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Some Reflections on the
Job Scene
Danny Leipziger
Professor of Int’l Business, George Washington University
NYU Jobs Conference, Sept. 25-26, 2011
Basic Themes
S What do we learn from the Latin American experience?
And from Chile in particular?
S What is there in the advanced countries’ experience that
should raise cautionary flags for middle income countries in
Latin America and beyond?
S How do we connect the dots on the Great Recession and the
longer run in terms of jobs and economic growth?
Latin Lessons
S Maintenance of fiscal space, a new development for many
countries in the region, has served them well
S Jobs, even if lower paying, provide an entry point into the
formal or quasi-formal sector and are the only way to deal
with persistent income inequality
S Some hybrid between the US labor model that was
associated with rapid job creation and the Euro-model that
protects more in the downturn is probably best course
S Poor educational outcomes and weak innovation systems
separate the region from the best performers in East Asia
Latin American Concerns
S All Latin Am. countries are well below average in the OECD
PISA scores, with Chile ranked the highest at #43, despite
expenditure levels that are not markedly low
S Most countries participating in PISA are in the 5th or 6th decile of
respondents. Same is true for science & mathematics rankings
S Regional labor productivity 1990-2005 was 1.5% on average, well
below advance countries and far behind East Asia’s 4 percent
S Youth unemployment is three-times the overall average
Issues Most Relevant to Chile
S Chile’s U-rate rose 2% in 2009 but reverted close to its 2008
level by 2010; still U-rate for the age cohort 24-29 tended to
average 12% over the past decade
S Female labor force participation rates lag those in Brazil,
Argentina and Uruguay ( Growth Commission Special
Report) and part-time employment impediments are a
problem and this may worsen the income distribution
S Income distribution is stubbornly unequal as seen in Gini
coefficients above .5 despite low absolute poverty rates
S The innovation system, including links between business
and government, has been difficult to remedy despite efforts
Some OECD Lessons
S OECD Jobs Strategy speaks of innovation and technology
diffusion policies to accompany education and training
S Most countries now embrace knowledge-based industries
S The externalities from major university centers is apparent
S Governments have a fundamental role to play in
coordination, management of science, functioning of
financial and labor markets, and increasingly in providing
signals if not a clear vision
S Once jobs are lost, they are not likely to be regained
Long Run Implications of
Factors Affecting Labor Market
Education has longest term effect in terms of skills enhancement and
adaptability of the labor force
Innovation policy has a strong effect via TFP
Infrastructure investments influence efficiency and labor productivity
Those with better education, innovation record and infrastructure, ceteris
paribus, survived the crisis better—Australia, Canada, Finland (OECD)
During prolonged recessions, hh expenditures on education slip (WB evidence
for Eastern Europe) and firm R&D expenditures on innovation fall (OECD
evidence) with long-term effects on potential growth rates. Infrastructure
evidence uncertain.
Existing trends that the Great
Recession exacerbated
S In the US, poor distribution of income, got worse, and real wage
declines of blue collar workers was extended to others
S Incidence of shorter work weeks (Kurzarbeit), more reliance on
part-time employment, that reduced real incomes
S Evidence is not yet clear on whether gender disparities were
exacerbated, depending on countries and sectors
S Youth unemployment rose, especially in Europe—it doubled in
Spain between 2008 and 2010 for aged 24-29 cohort!
Short-Medium term factors
affecting the Long-Run
S Collapse of venture capital markets, already not robust in some
countries, and directly linked to innovative investment
S Prolonged unemployment spells that restrict labor market re-
entry—high percentage of long spells
S Delayed entry by the young limits long-term earnings and asset
S Asset collapses reduce confidence and the efficacy of fiscal
stimulus and the usefulness of monetary easing
Some Modest Final Thoughts
S Australia and Korea had among the largest stimulus
packages ( % of GDP); among the best rated innovation
systems (OECD), and had among the lowest upticks in
additional unemployment during the crisis
S The crisis is an outlier in Obstfeld and Gourinchas and we
should therefore expect the labor market to also react badly
S The Reinhart & Rogoff analysis tells us that this time is not
so different historically, but for some it certainly has been,
and the political economy of joblessness will be profound
S The economic and social costs of joblessness in countries
with limited safety nets are such that globalization may take
a hard and irreversible hit