Human costs of recession

Three years after the world suffered its biggest financial crisis since the Great Depression of the 1930s, the International Monetary Fund (IMF) and the International Labour Organisation (ILO), have come out with two significant messages. First, the scars of the 2007-09 recession on the world's labour markets would last long. Secondly, a right mix of fiscal, monetary, and social protection measures needs to be put in place at the national and the international levels to ease the pain of unemployment and ensure job-creating economic growth. Two papers, one by the IMF on the human costs of recession, and the other by the ILO on building an employment-oriented framework for sustainable and balanced growth, take stock of the recent economic turmoil, and offer palliatives for a world that is just emerging out of recession.

Unemployment increased by more than 30 million since 2007, taking the global figure to 210 million. The IMF's paper makes it evident that the human costs of the downturn will have a debilitating impact on the succeeding generation as well. Lower lifetime earnings, health impairment of the workforce, and diminished educational attainments of children are three important factors that will have inter-generational consequences. Moreover, youth unemployment and long-term unemployment have increased alarmingly in the advanced economies.

The ILO cautions that “a return to the pre-crisis unbalanced growth patterns could sow the seeds for future and perhaps even more damaging crises.” It goes on to emphasise that for recessions to be avoided, national and global imbalances have to be corrected. The brunt of the downward economic spiral was borne by the advanced countries. Although these two assessments are intended as a discussion document for the forthcoming Oslo summit of developed nations, they hold some lessons for developing economies too. What stands out is the need to put in place measures that do not accentuate inequalities. As the ILO points out, an effective way to ward off a recession is to ensure that “employment growth matches the expansion of labour supply and that wages broadly keep pace with productivity.”

While this could be a long term goal, in the interim, the most important requirement is for governments to implement strong social protection measures that act as a cushion in times of economic adversity. The time has come for a rights-based basic social protection floor for all citizens in both advanced and developing countries. Hindu News