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Good morning. I am delighted to welcome you to today’s conference on the challenges of job-rich and inclusive growth. To have all of you here today, from all walks of the IMF’s membership, reflects how widely these issues resonate. With the risk of mediocrity, we cannot afford complacency.
First, what is the scale and scope of the jobs and growth challenge?
Second, what kind of policies can support inclusive growth?
And third, what is the IMF’s role, and in particular what more should we be doing?
On my first question—the scale and scope of the challenge—let me share a couple of headlines.
Globally, growth is recovering from the Great Recession, but it is uneven and brittle. Looking ahead, the global economy faces the prospect of prolonged subpar growth, accompanied by high unemployment and rising inequality. There is a very real risk that the world could get stuck for some time with a new “mediocre” level of growth.
The ILO tells us that global unemployment currently stands at 200 million people—and has risen by 30 million since the crisis began. The average jobless rate in developed economies stands at 8.5 percent, compared with 5.8 percent before the crisis. In the developing world, unemployment rose only slightly during the crisis, and is now back to pre-crisis levels—however, unemployment remains a key obstacle to tackling poverty and boosting growth.
Youth unemployment is a particular concern. Global youth unemployment stands at 13 percent—or around 74 million young people. In the Middle East and North Africa, one-third of young people—and 46 percent of young women—cannot find work.
While unemployment remains high, income inequality has also reached critical levels. Oxfam recently estimated that the world’s richest 85 individuals control as much wealth as the world’s poorest 3.5 billion people. According to the U.S. Federal Reserve, between 2010 and 2013, America’s richest 10 percent saw their incomes rise by 10 percent, while the incomes of the poorest 20 percent fell by 8 percent.
This is a fairly stark picture.
That brings me to my second question: what should be the policy priorities for sustainable and inclusive growth?
First, is fiscal policy. Within budget constraints, governments can design more growth- and jobs-friendly policies. For example, we can explore redirecting public resources towards activities that are more effective at promoting job-rich, inclusive growth. Something that immediately springs to mind is reducing untargeted energy subsidies, and reallocating those resources (which we estimate at about $2 trillion per year) to activities that promote inclusion—such as better education and training programs and strengthening of safety nets.
A second area for discussion is structural reforms—especially of product and labor markets. As one illustration of the potential benefits in this area, the IMF estimates that if all Euro Area economies would close about half of the gap in these markets relative to best practices in the OECD, euro area GDP could be 3½ percent higher in 2019 than is currently forecast. How can we generate buy-in for these reforms, and what can be done to make sure they have the intended effect?
A third area to highlight is public infrastructure investment. Let me share some figures by way of example. IMF analysis suggests that public capital stocks, as a share of GDP, are currently 10 percent below what they were in the 1980s for advanced economies, and 20 percent below for developing economies. The American Society of Civil Engineers estimates that additional infrastructure needs for the U.S. are more than $200 billion over the next four years. And in India—for example—more than 300 million people still live without electricity. So infrastructure needs are clear, but we need to consider how to prioritize them, how to improve the quality and efficiency of investment, and how to square investment with high public debt and other spending priorities in many economies.
These three areas are certainly not exhaustive. For example, another important consideration in promoting inclusive growth is widening access to opportunities—such as financial services, education, and healthcare. A broader question is how we should deal with longer-term trends such as changing demographics, climate change, and technological innovation. These too will have a large bearing on just how inclusive growth will be in the decades to come.
IMF advice is increasingly mindful of the social impact of economic policies. One indicator comes from the Independent Evaluation Office of the IMF, which found that social spending floors were present in 29 out of 30 programs supported under the IMF Extended Credit Facility for developing countries. Beyond this, measures to protect the most vulnerable have also featured in IMF-supported programs of higher-income members, including recent programs in the Euro Area.
More broadly, social considerations are also increasingly incorporated into our regular country-level economic surveillance, known as Article IV consultations. Roughly half of all Article IV consultations undertaken in 2012 and 2013 included extensive discussions on employment and income distribution.
The IMF has also conducted in-depth research into drivers of inclusive growth. Recent papers on income inequality, female labor force participation, and youth unemployment spring to mind. A staff guidance note on Jobs and Growth that we published last year is helping to translate this research into practical IMF policy advice in actual country cases.
We have also strengthened our collaboration with other institutions to draw on their expertise. For example, we have been working with the ILO and other international organizations to assess how countries can build effective and sustainable social protection floors. We have conducted pilots with four countries: Burkina Faso, El Salvador, Mozambique, and Vietnam. We are now working with the ILO to expand the scope of the pilot exercise to more countries.
The bottom line is that we have made progress in bringing inclusive growth to the center of the IMF’s work, but there is still a lot to do. Today’s conference is another step in the right direction, and all of us at the IMF very much look forward to learning from your insights today.