Although the financial market turmoil might have passed its peak, its fallout will continue to act as a brake on growth in the OECD area for considerable time to come. GDP growth slackened in the second half of 2007 and is projected to slow further during the next two years in the OECD area, albeit in a differentiated manner across countries. Overall, employment growth continued moderately strong in 2007, but is projected by the OECD to slow significantly during the next two years. It is projected that 33 million persons will be unemployed in 2008 in the OECD area, up from 32 million in 2007. Against this background, the growth in real compensation per employee should slow down in 2008 in the majority of OECD countries and be broadly in line or below productivity gains. After discussing recent labour market developments and short-term prospects, the following pages provide a brief overview of the content of Chapters 1-5 of this publication.

The chapter first provides an overview of youth labour market performance over the past decade. It then presents evidence on the sensitivity of teen and young adult unemployment to the business cycle and the increased prominence of temporary and part-time jobs as modes of entry into work. Several indicators of the pace and modality of the school-to-work transition following completion of initial education are then presented and the quality of youth jobs is analysed, including the extent to which temporary and low-paid jobs serve as stepping stones to better jobs. Lastly, the chapter underlines the difficulty of moving out of non-employment for some school leavers – especially those who did not successfully complete secondary schooling – despite the overall fluidity of the youth labour market.

Informal employment and undeclared work is a significant labour market problem for some lower- and middle-income OECD countries, prompting concerns about worker protection, making it difficult for governments to deliver high quality public services and hindering productivity and growth. Strong economic growth does not, per se, appear to guarantee a reduction in informal employment. What policies can countries adopt to address informal employment? The answer differs from country to country. Depending on the situation in each of them, incentives for employing workers formally may be improved by a combination of reducing labour costs when they are excessive, increasing flexibility in countries with stringent employment protection legislation and improving the design of social protection schemes to increase the benefits of affiliation to workers. Better incentives should be complemented by enhanced tax, social security and labour enforcement efforts. Improved governance standards would also encourage voluntary compliance.

Despite some progress, there is still evidence of discrimination on the grounds of gender and ethnic or racial origins in OECD labour markets. Field experiments show pervasive ethnic discrimination in many countries. Indirect evidence shows that on average at least 8% of the gender employment gap and a larger proportion of the gender wage gap can be attributed to discrimination. Virtually all OECD countries have enacted anti-discrimination laws in recent decades, and evaluations as well as cross-country analysis suggest that, if well-designed, these laws can be effective in reducing disparities in labour market outcomes. However, enforcement of antidiscrimination legislation is essentially based on victims’ willingness to claim their rights. Thus, public awareness of legal rules and their expected consequences (notably, victims’ costs and benefits of lodging complaints) is a crucial element of an effective policy strategy to establish a culture of equal treatment. Moreover, legal rules are likely to have more impact if the enforcement is not exclusively dependent on individuals. In this respect, specific agencies may play a key role.

This chapter presents new evidence on the evolution of work-related mental illness in OECD countries and on the role that new work patterns have played in affecting it. Despite the steep rise in disability benefit receipt for mental illness in many countries, available indicators do not suggest an overall increase in mental health problems among the working-age population across the OECD area. However, mental health appears to have worsened in certain countries and for certain workforce groups, while the reported incidence of certain potentially stressful working conditions has increased in Europe. Longitudinal analysis for individual workers in five countries shows that non-employment generally is worse for mental health than working and that the mental-health payoff to employment varies depending on the type of job contract and working conditions, and pre-existing mental health problems. In particular, the mental health benefits for inactive individuals who obtain a “non-standard” job appear to be smaller than for those moving into standard employment arrangements, especially for persons with preexisting mental health problems.

Foreign direct investment (FDI) by OECD-based multinational enterprises (MNEs) in developing and emerging economies has increased dramatically over the past two decades. While generally perceived as beneficial for local development, it has also raised concerns about unfair competition and the protection of workers’ rights in host countries. This chapter assesses the effects of FDI on wages and working conditions for workers of foreign affiliates of MNEs and those of their independent supplier firms. The evidence suggests that MNEs tend to provide better pay than their domestic counterparts, especially when they operate in developing and emerging economies, but not necessarily better non-wage working conditions. The effects on wages may also spread to the foreign suppliers of MNEs, but those spillover effects are small.