FRANKFURT (MNI) – As the economic recovery gains steam, it is
important that employment support programs with reduced hours in
exchange for job protection be wound down so as not to hinder needed
labor flexibility, the Organization for Economic Cooperation and
Development advised Wednesday.

The focus of policy-makers should shift toward the creation of new
jobs, rather than preserving existing positions the Paris-based group
argued in its outlook on employment for this year.

The economic recovery is unlikely to be strong enough to reabsorb
rapidly current high levels of both unemployment and underemployment,
the OECD predicted.

The group’s latest projections suggest that the unemployment rate
in the OECD could still be over 8% by the end of 2011. “Moreover, a
broader measure of unemployment encompassing inactive persons who wish
to work and involuntary part-time workers is nearly twice as large as
the official unemployment rate.”

Short-time work (STW) schemes in a number of countries contributed
an “unusually” high share of the total decline in labor input, while
“massive labor shedding” led to large increases of unemployment and
inactivity in other countries.

In the former group there is a risk that job creation will be
“particularly” weak during the recovery, while for the latter there is a
need for employment growth to be “vigorous” to keep unemployment from
becoming entrenched.

Given the great slack in the labor marketk, the OECD said a “strong
case” can be made for ensuring that labor-market programs continue to
receive adequate funding.

“But it becomes essential to focus on cost-effective programs and
to target the most disadvantaged groups at risk of losing contact with
the labor market,” the report argued.

“As the economic recovery gains momentum, it is important to begin
phasing out these STW schemes, so as not to hinder
productivity-enhancing labor reallocation across sectors and firms,” the
OECD said.

Especially as fiscal conditions tighten, the focus of policy should
shift from cuts in non-wage labor costs to employment subsidies,
“especially for employers recruiting the long-term unemployed or other
vulnerable groups, so as to avoid growing deadweight losses,” the group
argued.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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