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April 1996

Executive Summary

  1. In several G7 countries unemployment has started to rise again after only slight falls from the peaks of the recession of the early 1990's. The twin evils of unemployment and working poverty are debilitating individuals, societies and economies. The leading industrialised countries must implement a strategy to create more and better quality jobs, prepare workers for those jobs and protect the worse off and most vulnerable in society. High real interest rates, public expenditure cutbacks and labour market deregulation have had the opposite effect. The weakening of economic stabilizers, growing insecurity and fear of unemployment now risk triggering a new recession.
  2. This is not an auspicious background for harnessing the potential advantages of technological change and the emergence of the "global information society". The real blockages to exploiting new technologies and innovation are restrictive economic policies; the deflationary bias that international financial markets have given the world economy; the failure to invest in the skills and ability of the workforce; the failure to develop partnerships at company level between management and workforce; the failure to spread best practice techniques beyond a minority of workplaces; and the failure to reduce and reorganise working time.

"A G7 coalition for jobs"

  1. The Lille Jobs Conference must send a clear message that the G7 is committed to practical action to back up a strategy for jobs and growth. It must also give a clear signal that the leading economies are going to compete in world markets on the basis of well paying, high productivity jobs. Working men and women and not just financial markets need confidence in the credibility of policies. Trade unions have taken the lead in several European countries in proposing and negotiating employments pacts. Employers, governments, and central banks must now accept their responsibilities in partnership with labour. The governments should commit themselves to establishing a G7 "coalition for jobs" based on four pillars of action :
  2. a co-ordinated economic programme to stave off a renewed recession through achieving a bold reduction in interest rates, a comprehensive set of reforms in the operation of financial markets, and a retargeting of structural expenditures (§ 4-8) ;
    a major initiative to create high quality jobs by promoting adaptability and innovation at firm level through:- worker involvement, investment in skills, the diffusion of good practice and a renewed initiative for the reduction and reorganisation of working time (§ 9-22) ;
    the safeguarding of income standards and social security systems whilst renewing efforts to insert vulnerable groups (youth and long-term unemployed) into employment(§ 23-25) ;
    and the launching of a "new deal" of sustainable growth for developing countries backed up by social rules in trade and investment agreements so as to create a bond between economic and social development (§ 26-29).

The leading industrialised countries are far richer than they were in the Great Depression of the 1930's and resources can and must be harnessed to finance these priorities.

A co-ordinated economic programme

  1. Most industrialised economies face a serious slowdown and possible recession as economic and employment growth is throttled by high real interest rates, budgetary cutbacks and growing insecurity. The outlook for unemployment remains totally unacceptable. The European Union goal of halving unemployment by the end of the decade contrasts sharply with the renewed rise in unemployment. Job insecurity of those in work is destroying consumer confidence. Inflation is at its lowest level for decades yet financial markets and many central banks are stuck in a mind set of "inflation illusion", scanning each set of economic data for signs of inflation to reinforce their credo of monetary policy vigilance. Real interest rates are still too high and are damaging productive investment, innovation and employment creation. Ill-timed fiscal consolidation and expenditure cuts will compound the risk of an emerging recession. In Europe the over-rigid interpretation of the Maastricht public deficit convergence criteria risks destroying the progress towards economic and monetary union.
  2. To break out of this immediate dilemma governments and central banks must undertake a bold programme of co-ordinated cuts in short-term interest rates across the G7 countries as part of their contribution to a "coalition for jobs". This will mean returning to rates of real interest prevalent in much of the post-war period and can be done without reigniting inflation, given the margins of slack in many G7 economies. Co-ordinated and concerted action should ensure that financial markets follow this movement with lower long-term rates. G7 governments must develop a process of policy co-ordination with central banks and with each other to reduce significantly unemployment. Work should start to prepare a comprehensive set of international regulations to cover the operation of financial markets, including an international transactions tax. This would send a clear message to financial markets that governments will not allow exchange rate and other financial market instability to undermine growth orientated economic policies.
  3. Governments, in cooperation with the private sector, should support infrastructure programmes geared to providing the basis for environmental improvement as well as measures to stimulate R&D and innovation. In Europe the transborder infrastructure investment projects proposed in the European Union White Paper need to be implemented.
  4. Such a programme would act as a catalyst for economic and employment growth. Enterprises would bring forward much needed investment and plan for innovation and employment creation, rather than retrenchment and downsizing. On the other hand workers would give a much needed boost to economic activity through increased consumer spending.
  5. Public deficits can be brought down over the medium term through reducing the gap between growth rates and interest rates so reducing interest payments on government debt. This would allow European Union countries to prepare for EMU without deflating their economies, while allowing the major economies to remove structural fiscal deficits in a period of rising prosperity. New sources of taxation such as international transactions taxes and environmental taxes can also be exploited.

