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Editorial

THE PATH TO FULL : STRUCTURAL ADJUSTMENT FOR AN ACTIVE SOCIETY

Introduction employers together provide the necessary initial sup- port. This Employment Outlook appears at a time when Such a strategy is needed now in many countries employment growth over the past year in the OECD to maintain recent employment growth. Current infla- area outsidc the United States as a whole has been tionary pressures are leading to a tightening of mon- at its strongest since 1973. This progress, which etary policies in most OECD countries, and if struc- includes almost six million additional people in work tural constraints remain unchanged there would be in 1988, has helped fulfil the aspirations of many risks of a reduction of the growth rate of output and citizens of OECD countries to become economically of employment. Adaptive and flexible labour markets and socially active. are crucial to overcoming such constraints. The envi- Nevertheless, complacency is not warranted. ronment in which change occurs is shaped importantly remains high - 7 V2 per cent of the by governments, but cmployers (including, of course, labour force in the OECD area as a whole - and a public scctor employers) and unions have a particular substantial proportion of -scckers have been look- responsibility for this aspect of structural adjustment. ing for work for over one year. Furthermore, even There are other important reasons too for expand- the relatively rapid growth in employment over the ing employment opportunities. Demographic devel- last two years has not brought the OECD as a whole opments - already occurring in Japan, and soon to anywhere near to full employment (see Chapter 1). affect Europe - will by 2020 increase appreciably It is therefore important, when reviewing the trends the ratio of aged people to those of “working age”. in employment and the prospects for the future, to Unless occurs later or the aged become reflect on the types of policies and societal choices wealthier, ensuring an adequate income for those who which facilitate a continuing brisk growth of employ- have retired could require an increasing flow of sup- ment. Current strong employment growth provides port from the economically active. However, even in both the opportunity and a particular need to reac- those societies in which extensive transfers and con- tivate the long-term Unemployed. The opportunity sequently high tax levels are accepted, there is a arises because the current growth in employment perception that tax levels cannot readily be raised corncs at a time of increasing reports of skill shortages further. If supporr levels are not to be reduced, any by employers. The need is to achieve sufficient ver- extra burden on the transfer payments system will satility in those working or seeking work to mect require a broadening of the tax base. There is thus these skill shortages. both a clear private, and a clear public, interest in This is not to suggest that the needs for experienced achieving a broadening of participation in employ- skilled labour can generally be met directly from the ment. ranks of the long-term jobless. Rather, the oppor- tunity both for further reductions in unemployment, and for meeting tomorrow’s skill needs, lies in mas- The limits to post-war socio-economic performance tering a more extensive and complex chain of rela- ~ . I tionships. This involves an expansion of activ- When full employment was adopted as a policy goal ity and reorganisation of working practices, thereby in the early post-war period, its meaning seemed self- generating the needed skills and consequentially cre- evident : all those who wished to find employment at ating vacancies in entry-level positions. These are the prevailing rates were to be able to do so. By vacancies which the existing unemployed are most offering a11 “breadwinners” the opportunity to sup- able to fill, the more so if employment services and port their families, full employment ensured that mass

7 poverty was largely eliminated. Full employment, and ticular groups (young people, older workers, the long- the economic growth associated with it, also formed term unemployed), and in particular localities. Their the context in which the main programmes of social weak links with employment-based entitlements and pxotcction were developed and in turn greatly benefits has meant that they, together with other expanded. Health, , and old-age pcnsion goups often outside the labour market - such as schemes were progressively extended to cover entire lone parcnts or discouraged workers - have expe- populations, their structure being largely , albeit not rienced a form of “new poverty” in which they have entirely, framed on the basis of the traditional family become isolated both economically and socially. and the close links of its single (usually male) earner Accompanying these changes have been changes with regular employment. Welfare payments sup- in family structures and indeed in employment itself, ported those who were unable to work or were not changes which have tended to weaken the previously part of a settled family. rather direct links between employment and social Throughout the 1950s and 1960s, and indeed into protection. In some cases the changes have had posi- the early 1970s, full employment, steady economic tive results : the growing number of two-earner fam- growth and the development of social programmes ilies with fewer children has of itself tended to proved mutually reinforcing, and in social and labour strengthen households’ links with the labour market. market terms achieved