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|Human capital for economic recovery|
|Sunday, 31 October 2010 02:30|
This year we are celebrating the 20th anniversary of the end of the Cold War, and arguably the beginning of modern globalization. And in these past two decades, we have seen major crises every couple of years – to name just a few, US savings and loans crisis, the Mexican crisis, the Asian crisis, the dot-com bubble, and now the global financial crisis.
While globalization has certainly been a powerful motor for poverty reduction and prosperity, it’s difficult to escape the conclusion that globalization is also crisis prone. And the speed and impact of these crises is also intensifying as our economies have become more and more tightly interconnected.
In short, resilience will be key to surviving and succeeding in a world of crisis-prone globalization. And one important element for resilience is the education systems necessary for quickly restoring the economy and adapting unemployed workers, especially in the area of re-education and re-training of workers and the education of young workers.
A well-trained workforce can bounce back after a crisis, and exploit the new opportunities that arise as the economy starts growing again. By contrast, if the work force is not adaptable, there is a risk that those who lose their job as a result of the crisis become long term unemployed or drop out of the labour force. A major issue is of course who pays the cost of these programs – the public or private sectors or through public-private-partnerships.
I will turn now to today’s global financial and economic crisis. This has rapidly become a jobs crisis. Since December 2007, more than 15.1 million workers have joined the ranks of the unemployed in the OECD area as companies cut production, closed factories and dismissed workers. As a result, the OECD-average unemployment rate increased from a 25-year low of 5.6 in December 2007 to a postwar high of 8.5% by July 2009.
Which groups of people are the most affected? Already disadvantaged groups in the labour market – youth, immigrants, the low-skilled, ethnic minorities and workers in temporary or part-time jobs – are bearing most of the brunt of the job losses. In many countries, job losses for men have exceeded those for women, due to the greater tendency for men to be employed in the most affected sectors, including construction and manufacturing. Almost one in four teenagers in the labour market is now jobless in the United States compared with one out of ten for all workers. Temporary workers have also been very hard hit by the current economic downturn. Immigrants and their families are being especially hard-hit.
Another important issue is the “quality of jobs” available. In some developing countries, up to 60% of the labour force works informally – without written contracts or social security. The current economic crisis is likely to lead to a surge in informal employment due to job losses in the formal sector, resulting in deteriorating working conditions and lower wages for the poorest.
According to the IMF’s most recent forecasts released last week, global economic growth has turned positive again. But the recovery will likely be slow, and unemployment is likely to continue rising over the next year or more. For the OECD group, it could even hit 10% in 2010 (or close to 57 million unemployed).
The danger is that such a large increase in unemployment will have permanent effects. People who used to have a job can become long-term unemployed and drop out of the labour force. They become less attractive to employers as they lose contact with the labour market and suffer from declining human capital. They become part of the long term damage of the crisis.
In a crisis like today, training is critical for those at risk of long term unemployment. Even for those countries which have not seen large increases in unemployment, it is necessary to intensify training for the jobs of tomorrow.
The global economic crisis is accelerating structural adjustments in our economies. Weaker areas in our economies, which could survive in good times, are being harder hit than more dynamic areas. In addition, Asia’s dynamic economies will have to re-balance their development strategies away from export-led growth centered on US and European markets. According to research at the Asian Development Bank Institute, this growth model can no longer be relied upon to sustain the region’s economic growth beyond the crisis as US consumer spending will remain sluggish over many years to come. Asian economies need to take up the challenge of “rebalancing growth” toward greater reliance on domestic and regional demand.
So looking ahead, what are the key areas for re-education and re-training of workers and the education of young workers?
A knowledge-based and urban-based services sector will increasingly become the dominant sector in Asian economies, as they continue their development transformations. Indeed, if they do not make this transformation they risk being caught in the so-called ‘middle income trap’. History shows that while many countries have been able to make it from low income to middle income, much fewer have carried on to high income. They get stuck in the ‘middle income trap’. In addition, if Asia’s economies can successfully re-balance their growth away from exports to the US and Europe, this would necessarily imply an increased growth of the services sector.
I would to make some specific comments on the education systems necessary for quickly restoring the economy and adapting unemployed workers:
A number of East Asia’s economies now participate in the OECD’s PISA study which measures performance in reading, mathematics and science. While economies like Hong Kong, Taiwan, Macao, Korea and Japan score very well, Thailand and Indonesia are further down at the bottom of the league table. So, in many developing Asian countries, there is great scope to improve general levels of education.
And while in many Asian countries, there are important levels of private expenditure on secondary education, this should really be the principal responsibility of government. Indeed, private financing children’s education in private schools in China and perhaps other countries may well be one of the factors contributing to high precautionary savings, and therefore global imbalances.
Now I would like to identify particular job or competency areas which should be priorities for the future:
First, it is obvious that information and communications technologies are major driving forces in our economies. They can facilitate development leap-frogging, very rapid advances. But according to the International Telecommunications Union work on its ICT Development Index, Asia-Pacific does not rank highly especially for the skills sub-index. Out of 16 geographic regions, Eastern Asia comes in at 6th place after Northern Europe, Northern America, Eastern Europe, Southern Europe and Western Europe. While South-Eastern Asia ranks 13th and Southern Asia only ranks 15th.
