Presented by Bilal Yasin Course Instructor Dr Sadia Irshad Deputy Director State Bank of Pakistan.

Presented

by

Bilal Yasin Course Instructor Dr Sadia Irshad Deputy Director State Bank of Pakistan

Introduction Some countries have successfully preserved jobs. Now they must create new one

In the 32 rich OECD countries the downturn and its aftermath threw over 17m people out of work

When output falls, employment follows. This link is predictable enough to qualify as an economic law, named after Arthur Okun

Okun’s Law states that for every 2 % fall in GDP, Unemployment rise by 1 %

In this recession, however, Okun's law did not work as expected in a number of countries. In America, New Zealand and Spain it applied with a vengeanceSpanish employment fell by twice as much as output. But in most countries its effect was mercifully mild

In Germany unemployment by the end of 2009 was lower than it had been two years earlier

Misery

Divergence of FortunesThe effects of recession were unevenly spread

In countries such as America, Spain or Ireland, the bursting of housing bubbles caused construction to slump, with the loss of many jobs that are unlikely to return soon

By contrast, in exporting countries such as Germany or Japan the damage was done mainly by the collapse of global trade, which proved more temporary

Spain's rules on firing permanent staff, which are particularly tough, though recent reforms have eased them slightly

Spanish rules give little protection to temporary workers. So employers hired lots of them—they made up about 30% of all employees before the crisis—and fired them when the downturn arrivedGerman firms last year reduced working time by the equivalent of 1.4m full-time employees

The German government encouraged this labor-hoarding with its celebrated Kurzarbeit scheme that subsidies shorter working weeks

American ScenarioOne obvious reason why American workers are taking longer to escape from unemployment is a lack of job openings

As long as vacancies remain low, unemployment will remain high

That is another economic relationship stable enough to carry someone's name: the Beveridge curve

His curve is, however, a poor guide to the recent behavior of America's labor market. In 2009 a fairly steady stream of job openings did not stop unemployment rising from 7.7% to 10%

In the first months of this year vacancies jumped, with little effect on the jobless rate

Mr Elsby and his co-authors fear that America will be stuck with a “persistent residue of long-term unemployed workers with relatively weak search effectiveness, depressing the strength of the recovery”Students of Europe's stubborn unemployment in the 1980s call this “sclerosis”, an accumulation of scar tissue that makes the market more rigid

America’s Scenario Slightly Out of Line

Solving the PuzzleExtension of unemployment benefits, which America's jobless can now claim for 99 weeks

Robert Barro, an economist at Harvard University reckons that the unemployment rate would be 6.8% rather than 9.5% if benefits had remained at 26 weeks

Longer benefits delay re-employment, but why. Mr Barro thinks it is a case of “moral hazard”

David Autor, of the Massachusetts Institute of Technology, reckons the American labour market has polarised, creating jobs for the well-educated and the low-paid but offering little in between.

Janitors and managers weathered the recession, but white-collar sales, office and administrative jobs—the “production jobs of the information age”—fell by 8% between 2007 and 2009

William Frey of the Brookings Institution puts much of the blame on the housing market

Denmark ExampleIn Sweden 88% of women aged between 25 and 54 take part in the labor marketIt helps that the country's extensive day-care facilities for children are largely reserved for workers

A larger share of Sweden's older people, too, remain in the labor force than anywhere else on the continent

If other Europeans aged between 55 and 64 were as industrious as older Swedes, the continent could reduce the gap in hours with America by almost a quarter, according to the MGI

The rest of Europe could also learn from Denmark's efforts to beat unemployment and from the Netherlands' success in getting youngsters into work

Heaven is where women and older people work like the Swedes

Hell is where workers get into unemployment like the Americans and out of it like the Italians