considerable success. The Only a small minority of the unemployed are now health status of populations improved, the proportion husbands in families in which no one else is employed. of children proceeding to higher education increased And where both earners have continued in full significantly, and old-age poverty was largely elimi- employment, households have become relatively bet- nated. Further, the systems of both unemployment ter off. On the other hand, the search for independ- compensation and general welfare support which were ence has also led to greater numbers of single-person in place by the early 1970s were to prove very impor- (and thereby more vulnerable) households, and the tant in the latter part of the 1970s, as we11 as in the diversity of employment patterns - part-time, inter- 1980s, in softening the social impact of high unem- mittent, temporary - has not been matched by a ployment. corresponding diversity in entitlements to social pro- This environment of relatively steady growth in per tection. cupitu incomes led many OECD societies to aspire to offer all individuals the chance to escape dependency Early responses to the setback to full employment on others. However, ovcr the last decade or so several developments have weakened somc of the underpin- As it became recognised that unemployment was nings of what had been a strong, but simple, and in proving longer-lived than had been hoped, two main some areas inflexible, structure of full employment, avenues of policy reaction were followed. One was social protection and economic growth. The initial to seek to ration the supply of labour more in linc reaction in many countries as Unemployment rose was with the limited “stock” of which were considered to offer income support in place of access to earned to be available. In other words, policy sought to income, the hopc being that the economic downturn achieve a lower unemployment rate by reducing the would prove temporary, and that full employment number of people who sought to find employment would therefore soon be reattained. It was hoped that - by reducing or even reversing immigration flows ; this support would prevent a lapse into dependence by encouraging carlier retirement ; and (in some con- on the part of those displaccd from their jobs. How- texts) by discouraging women from entering the ever, full employment proved very difficult to labour market. Sometimes, longer schooling was reachieve in a number of countries, and hence the seen as a way of deferring , but entitlement to support proved to have offered only a not as a means of increasing the overall employability false independence. In many countries, pres- of young people - it being thought that, because sures appeared to require higher rates of unemploy- there were not enough jobs, there was nothing that ment to keep them in check. And there appeared also the schools could do to increase aggregate employ- to have been a growth in : ment. A policy situated between the two was to seek the number of unfilled vacancies rose in relation to to redistribute employment through work-sharing the number of unemployed. arrangements. Thus policy-makers in many countries had to come Such approaches have however come to be seen as to live for a period with rates of unemployment which a dead end. First, they have not generally been effec- nonetheless they regarded as unacceptable for the tive. The countries with the lowest unemployment longer term. And perhaps even more importantly, rates are not those with the lowest school participation unemployment has proved to be concentrated in par- rates, but rather those with the highest (Chart 1.3).

8 Similarly, unemployment has fallen in many countries Proposals to rcduce unemployment through reduc- which have continued to accept substantial numbers tions in straddlcd these two approaches. of immigrants, while it has stallcd, at a high level, in Working-time reductions which are imposed without a number of countrics with strong restrictions. Sec- a counterpart slowing in the rate of increase of hourly ond, such policies run counter to social trends: earnings increasc labour costs, and hcnce are unlikely women, in particular, are no longer willing to with- to increase the number of jobs available. Evcn if draw from the labour market whenever the supply of hourly labour costs do not rise, a reduction of working jobs appears to decline. And it is increasingly appar- time is unlikely to translate into the equivalent num- ent that, over the longer term, demographic trends ber of full-time positions, it being relatively easy for are in most countries going to make a continuing firms to adjust through increases in working. decline in the age of retirement inconsistent with the If extra jobs are to result from working-time reduc- maintenance of adcquate incomes for those who have tions, many of them would almost certainly have to retired. be “non-standard”, and many of those who take them A second policy approach was to create special jobs would be new entrants into the labour force. Some targeted at groups - either through direct public recently-negotiated agreements on reduction of work- sector job creation or through the subsidisation of ing time, such as those in the German metal industry, jobs in the private sector. Initially, such efforts were have recognised this, in part, by the agreed linking generally directed either at the reduction of unem- of reduction in standard working hours to increased ployment through the creation of jobs (in the public flexibility in workplace procedures. sector) for the unemployed, or through the subsidi- sation of employers