Urban employment and the global financial crisis
What are the linkages between job creation and economic policies and urban infrastructure investments? While cities are recognized to be engines of economic growth, contributing disproportionately to national income, how effective has economic growth been in creating jobs, particularly in the wake of the global economic and financial crisis which began sweeping the globe in 2007?
The ILO, in its most recent Global Employment Trends (2012) report writes that “the outlook for global job creation has been worsening. The baseline projection shows no change in the global unemployment rate between now and 2016, remaining at 6 per cent of the global labour force. This would lead to an additional 3 million unemployed around the world in 2012, or a total of 200 million, rising to 206 million by 2016.”
• In light of this global employment crisis, how have cities fared during and in the aftermath to the recent global financial crisis?
• How can cities assess the employment impacts of economic policies and ensure that productivity gains are translated into job creation rather than into more unemployment?
• What economic sectors have the greatest potential for creating decent jobs in cities?
Laura Wolf-Powers, 8 May 2012This picture gets even bleaker if one factors in two other trends: 1) the particularly difficult plight of the long-term unemployed (42% of the unemployed in the U.S. today have been unemployed for more than 6 months) 2) the steep decline in labor force participation (at least in the industrialized economies), which is particularly acute among young people in their teens and twenties.
The unemployment crisis in cities is sometimes cast narrowly as a crisis of educational attainment; if more people would gain the skills needed to enter "knowledge" occupations, urban labor markets (with their specialization in sectors with high innovation capacity) -could absorb them. Education is certainly part of the puzzle, but there is more going on here than a supply-side shortage. What about paying some attention to labor demand, and to the potential of government and quasi-governmental institutions to spur labor demand? They might do this via tax incentives for hiring, or they might hire people directly. Going in a "demand-side" direction would provide the chance to create and repair basic physical and social infrastructure in cities while stimulating demand for goods and services and offering people with marginal attachment to the labor market the opportunity to gain experience and skills. Research suggests that public jobs, as a short-term intervention, would have a hysteresis effect by building human capital and enabling the marginally attached to develop a track record (see Timothy Bartik's classic book Jobs for the Poor as well as Bartik's fascinating recent musings on the job creation potential of large-scale human capital interventions like universal pre-school http://investinginkids.net/2012/04/06/making-the-case-for-pre-k-some-fiscal-and-economic-arithmetic/).
Another critical infrastructure investment that cities have to make is in quality of life and quality of place. Cities that are safe, culturally diverse and amenity-rich are magnets for people with ideas, motivation and capital (whether financial,human or social -- often all three). There's an article I assign my students called "Technological Adaptation, Cities and New Work" in which Jeffrey Lin of the Federal Reserve Bank of Philadelphia examines the geographic concentration of new occupational titles and finds, lo and behold, that over the past two decades "new work" has arisen in the largest, most dynamic cities and metros. You can find a link to it here:
http://www.philadelphiafed.org/research-and-data/economists/lin/
Jeffrey Lin, Senior Economist - Philadelphia Fed
http://www.philadelphiafed.org/research-and-data/economists/lin/
Steve Miller (Moderator) from France, 8 May 2012Many thanks for this valuable posting. I will respond to three of the key points: 1. Youth labour market participaton, 2. The relative importance of education and training for job creation, and 3. the role of demand-side policies. On all of these points, I support your position and wish to simply elaborate or stimulate new ideas.
1. Youth labour market participation
I am providing some global youth labour market participation figures based on a paper I presented last year which help put a global dimension to this issue:
Globally, youth labour force participation rate decreased by 3.3 percentage points between 1999 and 2009; and most regions, with the exception of Central and South-Eastern Europe (non EU) and CIS, and Sub-Saharan Africa saw decreasing youth participation rates. The change at the global level is driven to an important extent by the large decreases in East Asia during the past ten years (- 9.1 %) and in South-East Asia and the Pacific (- 4.6 %). Other regions also saw decreased participation, but less severe: North Africa (- 3 %), the Middle East (- 2.4 %), Sub-Saharan Africa (- 2.2 %) and Latin America and the Caribbean (- 2 %). Only in Central and South-East Europe (non-EU) and the CIS countries and in South Asia did youth participation remained stable during this period suggesting that the need for youth to participate in labour markets and support family income is important in a number of transition and developing countries.
The above trends, which do not capture year-to-year changes as a result of specific economic and labour market changes in the different regions, can be explained, in some cases, by youth prolonging their education and hence delaying their entrance into the labour market (as described above), and on the other hand, by the “discouraged worker effect” whereby the hopelessness of finding job opportunities commensurate with their expectations has discouraged young people from actively seeking work. However, particularly in the least developed areas of the world, there may be a countervailing trend whereby young people are forced back into the labour market (the “added worker” effect) in order to support households facing economic hardship.
