By Walter Gibbs and Gwladys Fouche
OSLO (Reuters) – The world’s rich countries need to extend fiscal stimulus and job growth initiatives to fix a “dire” labor market that could threaten entire societies, the International Monetary Fund said on Monday.
At a conference co-hosted by the IMF and the International Labor Organization, visiting Spanish Prime Minister Jose Luis Rodriquez Zapatero said high unemployment may trigger a “crisis of confidence” in Europe.
The IMF said more and more workers worldwide were unable to find jobs for longer periods, weakening social cohesion and raising risks of unrest and even undermining democracy.
“The labor market is in dire straits,” IMF Managing Director Dominique Strauss-Kahn told the one-day meeting, adding that the GreatRecession had left a “wasteland of joblessness.” “We must acknowledge that the crisis will not be over until unemployment declines significantly,” he said, calling growth and jobs the “most urgent problems.”
Zapatero said longer periods of high unemployment could set off a confidence crisis in the European Union, which has been rocked by high debt and financing fears from Greece to Portugal.
“The worst crisis would be a crisis of pessimism, of a lack of confidence, of resignation. Europe must not fall into that,” he said, adding that job training would be the top priority for Spain, where 20 percent of the workforce is without a job.
“We have to bring new oxygen into our democratic institutions,” Greek Prime Minister George Papandreousaid.
European Commissioner for Employment and Social Affairs Laszlo Andor said 2010 had been an “annus horribilis” for unemployment. “If we fail to act … 2011 may still turn out to be the annus horriblis for social cohesion.”
JOBS OVER DEBT
The IMF said that extended fiscal stimulus was worth the additional debt if it helped cut long-term unemployment, which poses an even costlier burden on society as workers get discouraged, lose lifetime earnings or leave the labor market.
The IMF said that due to the deep crisis, it now backs schemes to extend unemployment benefits to help maintain demand and morale, and to give short-term incentives to companies to retain more workers but at reduced hours and wages.
Strauss-Kahn defended the IMF’s focus on jobs and concerns over the impact of long-term unemployment, saying it was a “misleading caricature” to think that the fund cared only about the austerity cuts usually associated with its programmes. He said unemployment was “about far more than just a pay check.”
In developed countries, jobless people had worse health problems and their children performed worse at school, while in poor states unemployment was often a matter of life and death. It could lead to violent conflict, “even war,” he said.
The leader of the International Labor Organization called on governments to extend measures to foster a still “fragile” global economic recovery and job creation.
But Iain Duncan Smith, Britain’s Secretary of State for Work and Pensions, disagreed, telling Reuters: “We’re at the stage where everyone is throwing out a lot of stimulus, but to lesser and lesser effect.”
“We think it’s time to start pulling that back,” he said. “If it goes on, we will start to squeeze out the private economy so it won’t have room to grow.”
For a factbox on IMF’s views on how to create more jobs, click on
(Additional reporting by Alister Doyle, Joachim Dagenborg and Wojciech Moskwa; Editing by Ruth Pitchford)