in the private sector to hire unem- The trend towards more “active” societies ployed people. Such policies sought to “cheat the ” by confining such direct employment In response to these policy questions, the last five creation to those least likely to be in demand by years or so have seen a new, and in a number of ways employers in the open labour market. Such policies more sophisticated, policy approach in a number of were thus the counterpart - on the demand side - OECD countries. This approach welcomes - rather of “supply control” policies. than resists -theentry of new groups into the labour This approach progressively became recognised as market. It recognises the demand for participation in not vcry satisfactory, however, particularly in the case economic and social life which is increasingly voiced of “special” public scctor job creation. To the extent by most groups in the population, and does not seek that such policies improved the employment prospects to resist the expression of this demand through a of those “officially” unemployed, they encouraged growth in aggregate labour force participation. those not in ernploymcnt to classify themselves as Instead, the underlying goal is to enhance the effectivc uncmploycd, and hence did not succccd in “confining” productivity of the population as a whole by drawing the labour market. Much effort often was put into on previously-unused talents, and harnessing them in ensuring that the “special” jobs were additional to a morc effective and comprehensive division of - and hence in general separate from -normal labour. Such structural reforms have thc same poten- recruitmcnt. But this in turn often meant these jobs tial for increasing productivity as do improvements did not represent a particularly satisfactory path into in the productivity of technical equipment. If they the normal labour market. Hence, direct employment are implemented in a manner which is responsive to creation did not necessarily enhance the employment technological and market developments, and are com- prospects of participants, and neither did it substan- bined with other reforms which reduce structurally- tially reduce long-term unemployment. To the limited induced inefficiencies, output and productivity can extent that it may have done so, this was often improve and inflation can be contained, leading to achieved by reallocating jobs away from other higher employment and real income : the micro-eco- entrants into the labour market, many of whom nomic impact of a more productive population thereby entered the pool of unemployment in place becomes validated at the macro-economic level. of those who escaped through participation in special This implies that the statistical distinction between programmes - the phenomenon of “churning”. In those currently in the labour force and those who recent years, a number of countries - among them would like to be is increasingly a poor guide for policy- , Canada, New Zealand, the United King- making. Hence, the goal becomes both to welcome dom, and Sweden (for youth) - have for this reason into active life all those who wish to take part, and significantly reduced their expenditure on direct job to enable them to do so. The aim thus is not to “define creation, while at the same time increasing expend- away” unemployment by assigning those seeking work iture on labour force training opportunities. to some other status, but rather to recognise that

9 realisation of the full human potcntial of the popu- for those for whom earnings-related insurance ben- lation involves the employment not only of the unem- efits have expired. Providing training opportunities ployed, but of all those who wish to participate - which occupy the unemployed full-time can require whether working full-time, part-time, or in casual considerable additional expenditure - not only for employment. direct wage costs but also for the ancillary costs of Obstacles to participation in economic life clearly providing structured training - even if that training need to be broken down if this goal is to be attained. includes participation in productive work. One avenue being pursued is the removal of insti- There have recently been a number of initiatives tutional impediments to other “non-standard” forms which have sought to escape from the constraints of labour force participation, such as part-time work, which these additional expenditure requirements can week-end work, self-employment and home work, imply, and to move to a more sophisticated analysis either through the removal of regulatory constraints of the net overall benefits from active labour market (as in the United States and the ) or programmes. Many income-support schemes which through the renegotiation of collectively-bargained are conditional on job search by recipients proved constraints. A policy choice has to be made here: unable to be adequately controlled during the (long) the removal of such impediments may lead to some periods during which vacancies were considerably activities being performed in these ways rather than outnumbered by job-seekers. Thus, making income- in “regular” full-timc jobs. The “permanent” job as support recipients cligiblc for continued support if an entitlement to a secure income in return for per- they undertake activities to improve their readiness forming the same unchanging tasks is increasingly for thc labour market can actually lead to a reduction inappropriate in societies which seek to mobilise their in the total cost of the support - even if the “active” full talents in response to evolving technologies and programmes are more expensive per