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February 19, 2009 - Wolfgang Clement
The economic crisis following the financial markets has taken on global dimensions. The majority of the industrialized nations are hit by the worst recession in decades. The emerging economies like China have to deal with shrinking growth. And in some developing countries famines have become a real threat.
There is hardly a region is the world that is not affected by rising unemployment. The International Labor Organisation ILO anticipates the global unemployment to rise by 50 million people.
At a first and superficial sight the world in the first decade of the 21st century seems to find itself in the midst of a crisis like the one almost 80 years ago, which back then also began in New York. But: history does not repeat itself, this is also true for economic history. Countries and business leaders seems to have learned from that catastrophe that unfolded following the “Black Thursday” in 1929 which was followed by a much worse catastrophe, the second world war. The majority of countries, governments and central banks cooperate these days and do not pursue isolationist policies. A nationalistic, protectionist economic policy would in the end hinder global recovery and weaken all economies. That is why open markets and a close cooperation is so vital for China as well as for the US, for Japan as well as for Europe.
No less important, the stumbling banking sector which is indispensable for the functioning of markets, needs to be stabilized to maintain monetary circulation so that the global economy can be revitalized, and so that support for the developing countries can be continued in order to prevent them to be the biggest losers of this downturn.
About all this, there is a common understanding among all responsible decision-makers in the leading economies of the world. And this should make us confident that the challenges of the current economic crisis will be dealt with more successfully than back in the thirties of the last century.
But this macroeconomic view should not make us blind for the growing number of workers and employees with their families worrying about their jobs. Millions of people are already affected by unemployment and for many more is it a likely fate – unless effective counter-measures are taken.
In such difficult times it is more than understandable that governments of many countries subsidize companies suffering from a lack in demand and thereby temporarily allowing them to lower labour costs and thus secure the companies’ survival.
The majority of European governments are paying companies short-time working benefits. It is aimed to help companies avoid lay-offs in times of economic trouble.
During these periods of “short-time work” the employees of a company work shorter hours or not at all. The loss of earnings is compensated for by short-time allowances paid by the state. This implies that workers have to accept lower incomes because the short-time allowances do not fully make up the loss of earnings. But the job is kept and an at least basic provision, too, since – for example in Germany – short-time working benefits make up for 60% of the income for singles, and for 67% of the income for couples.
This approach has several advantages: The worker or employee receiving short-time allowances won’t get stranded. He or she keeps his or her job. And, differing from lay-offs, companies do not lose their skilled workforce. It will still be there and ready by the time of the next economic upswing. And thirdly: from a macroeconomic perspective it makes sense financially since paying short-time compensation in the end is cheaper than paying for unemployment with all its political and financial follow-up costs.
Over the past years many economies have come to understand that financing unemployment is a dead-end street. It is widely understood these days that it makes much more sense to use the unvoluntarily less busy times for further education and training.
There are mainly two reasons for this: On the one hand many countries – China, the US or Europe – have to cope with a big number of little qualified or unskilled workers. There are many various reasons for that. For individual, family-reasons or regional reasons many did not get the opportunity to successfully complete an education thus depriving them of the opportunity to find and keep a regular job. These unqualified people make up the majority of the unemployed in most countries. Often they are not able to improve their situation themselves; they are dependant on state aid. That is why it makes sense to use times of unemployment to give these people access to further education and training so that in better economic times they can look after themselves and will be able to support their families without external aid.
On the other hand there is the skilled workforce which companies of all sizes and industry anywhere in the world depend on. The demand for many skills exceeds supply so that the expression “war for talents” was coined to describe it. Even in these days of economic downturn many companies still look for qualified and trained employees and in many cases are unable to fill job openings with an adequately skilled person. In China as well as in Europe there are severe shortages in management and IT and engineering skills.
Many of the skills in short supply and sought after are decisive for the strength and competitiveness of an economy or country. That is why the current period of economic weakness should be used to develop and broaden the pool of qualified and highly-trained workers and employees by bringing them up to the latest level of knowledge in their field, thereby strengthening an economy’s capacity to innovate.
This is in the interest of both states and companies. That is why it is sensible that governments not only fight unemployment but at the same time invest into further qualifying those that do not have the means to do that on their own. This to me becomes more and more common understanding: The ability of countries to compete depends more than anything from the education and skills of their citizens.
What needs to be watched carefully though is that the training and further qualification meets the actual demand of the respective labour markets. Nothing is more frustrating for the individual than to have worked for a qualification that is not needed in the workplace.
Here the private employment agencies can play an important role. These employment agencies can not only help companies find the right workforce in times of rising demand and economic upturn. In times of economic downturn they can take over the role of a mediator taking care of training and further qualifying people in line with actual market needs, thereby bridging times of unemployment and simultaneously creating the preconditions for the next upswing.
To accomplish that it is required that the state bodies and businesses cooperate. Whoever compares their interests without prejudice will most likely agree with me that temporary staffing companies can in times of economic upturn as well as in times of economic downturn both provide companies with the flexibility and training they need to stay competitive and employees with the security they are looking for.
Some European countries have understood this correlation and – after years of neglecting temporary work – have now for the first time (e.g. in Germany) included temporary work in the publicly funded system of short-time working benefits, which implies that temporary staffing agencies are now eligible for state-funds devoted to education and further qualification. This will probably demonstrate that private employment agencies are more successful than state employment agencies in assuring that continued education and further qualification meets the demand of the labour markets.
In Europe there is the expression of “flexicurity” meaning more flexibility for companies and more security for employees. This should be the ultimate objective of all labour market policies, in good times as well as in bad times, in times of economic boom as well as in times of economic downturn, like right now, for which to get over we should spare no effort.
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