IMF says helping job markets worth more stimulus

OSLO - The International Monetary Fund will reaffirm its call to extend fiscal stimulus and boost job growth when it meets labour groups and government officials to discuss the weak global economic recovery on Monday.

By (Reuters)

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Published: Mon 13 Sep 2010, 1:19 PM

Last updated: Mon 6 Apr 2015, 9:30 AM

In a paper to be discussed at a conference co-hosted by the International Labour Organisation, the IMF argues that labour markets are in a “dire state” with more and more workers unable to find jobs for longer periods, impacting social cohesion.

“The human and social costs of unemployment are more far-reaching than the immediate temporary loss of income,” the IMF said in its paper on reducing the human cost of recession.

The IMF said that up to a point, 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 labour market.

“If fiscal stimulus helps reduce unemployment and thus avoid an increase in structural unemployment, it may actually largely pay for itself, and lead to only a small increase in debt, relative to the alternative of doing nothing,” IMF chief economist Olivier Blanchard said.

“I hope that Oslo does reaffirm the need for coordination in aggregate demand policies across countries over the medium run,” he said, referring to the conference in the Norwegian capital.

The IMF will find an ally in the International Labour Organisation, whose boss called for an extension of fiscal stimulus measures to foster a still “fragile” global economic recovery and job creation.

Blanchard said that monetary policy adjustments can have much less impact on job creation with interest rates already close to zero in many countries. But he added that rate policy “can stay accommodative over the coming quarters, particularly because there is no threat of inflation on the horizon.”

The IMF also called for an extension in unemployment benefits to help maintain consumer demand and worker morale, as well as short-term work programmes, which give firms incentives to keep more workers on the job but at reduced hours and wages.

But the organisation said it was tough to design subsidies to spur new hiring: “One often ends up giving a subsidy for hiring that was going to be done anyway. And trying to pick the sectors that deserve subsidies runs the risk of political capture.”

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