The ILO warns of the effect of the rate hike on employment in the fourth quarter


The rise in interest rates by the world’s main central banks is one of the factors that is going to contribute the most to the significant deterioration in employment that, according to the International Labor Organization (ILO), is going to take place in the remainder of year. The agency warns that prospects for the labor market are very uncertainand that the risk of its worsening situation is increasing, in particular due to the effects of high inflation, the restrictions on monetary policy to deal with it, the increase in the debt burden and the decrease in consumer confidence.

In a report published this week, the ILO explains that, despite the fact that, in general, it takes a certain period of time for an economic slowdown or a recession to lead to a reduction in the level of employment and end up generating an increase in unemployment , the data reflects how a slowdown in the labor market has already begun to take place. So much so that the agency forecasts a large drop in the level of employment on a global scale throughout this quarter.

The world’s big issuers have accelerated rate hikes to counter runaway inflation. The European Central Bank (ECB) has placed them at 2%, their highest level since 2009, after raising them in October for the third consecutive month. The US Federal Reservewhich meets between today and tomorrow, could raise them for the fourth consecutive month by three-quarters of a point to place the reference rate in a range between 3.75% and 4%. Their movements have forced other central banks of developed and developing countries to also replicate the increases to avoid a collapse of their currencies, with the consequent restrictive effect on their economies.

If at the beginning of the year the recovery in the number of hours worked was “encouraging” after the pandemic hit, this trend has not continued, so wide differences persist between regions and income groups. According to their estimates, between July and September the number of working hours was 1.5% lower than the level recorded in the fourth quarter of 2019 (before the covid crisis broke out). According to the ILO, this situation would be comparable to a deficit of 40 million full-time jobs. The organization also regrets that the progress made to reduce the gender gap in this variable (women end up reducing their working hours to a greater extent to care for minors or dependents in their charge) could be reversed due to the slower rate of recovery.

Another effect that worries the body led by Gilbert F. Houngbo is that the situation of highly qualified workers (managers, professionals and technicians and related professionals) in the second quarter had improved more than that of low or medium qualification professionals, in particular in the services and sales sectors, which maintain figures worse than those registered in the same quarter of 2019, before covid. At the same time, the ILO forecasts that in the current year as a whole, informal employment will increase at the same rate as formal employment, which would put at risk the slow but uninterrupted trend towards formalization observed in the last 15 years.

Aid to the vulnerable and intervention of public prices

The fact that several crises have been concatenated and even superimposed (the covid crisis, the breakdown of supply chains, the inflationary crisis, the energy crisis, the war in Ukraine…) increases the risk of the occurrence of a new “powerful recession in the labor market on a global scale”warns the organization. This requires a detailed assessment of political priorities to address not only inflation, but also its broader impact on business, job creation and job quality, as well as on the level of poverty.

The set of political instruments necessary to deal with a situation of this type should be expanded, according to the ILO, through social dialogue. Specifically, the agency recommends a interventions to fix the price of public goods; reallocation of windfall profits; greater income guarantees in the framework of social protection programs; the increase in aid to guarantee income and maintain the purchasing power of income from work; and targeting aid to the most vulnerable people and businesses.

Lastly, the International Labor Organization makes a special mention of the Ukraine situation. In order to boost the labor market in the country and provide help to people affected by the current conflict, calls for efforts to promote decent employment and social protection, in particular in the framework of the ongoing debate on the reconstruction of the country . “It is also necessary to strengthen measures for the integration of Ukrainian refugees into the labor market,” he stresses.


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