Winners and losers

THIS YEAR MORE than 3.1 billion people the world over will be in work. That is a greater number than ever before, yet there is a sense of crisis about jobs. That is not just because globally 205m people—many more than a few years ago—are now officially unemployed, or because young people have been hit especially hard. It is also because the quality of such jobs as are available often seems to be declining, especially for routine white-collar workers in rich countries.

The latest Gallup Underemployment Index now stands at 19% of the global workforce. It is made up of the unemployed (7%) and those who have part-time jobs but would like to work more (12%). According to the International Labour Organisation, in 2009 some 1.53 billion people, roughly half the global workforce, were in “vulnerable employment”, either working for themselves or in badly paid family jobs.

Until the global financial crisis of 2008 it had been widely believed that the world was enjoying a period of “Great Moderation”. The business cycle that had previously caused bouts of high unemployment seemed to have been abolished by a combination of wise, independent central bankers, fiscally prudent rich-world governments and increasingly flexible labour markets. The governments of the G20 had to administer a huge co-ordinated fiscal and monetary stimulus to prevent the Great Moderation from turning into a Great Depression. But unemployment has not returned to its pre-crisis lows, and few governments have much capacity for further stimulus.

In many countries long-term unemployment has soared both in absolute terms and as a proportion of total joblessness. In America the long-term unemployed now account for 30% of the total, up from 10% in 2007 (see chart 1), shocking experts who believed that America's famously flexible labour markets would protect it from “European” levels of long-term joblessness.

Young people have been the biggest victims of the crisis. In 2007 the youth unemployment rate in the OECD was 14.2%, compared with 4.9% for older workers; in the first quarter of this year the rates were 19.7% and 7.3% respectively. Some countries fared far worse than others: in Spain youth unemployment soared from 17.6% to a vertiginous 44% over the same period. A big part of the explanation there is that flexible contracts which make it easy to fire people were introduced for new entrants to the labour market but not for people already in work, so when firms had to make cuts the axe fell disproportionately on those flexible younger workers. Perhaps the most alarming rise is in the number of young people in the OECD classified as NEETS (not in employment, education or training), to 16.7m—some 12.5% of all 15-24-year-olds.

One reason why the young have suffered disproportionately is that older people have been less keen to leave the workforce than in previous downturns, when juicy early-retirement packages were on offer. Such offers have become rare, and as laws to prevent discrimination on age grounds are spreading, more people are working longer.

In some countries government policy has made a big difference. Germany, for example, was able to buck the trend of joblessness and youth unemployment thanks to measures that included a government subsidy for those on short-time work (of which more later). In America, Mr Obama's decision to extend unemployment benefits from 26 to 99 weeks may have contributed a little to the increase in long-term joblessness (adding about half of one percentage point to the rate, according to the Federal Reserve Bank of San Francisco), but it also slowed the rise in poverty. Longer-term social trends may also have played a part, says James Manyika of the McKinsey Global Institute. He cites Americans' greater reluctance to move home to find work, which may be partly due to the growing number of dual-career couples. Many people also have negative equity in their homes.

Unemployment benefit has been made harder to get in many countries, which has increased the number of people claiming disability benefits. In 2010 they made up 5.9% of the workforce in America, 6.2% in Britain and over 10% in Norway, up from 3.6%, 2.2% and 6.5% respectively in 1980.

These are serious problems. Young people who are out of work for long stretches at the start of their career can become permanently scarred by the experience and may never get back on track. The longer that people of any age are out of work, the less likely they are ever to find another job. And “once a person is on disability benefit that is in effect the end,” says Robert Reich, an economist at Berkeley who was America's labour secretary under Bill Clinton.

Never waste a good crisis

Many of the labour-market trends that are currently troubling rich countries were already apparent long before the financial crisis, though the bubble that preceded it helped to hide them and the recession that followed it accelerated them. “It has given employers the excuse to do what they wanted to do but had resisted before the crisis,” says Mr Reich. “Many employers are substituting technology for people. A lot of us were looking for jobs to be displaced by technology a few years ago and were surprised it wasn't happening faster. Employers didn't want a reputation for firing when the jobs market was tight.”

Firms are relying more on part-time, contract and temporary workers who are inherently more flexible. In America in 2010, the number of part-time workers reached a new high of 19.7% of all employees. According to a recent survey of American firms by the McKinsey Global Institute, over the next five years 58% of them expect to use more part-time, temporary or contract employees, and 22% expect to outsource more jobs.

There has been growing demand for temporary staff provided by employment-services firms such as Manpower, and outsourcing and offshoring has continued to grow, despite reports that some jobs are being repatriated. Routine legal work is the latest activity to find its way from America and Europe to Bangalore. And bringing work to geographically distant workers is becoming easier all the time, with online marketplaces such as oDesk and freelancer.com, and services like Mom Corps for professional women. Mechanical Turk, owned by Amazon, lets people with a few spare minutes work on “micro-tasks” such as transcribing podcasts or image-tagging.

“These trends don't necessarily affect the number of jobs, but they do the quality of jobs, the security of jobs, how much people are paid and the benefits they get,” notes Mr Reich. David Autor, an economist at the Massachusetts Institute of Technology, calls this the “hollowing out” of middle-grade jobs, resulting in the “bipolarisation” of the labour market between good jobs and commoditised ones in America and many other rich countries. There is a strong correlation between a good education, higher earnings and a lower (though not negligible) risk of becoming unemployed. In America, the jobless rate among graduates rose from under 2% in 2007 to nearly 5% in 2010, but for non-graduates it jumped from 5% to over 11%.

Even before the crisis, America was on track for its worst decade for job creation in at least half a century, says Mr Manyika of the McKinsey Global Institute. As the institute sees it, there are three main types of work: transformational (typically involving physical activity, such as construction); transactional (such as routine jobs in call centres or banks, often still done by people but capable of being automated); and interactional (relying on knowledge, expertise and collaboration with others, such as investment banking or management consultancy). Transformational work has been in long-term decline in most rich countries, shifting to emerging markets, particularly China, though wages in Chinese factories are now soaring.

Now a wave of labour arbitrage and the substitution of technology for humans is starting to sweep through transactional work, wiping out many routine white-collar jobs in rich countries. But interactional work, says Mr Manyika, is unlikely to go the same way, because it is inherently difficult to standardise. In this kind of work technology tends to enhance human capabilities, often creating a “winner-takes-all” market in which the best performers are paid disproportionately well. Transformational and transactional work tend to suffer from fierce competition, slim profit margins and low pay, whereas the best interactional knowledge-work companies continue to earn fat margins.

In the two decades leading up to the global financial crisis real disposable household incomes increased in all OECD countries. In most of them the incomes of the richest 10% of households grew faster than those of the poorest 10%, so inequalities widened. In 2008 in the OECD as a whole the average income of the richest 10% was nearly nine times that of the poorest 10%.

Globally, the rise of many people out of poverty has reduced income inequality, though many people in informal and illegal work have not benefited. But within most countries inequality, as measured by the Gini coefficient, has increased in recent decades (see chart 2). Many rich countries are also seeing a decline in social mobility, suggesting a growing inequality of opportunity as well as of income.

In most countries inequality seems bound to keep growing. Even in these difficult economic times talent is in short supply and the world's leading companies are competing fiercely for it. In America unfilled vacancies have risen over the past couple of years despite high unemployment. According to Manpower's latest annual survey, 34% of employers worldwide say they are having trouble filling jobs, with technicians, salespeople, skilled trades workers and engineers the hardest to find (see chart 3). So what can individuals do to make themselves sought after?