World sinks into misery as policies flop

Some four years after the Great Recession, monetary and fiscal economic policies of the US and other major economies have failed to dent the "misery index" (MI).

This index, devised by the late economist Arthur Okun, is a combination of the unemployment and inflation rates. Arguably it is a better guide to the welfare of nations' inhabitants, as it takes into account not only the unfortunate jobless but strains on the underemployed, the working populace, especially lower and middle income groups and pensioners.

It now appears that quantitative easing (QE), or major monetary expansion undertaken by the US Federal Reserve Board, UK and the eurozone has failed to ease the misery.

Even with governments and central bankers sweeping inflation dangers to the side and concentrating on unemployment, the progress has been dismal. The International Labour Organisation (ILO) estimates that some 197 million people were without jobs in 2012. Moreover, some 39 million people have dropped out of the labour market as job prospects have proved unattainable.

"Even with an acceleration of growth, the global unemployment rate is expected to remain at 6 per cent up to 2017, not far from its peak level in 2009," states the ILO. "At the same time, the global number of unemployed is expected to rise further to some 210.6 million over the next five years."

"Those regions that have managed to prevent a further increase in unemployment often have experienced a worsening in job quality, as vulnerable employment and the number of workers living below or very near the poverty line increased," says the ILO.

Currently, some 73.8 million young people are unemployed globally and the slowdown in economic activity is likely to push another half million into unemployment by 2014, according to the ILO. The youth unemployment rate - which had already increased to 12.6 per cent in 2012 - is expected to increase to 12.9 per cent by 2017. The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry, a situation that was never observed during earlier cyclical downturns.

Some 35 per cent of all young unemployed have been out of a job for six months or longer in advanced economies, up from 28.5 per cent in 2007. As a consequence, an increasing number of young people have become discouraged and have left the labour market.

ILO blames poor policies for the mess. "Incoherence between monetary and fiscal policies adopted in different countries and a piecemeal approach to financial sector and sovereign debt problems, in particular in the euro area, have led to uncertainty weighing on the global outlook," it states.

"Job creating investment has not yet recovered to pre-crisis levels in many countries," adds the ILO. "The indecision of policy-makers in several countries has led to uncertainty about future conditions and reinforced corporate tendencies to increase cash holdings or pay dividends rather than expand capacity and hire new workers... The length and depth of the labour market crisis is worsening labour market mismatch, contributing to extended spells of unemployment."

Interestingly, Japan has been the best performer in terms of the MI, because unemployment is relatively low and prices have fallen.

"A closer look at Japan's performance over the past decade suggests little reason for persistent bearish sentiment," contends economist Joseph Stiglitz. "Indeed, in terms of growth of output per employed worker, Japan has done quite well since the turn of the century."

In an article in The Guardian, Mr Stiglitz adds that with a shrinking labour force, the standard estimate for Japan in 2012 - that is, before "Abenomics" - had output per employed worker growing by 3.1 per cent year on year. That is considerably more robust than in the United States, where output per worker grew by just 0.4 per cent last year, and much stronger than in Germany, where it shrank by 0.3 per cent, he adds. Other strong performers in terms of the MI are Malaysia and South Korea and next best is Singapore, also with relatively low unemployment, but higher inflation.

Those which are the worst sufferers of the misery index are South Africa, which similarly to other African states has exceptionally high unemployment, which is generally understated, low incomes and growth per capita, corruption and high inflation. Weaker eurozone nations, Spain, Greece and Portugal are also top of the list. Given the massive increase in QE and almost zero interest rates in the US$15 trillion (S$18.57 trillion) economy, the almost double figure MI of 9.6 per cent for the United States raises questions about current economic policy.

Illustrating the importance of the MI worldwide as an indicator, currently some 397 million workers are living in extreme poverty; an additional 472 million workers cannot address their basic needs on a regular basis, according to the ILO. Growth in population is also countering growth in emerging markets.

Moreover unemployment statistics are generally understated for several reasons. First, early redundancies of the over-50 age group is raising the pensioner population, which has to accept lower incomes while their savings earn negligible interest. Second, middle to higher income groups are reluctant to sign up for benefits as they generally have redundancy payments, are seeking jobs and are embarrassed. Third, a large proportion of part time, underemployed workers are not carrying out lower paid jobs by choice. Finally, ex-bankers and professionals become freelance "consultants" at much lower pay levels than previously.

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