participant than markets. is passive support. Successfully intcgrating those not This point does not mean, however, that the quan- in employment into the labour market will always tity of regular full-time employmcnt has been declin- involve some displacement of those already in ing or will do so ; a more productive cconorny calls employment. However, unless displacement is near forth new demands for labour, and some of this is total, thc social rate of return from reintegration full-time. The process proceeds turbulently - of the should quickly repay the investment implied by the stock of jobs at any point in time, at least one in ten differcnce between the cost of income support and was created over the past year, and at least one in that of more active measures. ten will disappear during the forthcoming year (see A number of countries have recently introduced Chapter 4, 1987 Employment Outlook). This means initiatives which reflect such thinking. In those coun- that adequate training and other mobility-enhancing tries in which were previously facilities will in general be necessary if some of those available to teenagers on the same basis as to adults displaced from full-time jobs are not to be perrna- - for example Australia, New Zealand, Sweden and nently sidelined from the mainstream of employment. the United Kingdom - income support for teenagers To avoid this, it becomes necessary, perhaps increas- is now conditional on participation in some form of ingly so, to develop avenues of mobility between training and/or part-time employment. Unemploy- “non-standard” forms of participation and full-time ment benefit systems for adults are being revised to regular jobs. Increasingly, and helpfully, market emphasize active measures in Sweden, Australia and mechanisms are generating such avenues -for exam- Canada. The recent welfare reform in the United ple, temporary employmcnt agencies in the United States has attempted to eliminate those features of Kingdom have been finding it necessary to offer rrain- the income-support system which discouraged labour ing facilities and employment continuity to attract force participation by lone parents. And France’s new able recruits and to offer employers the expertise they minimum income scheme (revenu minimum d’inser- require. Just as much adaptability is likely to be lion) is designed to link in with measures for reinte- nceded on the part of those who continue to be gration into society. employed full-time. They will continually be chal- Such approaches are requiring a diversion of lenged to upgrade their qualifications, and will often resources from merely maintaining the incomes of find their working lives change even if they remain those who are unemployed, disabled or lone parents employed with the same enterprise. to finding ways in which they can participate in eco- In the fight against chronic unemployment, this new nomic life. In such reform programmes, the goal is policy strand is refocusing attentionFme-support to find other guided forms of training and employment payments to the unemployed are generally less than which will preserve income-security entitlements even minimum in full-time work, particularly while encouraging actual labour force participation.

10 If this involves an extension of part-time employment, young people simultaneously with high demand for it is generally not in the context of “sharing out” young labour market entrants whom the system has existing full-time posts, but rather of using the identified as talented. resources currently devoted to passive income main- Many of the cultural and intellectual achicvemcnts tenance to create additional employment opportun- of all societies have been accomplished by elites, and ities which would be structured so as to reintegrate there is an understandable tendency for cducation participants into working life. I1 systems to orient themselves to the selection of those Thus it would be a fundamental mistake to identify best fitted to preserving and developing those accom- the role of policy purely in terms of “programmes” plishments. The challenge for educational curricula entitling particular classes of individuals to particular and structurcs is to find mechanisms by which such forms of income support or other assistance. Such achievements can be enhanced by a process other measures have an important place, but will be effec- than one of exclusion. tive only if they operate in the context of an entre- preneurial and innovative community climate. Com- Towards a more active society munity initiatives which foster such a climate - the Although the attention of economists and economic focus for example of the OECD’s Initiatives for Local policy-makers has been directed mainly to the Employment Creation (ILE) programme - are enlargement of opportunities for greater participation therefore essential complements to such targeted in labour market activity, there are also other ways measures. Schemes which encourage the unemployed in which people can participate actively in society. In to create their own business or become independent particular, those who have retired -often before the workers, which now exist in one form or another in age of 65 - frequently have little wish to re-enter most OECD countries, combine the benefits of both the Iabour market, but equally are unwilling to with- approaches, being both targeted on the unemployed draw completely from community life. There is in all and aimed at replacing dependency by enterprise. communities a spirit of generosity and co-operation which is institutionalised in welfare systems, but which The education system