Global job creation remains sluggish, prompting calls for policy actions to raise economic growth. Will growth create jobs? Recent IMF research documents a striking variation among countries in the extent to which employment responds to GDP growth over the course of a year. In some countries, labor markets are quite responsive: when growth picks up, employment goes up and unemployment falls; in other countries the response is quite muted. Thus, a pick-up in growth—through aggregate demand stimulus for instance—will result in more jobs, but the extent of job creation in the short run could vary sharply across countries. Some structural measures can thus serve as useful complementary policies, as also discussed in IMF research.
The global unemployment rate increased sharply during the Great Recession to a peak of 6.2 percent in 2009 (Figure 1a). The increase in unemployment in emerging markets and developing countries was modest. In contrast, the unemployment rate in advanced countries shot up to nearly 8.5 percent and has returned very sluggishly in subsequent years toward its pre-crisis level. Even by 2017, the forecast is that unemployment in advanced economies will still be higher than it was a decade earlier (Figure 1b).
Some observers argue that the sluggish recovery of unemployment in advanced economies is to be expected given that output remains below trend in many of these countries; they argue further that the way to reduce unemployment faster would be through macroeconomic policies (e.g., Krugman 2011, Kocherlakota 2014). Others suggest that the job losses are not well explained by developments in output (e.g., McKinsey 2011, Cazes and others 2011). Recent IMF research provides evidence on this debate by documenting the short-run relationship between labor market developments and real GDP movements for a large group of countries. Such a relationship is often referred to as Okun’s Law, following Okun’s (1962) documentation of it for the United States.
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