is almost 10 times that of the poorest 10%, up from 7 times in the 1980s. Disparities in wealth are even more salient: the share of the bottom 20% in net wealth is, in most OECD countries, close to zero, and is even negative in six countries (because debt is higher than wealth holdings). In contrast, the top 10% owns half of all total household wealth. In emerging economies like Brazil, Turkey, and Mexico, inequality levels remain significantly higher than most other OECD countries, notwithstanding recent declines.
OECD analysis shows that high and rising inequality not only causes social misery and generates political instability. It also harms growth. Between 1990 and 2010, the observed long-term rise in income inequality in OECD countries knocked off around 4.7 percentage points from cumulative growth. Inequality hinders the ability of individuals from low socioeconomic backgrounds to invest in quality education; the gap in educational outcomes between those with low and high socioeconomic backgrounds increases dramatically in highly unequal countries.
It is clear that societies must promote equality of opportunities, giving everyone the same chance to lead prosperous lives. When parts of society actually lack equal access to good‑quality education, health and public services, talks on equality of opportunity and social mobility become token, if not broken, promises. We need to focus much more on opportunities for the so-called ‘bottom 40%’, the working and middle-class households. It is there that the lack of social mobility drags down economic growth.
The G20 must move the conversation forward by developing concrete policy solutions to promote opportunities for more inclusive growth, and striking the right balance between long-term measures to increase opportunities, and short-term redistribution measures to reduce inequality of outcomes.
As recognised in the declaration of G20 Labour Ministers, and in the joint B20-L20 Ankara declaration, this involves a coherent set of policy actions in four areas.
First, we cannot afford to neglect education and skills, particularly among lower-middle class and working class families. The G20 Skills Strategy – which draws extensively from the OECD Skills Strategy – will help countries turn the tide towards a more equitable distribution of skills, paying long-term dividends for individual and collective well-being.
Second, more must be done to promote greater labour market participation, especially for youth, women, older people, those with disabilities, and immigrants. This requires tackling barriers to participation in the labour market, and strengthening activation policies that help and encourage unemployed people to find work.
Eliminating gender gaps in our societies is essential. We cannot be happy with the slow pace of change. This is why the G20 commitment to reducing gender disparities in labour force participation by 25% by 2025 is so important.
In a couple of days, G20 Leaders will also commit to the goal of reducing the share of young people who are most at risk of being permanently left behind in the labour market by 15% by 2025. This is a strong and meaningful commitment. Achieving this target will require a comprehensive strategy that: ensures access to quality education for all youth, including those from low income families; provides targeted support to young people at risk of dropping out from school; offers different education pathways, including technical and vocational education with quality apprenticeship programmes; supports school-to-work transitions through effective school guidance; and develops second-chance programmes for school dropouts.
As Europe is facing the biggest refugee inflow since World War II, we should not forget that helping immigrants successfully integrate can benefit host countries and, over time, can be fiscally net positive. Given the right integration policies, migrants can be a crucial asset for ageing societies and for reverting the slowdown in productivity strength.
Third, we need tax and transfer systems that are fairer and more effective. This requires a renewed focus on effective redistribution in advanced economies and stronger social safety nets and social protection systems in emerging economies. Redistribution can enhance growth if properly targeted, implemented and “activated” to support employment.
Fourth, we need jobs. But not just any jobs. We need quality jobs. Job quality affects individual well-being and that of the households in which they live. But it also affects labour force participation and productivity. The G20 Framework for Promoting Job Quality, which builds on the OECD’s work on job quality,gives us the building blocks for developing better policies for better jobs. Let us not forget this key fact: countries with the best job quality are the countries with the highest levels of employment and the lowest levels of inequality.
Ladies and Gentlemen,
Achieving inclusive growth must be a priority. We cannot think “growth” and then only, as an afterthought, care about inequalities.
This doesn’t imply that the objective of engineering stronger growth and higher productivity has become secondary or peripheral. Strong growth may not necessarily be inclusive, but weak growth will certainly not be either.
But we need to think about growth and inclusiveness imperatives together, right from the start of the policymaking process, in their circularity and complementarity.
This is intellectually demanding, politically challenging, but economically and socially crucial. This is an approach which the OECD will continue to explore, in close partnership with the L20, a partnership which the OECD will continue to nurture carefully going forward, to design, develop and deliver better policies for better lives.