Previous to the global economic crisis, the decline in youth labour market participation was largely positive, a result of young people prolonging their education and delaying entry to the labour market. The crisis, however, impacted youth participation in a different way, discouraging many from entering the labour market due to their lack of hope in finding a job. “Across 56 countries with available data, there are 1.7 million fewer youth in the labour market than expected based on longer term trends, indicating that discouragement among youth has risen sharply. These discouraged youth are not counted among the unemployed because they are not actively seeking work. However, the crisis has reinforced the long-term downward trend in youth participation rates in many countries.”
2. The role of education and training in job creation.
I totally agree that skills development and educational attainment, while important, alone will not solve the problem of urban unemployment. Please find a quote from Minksy which addresses this issue and point to the need for demand side policies, as you argue:
Hyman Minsky’s approach towards job creation and training is particularly relevant to young people who, despite having invested enormous time and resources into their own education and training, find themselves over twice as likely to be unemployed as other groups in the labour market:
“Hyman Minsky always argued that public policy that favours education and training over job creation puts “the cart before the horse” and is unlikely to succeed. First, it lays the blame on the unemployed, which can be demoralizing and can validate public perceptions regarding undesirable characteristics supposedly endemic within the disadvantaged population. It tells the poor that they must change their characteristics—including their behaviour—before they deserve to work. However, those without jobs might not view such changes as desirable or even possible. Second, it can require a long time to see results; the “gestational” period to produce a worker is at least 16 years for developing nations ... Further, a dynamic economy is always leaving old skills behind and demanding new ones. At any point, there will be a permanent, sizeable, pool of those with inappropriate skills and education, even if many individuals are able to transition out of the pool in a timely fashion. Third, as mentioned, there is the danger that the retrained will face a job shortage so that at best they simply displace previously employed workers who will join the ranks of the unemployed. .. jobs must be made available that can “take workers as they are,” regardless of their skills, education, or personal characteristics.
In many cases it may be anomalous to propose that youth employment initiatives continue to embrace a nearly exclusive focus on training and skills development while the levels and investments of education and training have never been higher and training will not resolve the fundamental problem of structural unemployment, underemployment and informality. The wave of popular uprisings in North Africa in 2011 has brought home this message forcefully.
3. Demand side policies.
First with respect to the issue of hiring subsidies to employers, while these may be helpful in some circumstances, they do have drawbacks as pointed out to in a paper by R. Wray on Employer of Last Resort programmes:
For example, wage subsidies can be given to private employers for job creation. These can take the form of tax incentives, or sharing of wage costs by government. There are several drawbacks to subsidized employment in the private sector. First, government needs to ensure that firms use the subsidies to create jobs, rather than to reduce private costs of existing employment. Second, as unemployment is concentrated among disadvantaged workers, the policy should encourage firms to employ individuals they would not otherwise have hired. Third, if workers are permitted to stay in the program for only a specified period, there is a strong incentive for employers to replace workers at the end of their eligibility with newly eligible and subsidized workers. Fourth, the setting of the wage subsidy is not necessarily simple. Finally, the payment of wage subsidies necessarily leads to some distortion of the market. Of course, private sector subsidies will not work without a private sector sufficiently developed that it is capable of offering employment to a significant portion of the population. In some developing nations, especially in rural regions, such a policy will have limited application.
Finally for direct government job creation programmes, I have worked with a network known as Economists for Full Employment ( www.economistsforfullemployment.org ) which promotes government job creation as a means to address the shortfall between available jobs and job openings. The National Rural Employment Guarantee Programme in India ( http://nrega.nic.in/ ) is a good example of such employer of last resort programmes: however it is exclusively rural focused. It would be interesting to explore such programmes in an urban setting.
EFE Home
http://www.economistsforfullemployment.orgMahatma Gandhi National Rural Employment Gurantee Act
http://nrega.nic.in/netnrega/home.aspx
chinedu from Sweden, 8 May 2012this is a valuable resource
Ojo Musiliu Adebayo, 8 May 2012Managing urban land to ensure equity and sustainability
Kasanvu Geoffrey, 8 May 2012The issue of land especially in urban centers is a big challenge, as we confront this we must remember that, come countries like mine have a very complicated land policy, for example, the land is own by private individuals so it becomes so hard to have a uniform program, you can eliminate slums in the city center because some chunk of land belongs to an individual who is not willing to sell or who doe not have the money, I like China's Policy, when I went during the 4th World Urban Forum, Nanjing City was uniform because of a proper management land policy so urban authorities should have clear and proper management policies