Achieving Adaptable Labour Markets

  1. Over the last decade in most of the G7 countries wage bargaining institutions and minimum wage protection have been weakened, wage and income inequality have increased, employment protection has been reduced, unemployment benefit eligibility has been tightened and the relative levels reduced. Employers now claim that "... flexible labour markets have become the rule rather than the exception in virtually all OECD Member states ..."(1). Yet these measures have not reduced unemployment. On the contrary, in the face of economic uncertainty many companies have taken advantage of their new freedoms to "downsize" their operations whilst reducing investment in physical and human capital. Chronic overtime and work pressure now coexist with mass unemployment. Insecurity of workers and consumers is not only contributing to a social malaise it is also worsening the economic crisis.
  2. The Lille Conference must open the way for a new approach for managing change and stimulating innovation at the workplace level. The G7 countries must use technology and innovation to compete on the basis of high quality products, with highly productive and knowledge intensive workplaces. The trade union movement has proposed an agenda of positive adaptability to move economies forward and maintain social cohesion. This includes :
  3. Lifelong learning for all workers
  4. The January 1996 OECD meeting of Education Ministers called for a "social partnership" to deliver lifelong learning involving trade unions, employers, parents and teachers. This must now be acted upon. In particular, there needs to be :
  5. increased public investment in basic education targeted to raising educational quality particularly for the potential drop-outs and underprivileged in the system ;
    a partnership for continuous change and improvement in educational practices ;
    the widening of access to further and higher education ;
    the involvement of the social partners in the design, monitoring, assessment and promotion of systems to recognise qualifications and skills to enabling individuals to have portable skills over a lifetime ;
    the setting up of training banks for small and medium sized enterprises with the involvement of the social partners.

A partnership for change at the workplace

  1. To maintain competitiveness in a highly unstable world enterprises have to become "high performance workplaces" through technological innovation and new forms of work organisation based on higher and more diversified skills, high trust relations within firms and less hierarchy. The active involvement of employees and trade unions delivers productivity and employment gains.
  2. Only a minority of firms have followed such a path, many others remain obsessed with short-term flexibility. Here the end result is "downsizing", "delayering" and "outsourcing". Exploitation, fear and insecurity exist in the workplace; training is neglected and workers oppose change, rather than embrace it. OECD work has shown that managerial failure is a major barrier to "high performance" workplaces.
  3. Governments should set a target such that all firms are on the way to become "high performance workplaces" by the year 2000. Such a target is ambitious, but necessary to help reduce unemployment and make competitiveness synonymous with good employment. To meet this target, governments must promote firm level reorganisation through worker involvement, using a twin track strategy. On the one hand, they should abandon the failed strategy of pushing for ever more external flexibility and insecurity. Rather, governments should create a climate of security through a guaranteed floor of employment rights. On the other hand, through a combination of innovation policy, tax incentives and grant/levy schemes governments can encourage good practice. Employers should endorse this approach to creating quality jobs.

