Politics & Policies

Can growth alone tackle unemployment? No, fiscal policy must be as growth-friendly as possible

Can growth alone tackle unemployment?

Evidence is summarized in Figure 2, which shows the growth-jobs nexus using two alternate measure of the state of labor markets, the unemployment rate and the growth rate of employment. The left panel of Figure 2 shows that, among advanced economies on average, unemployment falls by a third of a percentage point for each additional percentage point of real GDP growth. The relationship between jobs and growth is almost as strong among emerging market economies, on average: an additional percentage point of output growth lowers the unemployment rate by ¼ of a percentage point.

Likewise, the right hand panel of Figure 2 shows that the impact of output growth on employment growth is stronger in the advanced and emerging economies than in the other groups. In the emerging markets for instance, on average a percentage point of output growth raises employment growth by 0.2 percentage points…

Capture d’écran 2014-11-21 à 08.51.32

Broadly speaking, in advanced economies, monetary policy should continue to support the recovery in demand. Fiscal adjustment, while attuned in pace and composition to the specific needs of countries, must be as growth-friendly as possible. Emerging markets are slowing down from pre-crisis growth rates. They need to primarily address underlying structural problems, which are quite varied across countries, from removing bottlenecks in the power sector to reforms on labor and product markets.

In many countries, there is a strong case for increasing public infrastructure investment, which would provide a much-needed boost to demand in the short term and would also help supply (i.e. potential output) over the longer term.

Bottom-line

Our research suggests that growth can help job creation, though the extent to which it can do so varies across emerging markets, just as it does for advanced economies. Thus, while growth is not a panacea, it is an essential part of the cure for unemployment.

Chosen excerpts by Job Market Monitor. Read the whole story at  Can growth alone tackle unemployment? – Forum:Blog Forum:Blog | The World Economic Forum.

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