Employment 2012

 A new generation of leaders, business friendly policies, technology, the spread of peace, and strong demand for natural resources have helped  and can to withstand the global downturn

According to the International Labour Organisation, global rates of open unemployment, which had been falling from their peaks of early 2009, started rising again in December 2010 for developed countries and by the middle of 2011 for developing countries as a group. These unemployment rates conceal two disturbing features of labour markets worldwide. Total employment barely budged, and most of the increases in aggregate world employment came from fragile temporary and informal jobs in the developing world, rather than "decent" work.

But the poor employment performance in 2011 is not just about inadequate income growth: it reflects deeper forces that permeate macroeconomic processes the world over. To begin with, the earlier boom did not create too many quality jobs, even as it destroyed many traditional or increasingly uncompetitive livelihoods. As a result, even in the most dynamic economies of Asia, net employment growth was not large and much of it was low-paying and precarious.

This process was not only because of technical progress, since even when manufacturing employment does not increase it is still possible to have more jobs in other activities that contribute to quality of life. But across the world, the focus on growth driven by the private sector and dominated by exports, with the associated need to provide incentives to large private companies, meant this was less likely. Governments could not increase their budgets and activities, and private consumption was led by (unsustainable) credit-driven bubbles rather than real increases in workers' incomes.

The financial crisis caused work prospects to deteriorate rapidly across the world, and since then employment has recovered much more slowly than output.

So the weakening prospects for the world economy come at a time when labour market conditions are already fragile. Now that everyone is bracing themselves for the next recession, and big round of job cuts and falling real wages, it is important to ask: is this really necessary? Or is another route possible?

In fact, there is no need for the citizens of the world to be forced to bear the brunt of another big recession that may well turn into a prolonged depression. There are clear alternatives. But this requires a big change in strategy – within countries and globally.

We have to move away from the profit- and export-driven growth model to a wage- and employment-led growth model, in which improvements in quality of life of all are seen as the basic goals. This broad approach is just as relevant for developing countries as it is for advanced nations in crisis.

In emerging economies, significantly increased spending on the "social sectors" – health, nutrition, sanitation, education – are an important element of this, because these are massively undersupplied, and increasing these will have positive employment effects directly and through the multiplier. Brazil provides an example of how such spending increases, with actions to raise minimum wages, can have positive effects on employment and poverty reduction. In many industrial countries, the need is to preserve such employment rather than destroy it, especially if quality of life is seen as an important goal.

Such spending can create multiplier effects that increase incomes, so it can at least partly finance itself through increases in tax revenues. But it can also be financed partly by increased taxation, especially on the financial sector.

In addition, there needs to be much more emphasis on the enabling conditions for small businesses, in terms of access to bank credit on reasonable terms, inputs and marketing facilities. A big failure of the quantitative easing measures in US and Europe so far is that they have not done this. Similarly, a big failure of developing country banking policies is the neglect of small and tiny enterprises, which face much higher credit costs than large companies.

Changing policy focus in this way would have all sorts of positive effects in future. But even more than the long-term impacts, right now thinking seriously about such alternatives is crucial, because otherwise we face frightening prospects. Increasing open unemployment and economic inequality is already resulting in angry social and political responses.

So, we face two choices in the coming year: go with the current model, and experience more unemployment, economic despair, political backlash and social tension; or change to a more democratic and progressive approach that focuses on employment generation and improved quality of life. Which would you choose?