and the labour market is also evident in voluntary co-operation and mutual assistance. and community service Educational structures have also been in8uenced organisations which cater for these desires clearly add by these trends. As labour market participation has to the range of choiccs available in the community, increased in variety and extent, it has become pro- and can complcment and enhance participation in the gressively more clear that there is no contradiction formal labour market. The role of public policy between the broad social and cultural objectives of through social provisions then becomes one of remov- education and training for labour force participation. ing obstacles to individual activity (such as unduly Fears that training for the world of work requires restrictive age retirement rules) and of ensuring that making classrooms extensions of factories have been individuals have thc skills to make such activitics calmed by the growing realisation that methods of personally and/or economically rewarding. Policies work organisation which incorporate continual learn- which do so include the removal of incentivcs to early ing are also more productive. Humane and co-oper- retirement, the revision of tax structures and child ative schooling methods seem to be the best preparation allowance provisions to remove any discouragement for adult life both in the workplace and outside it. of participation by married women, and thc broad- The recent general revival of interest in the links cning of child-care provisions. between the education system and labour market Many of the analytic topics addrcssed in this issue outcomes reflects those concerns. It has become of the Employment Outlook point to ways in which apparent that if all citizens are to be adequately pre- specific groups of citizens can be enabled to be more pared for active life, educational arrangements need active. The discussion of educational attainment to cater for the needs of all, and not just the most (‘Chapter 2) shows starkly that those with only a basic talented. These concerns underlie the “quality of edu- education are increasingly less likely to establish cation” debate about the basic skill attainments of themselves in modern labour markets - hence the schoolchildren which have emerged in most countries need for an education system which ensures wide- in recent years. There is, however, a danger that spread competence. Regional labour markets (Chap- laying down standards without also instituting meas- ter 3) are as susceptible as are national ones to iso- ures which enable the disadvantaged to achieve them, lating the immobile or the less educated from oppor- might identify the talented more efficiently but not tunities. The coexistence of regions of high improve overall attainment. The tragic result could unemployment with other regions in which labour easily be the persistence of a pool of unemployed and housing markets are over-heated suggests that

11 rigidities in relative wagc structures and in housing Concluding observations markets can be as harmful in inhibiting opportunities for participation within countries as are inappropriate These is clearly a type of “full employment’’ which relative aggregate wage lcvcls and trade barricrs OECD countries have rejected, and which also is between countries. Compensation to the injured (dis- being abandoned elscwhere. This pretended to offer cussed in Chapter 4), however generous, is a poor guaranteed employment to all, maintaining jobs even substitute for adequate measures for the prevention when they had ceased to respond to technological of occupational accidents, and can directly inhibit requirements or consumer preferences. This type of reintegration if compensation is conditional on inac- policy has proved fundamentally inconsistent with tivity. Hence, measures which encourage the re-entry economic progress. of retired or injured workers (as is the case with the The alternative to this policy is not to confine eco- recent invalidity reforms in Sweden) are an nomic activity to a narrowing number of increasingly important complement to accident prevention. productive employees, and making the resultant The examination of the characteristics of growing unemployment tolerable through income transfers and declining industries (Chapter 5) points to further from the active to the inactive. Rather, it is to base issues. The strong relationship between educational policy on the recognition that it is workers and their attainment and relative growth by industry indicates talents, and not just physical hardware or the accu- the importance of the educational infrastructure in mulated saftwarc of organisational arrangements, enabling employment expansion. The tendency for which constitute the driving force of societies. A more women to enter declining industrics, by contrast, may productive population - one which develops in new suggest that barriers to entry for women need to be ways its inherent talents and the potcntial which re-examincd if they are to participate fully in schooling has provided - can help to improve the in expanding areas. And the importance of temporary real resources available, in the process adding to the cmployment in growing industries suggests that this level. of output which can be derivcd from cxisting form of Iabour market flexibility makes a significant physical capital. The resulting highcr real incomes contribution to the enhancement of overall employ- can lead in a virtuous circle : to higher incomes, higher ment growth. employment and faster social progress.

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