So, there is much work to do in improving ICT skills.
Second, there is the issue of green-collar jobs and green-training. Green jobs mean jobs that contribute to preserving or restoring the environment including the fight against climate change and environmental degradation, and the enhancement of energy security. Vast numbers of green jobs already exist. For example, just the Danish wind industry alone employs 28,400 people, while 250,000 people working for Germany's renewable energies industry. But looked at more broadly, any job can potentially become a green collar job. According to a recent report by UNEP, while the potential for green jobs is substantial and greatly beneficial, skill gaps and shortages are a binding constraint. In China, the best technology available for new buildings cannot be used because of the existing low qualification levels of construction workers.
So, training for green jobs is an important area.
Third, there is the issue of jobs in ageing societies, or silver jobs for silver societies. Societies are ageing the world over, and in many parts of the developing world, population ageing is happening at a much faster rate than in the developed OECD countries. While there are many dimensions to the new silver economy, it will certainly have an impact on job creation. It has been calculated for example that for Germany more than 900.000 new jobs in the "Silver Economy" within the next two decades. And in developing Asia, as countries progressively establish social safety nets, this will likely lead to the creation of many jobs. But, these jobs in the health, and child and elderly care areas, will require different skill sets.
So, training for the silver jobs is an important issue for the future.
The situation of youth on the labour market is strongly affected by economic crises – even in good times, youth unemployment rate is two to three timnes that of adults in many OECD countries. It is critical to guard against an expanded group of low-qualified youth losing connection with the labour market or experiencing permanent reductions in their earnings potential. Further efforts should be made to ensure that no youth enters the labour market without a recognised and valued qualification, and that out-of-school youth are able to access appropriate training. Drop-outs also need special attention from the education authorities to ensure they remain engaged in, or re-connect with, education through the completion of an upper secondary diploma or its equivalent, preferably with an on-the-job training component.
And as we think of education and training, we must bear in mind that the developed OECD countries will need more and more migrants in the coming decades. So education and training must aim at global labour markets, not just the standards of local labour markets.
Who should finance the education systems necessary for quickly restoring the economy and adapting unemployed workers? In economics we have the famous user pays principle, which can also be expressed in terms of the person who benefits should pay. All parties, that is, workers, employers and society as a whole benefit, which implies that the financing should be through a partnership between business, workers and government.
In the context of the present global financial crisis, governments are spending enormous sums of money on the fiscal stimulus packages. But regrettably, the additional funds targeted on education and training programs are rather limited in most countries.
I would like to conclude with the fairly obvious point that education and training is only one element in a cocktail of measures necessary to help the resilience of labour markets and our economies. Even if you have the perfect workforce, bureaucratic barriers to doing business can hinder resilience. And if SMEs or even micro-enterprises have difficulty obtaining finance, again this will hinder resilience.
The World Bank’s report on “Doing Business” provides some interesting data on the bureaucratic barriers to doing business can hinder resilience – especially when you compare a Singapore, the top performer, with the Philippines, which is ranked 140th in the world in terms of the ease of doing business (1). Even if the Philippines had the best levels of education and training in the world, its development potential and resilience would be held back because it is very difficult to do business in that country.
(1)Set out below is a comparison of some of the World Bank’s indicators for doing business in Singapore and the Philippines:
. how many days does it take to start a business – in Singapore 4 days, in the Philippines 52 days.
. how many days are necessary to deal with construction permits – in Singapore 38 days, in the Philippines 203 days.
. what is the cost of firing workers – in Singapore 4 weeks of salary, in the Philippines 91 weeks of salary.
. how many hours does it take to pay taxes – 84 hours in Singapore, 195 hours in the Philippines.
. to export, how many documents do you need – 4 in Singapore, 8 in the Philippines.
. how many days does it take to enforce a contract – 150 days in Singapore, 842 days in the Philippines.
. how many days does it take to close a business – in Singapore 0.8 years, in the Philippines 5.7 years.
Global Financial Crisis and its Implications for Asia, Asian Development Bank Institute. http://www.adbi.org/research.global.financial.crisis/
OECD Employment Outlook: Tackling the Jobs Crisis. Organisation for Economic Co-operation and Development. 2009. www.oecd.org
How the crisis will re-shape America by Richard Florida. The Atlantic. http://www.theatlantic.com/doc/200903/meltdown-geography/4
Green Jobs: Towards decent work in a sustainable, low-carbon world. United Nations Environment Programme. 2008. www.unep.org
World Economic Outlook, October 2009. International Monetary Fund. www.imf.org
PISA 2006 Science Competencies for Tomorrow's World. OECD. www.pisa.oecd.org
Measuring the Information Society: The ICT Development Index. International Telecommunications Union. 2009. http://www.itu.int/
Silver Economy Network of European Regions. http://www.silvereconomy-europe.org/
Doing Business 2009, A co-publication of the World Bank, the International Finance Corporation, and Palgrave Macmillan. www.worldbank.org