The impact of crisis on employment

In recent days, Greek public sector workers have launched protests against government austersity measures which include a cutback in minimum wages, public pensions, an increase in effective retirement age and a cut in entitlements. An interesting question is how the crisis affected employment outlook across the world. The OECD recently presented a brief overview of unemployment dynamics in member states (link).

The countries, least affected by the crisis in terms of unemployment surge, are the ones with strong and flexible institutional foundations of the labor market such as the flexibility of wages, the ease of firing and hiring, tax wedge and the linkage between productivity and wage rates. These countries are, for instance, Austria, The Netherlands, Korea and Norway. The surge in unemployment has been the most significant in countries such as Spain, Ireland, U.S. and Iceland where the banking and financial crisis have torn real income and employment by heavy spillover of financial shock into the real sector. It is important to emphasize that long-term employment outlook in OECD countries will be determined by wage flexibility and regulatory environment which is essential and conducive to job creation besides economic growth and unit labor costs.