The global economy is emerging from the worst financial and economic crisis of the past half century, but it will take time and strong political will to heal the wounds in the labour market. While the economic recovery is broadening and strengthening, employment growth is still lagging. In the two years to the first quarter of 2010, employment fell by 2.1% in the OECD area and the unemployment rate increased by just over 50%, to 8.7%, corresponding to 17 million additional persons in unemployment.

This chapter updates the analysis in the 2009 Employment Outlook of the labour market impact of the 2008-09 recession and policy responses to the resulting jobs crisis. The OECD area unemployment rate reached a post-war high of 8.7% in March 2010 and is probably near its peak, but is projected to decline only slowly. Total labour market slack exceeds conventional unemployment and a broader measure encompassing inactive persons who wish to work and involuntary part-time workers is more than twice as large. The extent to which falling output translated into higher unemployment has differed dramatically across the OECD depending on whether employers emphasised labour shedding or work sharing. The contribution of hours reduction to labour input adjustment is shown to have been unusually high in a considerable number of countries, due in part to public short-time work schemes, which preserved a significant number of jobs at least in the short run. Governments also continue to scale up income support and re-employment assistance for job losers in 2010, but now face difficult choices concerning how quickly to phase out these measures in the context of a still uncertain recovery and mounting fiscal pressures. A major priority going forward is to assure a job-rich recovery while limiting hysteresis effects in unemployment and participation.

This chapter examines the impact of the global economic crisis on labour markets in emerging economies and the role of employment and social policies to support workers and their families affected by the crisis. The increase in unemployment and underemployment has put considerable pressure on existing social support systems in all emerging economies. Even in normal times, social safety nets in emerging economies have great difficulty in providing effective support to all those who need it. This raises concerns about the administrative capacity and fiscal resources available to scale up social safety nets rapidly enough to meet the increase in needs, while maintaining their effectiveness. Most emerging countries are also facing the challenge of providing support to workers directly affected by the global crisis while also helping poor households that may have become ever poorer. This means that employment and social policies should be prepared to address the needs of very different groups. Three different types of employment and social policy measures are considered: unemployment compensation schemes; cash transfers programmes and public works programmes. The most important lesson from this chapter is that in order to respond effectively to the sudden increase in social needs, it is crucial to already have social protection programmes in place.

Many new firms are created every year. At the same time, many existing firms expand, while others contract or even shut down. In the process, many jobs are created and workers are hired; even as many positions are suppressed and workers separate from their employers. Labour reallocation is an important driver of productivity growth, insofar as less productive firms tend to destroy more jobs and more productive ones to create more jobs. What determines cross-country differences in hiring and separation rates? Can policies enhance growth by removing barriers to labour reallocation across industries, firms and jobs? Drawing from internationally harmonised data, the chapter analyses the impact of policies and institutions on gross worker flows in order to better inform policy makers on the channels through which policies affect productivity. However, enhancing labour reallocation can have distributional effects insofar as those workers that lose their job usually suffer from substantial declines in earnings and working conditions, in particular during periods of contracting economic activity. What are the effects of different policies on the likelihood and costs of losing a job? The chapter also examines the impact of policies on the incidence of, and wage premia and losses associated with, different types of labour market transitions.

Part-time work is becoming more important in OECD countries, particularly as some groups with traditionally low labour force participation – such as mothers, youth and older workers – take up work in greater numbers. Despite recent regulatory changes to improve the quality of part-time jobs, workers holding these jobs still face a penalty compared with full-time workers in terms of pay, job security, training and promotion, have higher risk of poverty and are less likely to have access to unemployment benefits or re-employment assistance if they become unemployed. However, in terms of job satisfaction, these disadvantages appear to be offset by more family-friendly working-time arrangements and better health and safety. Overall, part-time work promotes higher labour force participation and can be a viable alternative to inactivity for many, if appropriate incentives are in place. In countries with a high share of part-time employment, few part-timers move into full-time work and many stay in part-time jobs for long periods. This may be by choice, but can also have adverse long-term impacts for individuals, and for aggregate labour supply in ageing OECD societies. It is important to remove barriers to moving into full-time work. Notably, tax and benefit systems often reduce the gain from working more hours and can hinder transitions between parttime and full-time work.