JOBS AND GROWTH: THE EVOLUTION IN IMF THOUGHT

PrakashLounganiChief,DevelopmentMacroeconomics,ResearchDepartment,IMFFormerCo-Chair,IMFJobs&Growthworkinggroup

ViewsexpressedarethoseofthepresenterandmustnotbeattributedtotheIMForconsideredtobeIMFpolicy.IthankZidongAnandJunGeforputtingtogetherthispresentation.

ETUI/ETUCconference,June2016

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Structure of talk

A. EvolutioninIMFthoughtonemploymentissues

B.  Implicationsofthisevolution

forthethemeofthisconferenceandpanel

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EVOLUTION IN IMF THOUGHT ON EMPLOYMENT ISSUES

PartA: 3

Evolution in IMF thought on employment issues

A1) Greaterattentiontodistributionalconsequencesofeconomicdevelopmentsandpolicies.

A2) Increasedrecognitionthatlabormarketpoliciesneedtostrikeabalancebetweenpromotingefficiencyandprotectingthebasicneedsofworkers.

A3)Increasedimportanceonunemploymentinpolicydiscussions.

Plus:‘Two-handed’approachtotacklingunemployment:recognizeimportanceofbothaggregatedemandandaggregatesupplyandadvocates

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A1) Greater attention to inequality

•  WorkofJonathanOstryandco-authors:

–  Inequalitylowersthedurabilityofgrowth(Berg&Ostry)

–  Redistribution,unlessextreme,doesnotlowergrowth(Ostryetal)

•  Driversofincreasedinequality:–  Declinesinunionization(Jaumotte&Osorio-Buitron)

–  Capitalaccountliberalization(Furceri&Loungani)–  Fiscalconsolidation(Ball,Furceri,LeighandLoungani) 5

A2) Role of labor market institutions Blanchard,JaumotteandLoungani:•  Roleoflabormarketinstitutionsistopromoteefficiencywhileprovidingadequateprotectiontoworkers

•  Formicroflexibility(abilityofeconomytomatchworkerstojobs):–  Generousunemploymentinsurancecombinedwith

employmentprotectionthatisnotexcessive

•  Formacroflexibility(abilityofeconomytomakelargechangesinresponsetoeconomy-wideshocks)

–  Collectivebargaininginstitutionsarecritical–  Trustamongsocialpartners

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A3) Taking unemployment seriously

•  Elevatingimportanceofunemploymentinpolicydiscussions

–  Landmark2011ILO-IMFOsloconferenceonunemployment

–  IMFpaperonhumancostsofunemployment(Dao&Loungani)

•  Promotionoffullemploymentrequiresa‘two-handedapproach’:needtoboostaggregatedemandasmuchasaggregatesupply.

–  VerysupportiveoftheactionstakenbythemajorcentralbanksduringtheGreatRecessiontostimulateaggregatedemand.

–  SupportedcoordinatedglobalfiscalstimulusgivenattheonsetoftheGreatRecession;advocatedaphasedratherthanabruptwithdrawal

–  Calledforanincreaseinpublicinvestment

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IMPLICATION OF EVOLUTION IN IMF THOUGHT FOR THE THEME OF THIS CONFERENCE AND PANEL

PartB: 8

“…the time is not far distant when everything that machinery and cheap labor can produce will crowd every market. The millions of China, with the millions of India, will offer the cup of cheap machine labor, filled to the brim, to our lips, and force us to drink it to the dregs, if we do not learn wisdom.”

Concern that ‘others’ will take away ‘our’ jobs is not new:

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− The Atlantic, volume 44, 1879

1920s

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“WillMachinesDevourMan?”(Right)“AVisionoftheMachineAge”(Left)

1930s

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“Wearebeingafflictedwithanewdisease...technologicalunemployment.”−JohnMaynardKeynes(1930)

1940s

1950s

12 “PromiseandPerilofAutomation”(1957)

1960s

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1970s

2000s

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1980s

2010s

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ThelastjobonEarth:imaginingafullyautomatedworld

Impact of digital economy on employment

•  Ageneraloverviewofthevariousareasofimpactwouldbeasfollows:

–  jobcreation:newsectors,newproducts,newservices;

–  jobchange:digitalization,human/intelligentmachineinterface,newformsofmanagement;

–  Jobdestruction:automation,robotization;

–  jobshift:digitalplatforms,crowdsourcing,‘sharing’economy.

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Jobs in the digital economy…

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Some people do get hurt by automation…

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Economists have a

43% chance of

being automated

Cashiers have a

97% chance of

being automated

Clergy have a

1% chance of being automated

WebsiteLink

Job destroyer?

Tellers:probabilityofcomputerization=98%(Frey&Osborne,2013)

AsmoreATMswereinstalledintheUnitedStates,thenumberoftellersemployed

didnotdrop.

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0

100

200

300

400

500

600

700(thousands)

TellersemployedATMsinstalled

1970 1980 1990 2000 2010

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Hollowing out the Middle…

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-10.9 -10.8 -10.7 -10.6 -10.6 -10.4 -10.3-9.6

-8.6 -8.5

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-6.7

-4.9

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-14

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-10

-8

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-4

-2

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Change in Occupational Employment Shares in Middle-Wage Occupations in 16 EU Countries,

1993–2010 IRL BEL ESP GBR LUX GRC FIN ITA AUT DNK SWE FRA NOR NLD DEU PRT

Dwindling Middle Class in the US…

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9

9

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9

9

9

61

59

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50

10

12

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4

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1971

1981

1991

2001

2011

2015

Share of adults living in middle-income households in the United States (%)

Lowest LowerMiddle Middle UpperMiddle Highest

Trade and technology: long-run gain vs. short-run pain

•  Tradeandtechnologycontributetonationalandgloballong-runefficiencyand–morearguably–tolong-runequityaswell,atleastatagloballevel.

•  Bothforcesleadtoadverseconsequencesforanumberofpeopleintheshort-tomedium-run.Ithinkmanyofusinmainstreameconomicshavebeenguiltyofeitherignoringthesecostsorpayinglip-servicetotheneedtoredressthem. 22

A ‘caring’ IMF Whetherthesourceoflossofjobsforsomepeopleistradeortechnology--orindeedsomeother‘megatrend’:

►Treattheunemploymentthatresultsfromdisplacementduetotradeandtechnologyasaseriousdevelopmentthatposesgravecostsfortheindividual,hisorherfamily,andforsociety;

►Supportadequateunemploymentbenefitsorotherformsofassistancetoreplacesomeofthelostincomeofthosedisplaced.

►Recognizethatevenifsupply-sideremedies--suchasprovisionofre-trainingandskillsdevelopment--arethedesiredsolution,thesewillnotworkwellinanenvironmentofweakaggregatedemand

►Looknotjustattheaggregateorefficiencyeffectsoftheremediesweprescribebutattheirdistributionalorequityeffects.Donotbefearfulofredistributionasoneoftheremediestoconsiderinordertocompensatethosewholoseout.

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