The reduction and reorganisation of working time and extension of learning time

  1. Average working time per employee in several G7 countries has increased over the last 15 years. Elsewhere, the historical rate of decline has slowed. These trends worsen the employment situation. Productivity gains in firms should be more widely distributed as a general reduction in working hours and job creation. This can be achieved when there is joint decision-making over work reorganisation and working time. As part of wider negotiations, trade unions have agreed to flexible working time arrangements in exchange for working time reductions.
  2. Systematic and excessive overtime working should be eliminated. If firms had to hire new workers instead of resorting to overtime a significant part of overtime hours could be translated into new jobs. Where exceptionally overtime is worked it should as a principle be compensated by time off in lieu.
  3. The "knowledge-based" economy and the move towards the information society requires more learning time for workers to adapt to structural change and innovations in workplace organisation. A reduction and reorganisation of working time should therefore also be used for an extension of learning time and training by and in firms.
  4. There should be equal employment rights for part-time workers so as to put part-time work on the same footing as full time work and eliminate involuntary part-time and temporary work. This would facilitate socially acceptable job-sharing and opportunities for voluntary chosen part-time work. There should also be a phased approach to retirement as part of a "life-long working time" strategy.

The expansion of service sector employment on the basis on decent wages and labour standards :

  1. There is almost limitless job creation potential in areas of unmet social needs. Demographic change is increasing the demand for improved community care for the elderly. Increased women's participation in the labour force is increasing the demand for care for pre-school-age children. Education, health care and environmental services can also each provide sources of new jobs. Much of this demand falls within public sector activity. In the future the public sector will have to continue to generate employment both as direct employer and as a regulator and facilitator of private sector employment. There are areas where new and innovative systems of government intervention, user charges and public procurement can allow the public sector to identify needs to be met by a mixture of public and private provision. In some countries innovative approaches have been adopted in the social and cooperative sectors, and through local employment initiatives. Whether or not services are public or private, the public sector will need to guarantee standards. The skills and ability of workers in these sectors is often high as is productivity. Measurement systems, therefore, need adjusting to reflect the true skill content and higher productivity of these jobs. In the future, "feminised" professions will no longer accept low pay. Society must put a fair price on the provision of services.

The "double dividend" of environment improvement and sustainable jobs

  1. Policies for sustainable development must go hand in hand with policies for sustainable employment. Those countries and firms who will benefit most are those who have strengthened the linkages between environmental policies and employment and that have invested in pollution control, environmental technology, and environmental skills training. Much more can be done to stimulate "green" job growth. Greater government support should be given to the growth of the environmental technologies and services industries - including green consumer products, renewable energies and environmental biotechnologies.
  2. A number of industrialised countries have launched successful local and regionally based environmental clean-up and conservation schemes targeted to provide opportunities for the young and long-term unemployed. There are also precedents in the form of regional and structural funds that, if directed towards environmental improvement, could create jobs and improve the environment.
  3. G7 governments should seek a "double dividend" by substituting taxes on labour with taxes on environmental resources and consumption. However, eco-taxes are not a panacea and scepticism remains as to the feasibility of complete tax switching. There can be negative employment and income effects of new taxes, they affect national competitiveness unless part of multilateral agreements, and doubts exist as to whether environmental resources provide a long-term stable tax base. Despite these reservations it is recognised that the present fiscal and regulatory systems often give perverse price signals which restrict innovation and deter long-term environmental investments. The overemphasis in financial decision-making on labour costs as opposed to resource use is also an obstacle to sustainable production. It is important therefore for the G7 to examine more the effectiveness of tax programmes that have been developed in certain OECD countries, and to explore the employment aspects of eco-tax reform.

