Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Job recovery in times of constrained public finances

412 views

Published on

Talk given at a joint ILO-UNDP meeting, Geneva, September 2010

  • Be the first to comment

  • Be the first to like this

Job recovery in times of constrained public finances

  1. 1. Employment friendly macroeconomic frameworks Job recovery in times of constrained public finances Ekkehard Ernst Principal Economist, International Institute for Labour Studies [email_address]
  2. 2. <ul><li>Overview </li></ul><ul><li>Common crisis </li></ul><ul><li>Divergent recovery </li></ul><ul><li>Tailor-made policies </li></ul><ul><li>Alternatives? </li></ul>
  3. 3. I Common crisis
  4. 4. The trade crisis has affected everybody in the short run... Correlation of trade flows in OECD countries Global trade collapse
  5. 5. ...but in the long-run, investment will follow too... Deleveraging of households and firms has already started
  6. 6. ...as long as financial markets remain stressed Financial stress index in 2009
  7. 7. II Divergent recovery
  8. 8. The sovereign debt crisis has brought divergence... Variation of government bonds long-term rates in the Euro area (2001-2010)
  9. 9. ...and caused global fiscal consolidation Stimulus vs. consolidation packages
  10. 10. Problems on the labour market become entrenched Increase in long-term unemployment (2009Q1 to 2010Q1, in %)
  11. 11. III Tailor-made policies
  12. 12. Three main principles <ul><li>Policy intervention necessary as long as financial stress is high </li></ul><ul><ul><li>Stressed financial market conditions increase fiscal multipliers </li></ul></ul><ul><ul><li>This makes fiscal policy interventions particularly cost-effective </li></ul></ul><ul><li>Use fiscal space where available </li></ul><ul><ul><li>Fiscal space also depends on the multiplier </li></ul></ul><ul><ul><li>Especially in emerging economies, these multipliers might be large </li></ul></ul><ul><ul><li>There, even small amounts of fiscal stimulus can make a difference </li></ul></ul><ul><li>Switch to most effective (labour market) policies </li></ul><ul><ul><li>Avoid unemployment to become entrenched as much as possible </li></ul></ul><ul><ul><li>Target long-term unemployment more aggressively </li></ul></ul><ul><ul><li>Large expenditure necessary as policies loose effectiveness </li></ul></ul>
  13. 13. Fiscal policies most effective when financial stress is high Policy effectiveness in job creation, at different levels of financial stress
  14. 14. Fiscal stimulus can have a strong impact, especially in emerging economies...
  15. 15. ...but effects change depending on the instrument used
  16. 16. IV Alternatives?
  17. 17. Additional spending could be a win-win option Exit scenarios from the crisis in advanced G20 countries

×