Rebuilding Social Solidarity

  1. "We cannot build an efficient economy on the ruins of social solidarity"(2). Functioning social security systems are not a luxury or an economic burden. They make economic sense. They contribute to private sector productivity growth and can give security in a period of rapid change. As built in stabilizers to the economy, these systems have avoided some of the worst excesses of unemployment being transferred into a collapse of consumption. But the growing weight of unemployment has increased social security costs, and systems have come under ideological attack. Where social security is weak or absent, the costs of unemployment or working poverty are pushed onto society in other ways:- worsening public health, crime and rising prison populations.
  2. In some G7 countries reforms are needed to tax and benefit systems to create a spring-board into employment. Marginal and average tax rates paid by low income workers should be reduced. However, this should not include the dismantlement of minimum wage systems and their replacement by in-work benefit payments or measures to coerce the unemployed into taking any job however low paid. This would lead to a downward spiral of low paid, low skilled employment. Rather, tax and benefit systems should be harmonised with minimum wage systems to provide an entry point into decent employment.
  3. Social security systems have to be part of wider strategies to reintegrate the most vulnerable and worse off groups in society. A coalition for jobs must include in each G7 country an equivalent of a "Marshall Plan for youth" to bring young people into decent jobs, training places or worthwhile government schemes. The long term unemployed must be offered job places to give them contact with the labour market. The experience with the Danish "job swap" scheme should be examined in the G7 countries and adopted accordingly.

A Social Dimension to Globalisation

  1. The G7 should take the lead in developing a "Global New Deal" for the world economy. There should be an expansion of development assistance, programmes to fight poverty and a reduction of debt so as to ensure sustainable development of growing markets worldwide. Needs are endless - primary education and health care, infrastructure development, poverty alleviation. The increasing integration of the world's economies also demands trade and investment policies that recognise the basic link with worker rights, environmental standards and the need to stop corruption. The members of the World Trade Organisation should commit themselves to observe core labour rights. The final declaration of the 1995 Copenhagen Social Summit shows that there is now a significant consensus on the core labour rights as reflected in ILO Conventions that are particularly relevant:- freedom of association and protection of the right to organise, the right to organise and bargain collectively, freedom from forced or compulsory labour and the abolition of forced labour, freedom from child labour, and equal remuneration for men and women and freedom from discrimination in respect of employment and occupation.
  2. These core standards "should be recognised and applied by all countries regardless of their level of development or social priorities"(3). Developing countries have nothing to fear from these standards, on the contrary their observance can encourage sustained and balanced development by ensuring wider participation in economic and political life, so reducing polarisation, exclusion and corruption. Yet in the short term there are plenty of examples of cut-throat competition suppressing rights and undermining those developing countries that have sought to follow the "high route" to development. Organising trade unions in many parts of the world remains a difficult and hazardous process. The establishment and increased use of "free trade" or "export processing zones" in which labour protection is minimal or simply outlawed is undermining even further the limited labour rights which exist.
  3. The Lille Jobs Conference should take a strong stand in support of the implementation of these basic rights through supporting the creation of a joint committee between the WTO and ILO at the December 1996 Singapore WTO Conference. Trade measures could be seen as part of a range of measures including positive assistance to ensure basic rights are observed.
  4. The moves to negotiate a Multilateral Investment Agreement (MIA) in the OECD will be one more and very important element in the world multilateral investment system covering a large part of foreign direct investment (FDI). Furthermore, coverage will be greatly expanded if as expected the agreement is opened to non OECD Members, some of whose labour standards do not conform to those in the OECD. This factor when combined with moves in some OECD countries to dilute labour standards or to disregard the provisions of the OECD Guidelines for Multinational Enterprises as a means to attract foreign direct investment makes it essential that the Guidelines be incorporated into the MIA. Trade union support for an investment agreement is conditional on the satisfactory incorporation of the Guidelines. This should be supported by the Ministers at Lille.

(1) Business and Industry Advisory Committee to the OECD (BIAC) Statement to the January 1996 OECD Education Ministers Meeting.

(2) Jean-Claude Paye, OECD Secretary-General.

(3) Michel Hansenne, Director-General, ILO, March 1996.

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