Pro-employment macroeconomic policies

Maintaining macroeconomic stability has been insufficient to support sustained and inclusive structural transformation and broad-based productive employment creation, as evidenced by sluggish economic performances in a large set of countries and continued high levels of unemployment, underemployment and working poverty.

The Great Recession of 2008-2009 and the COVID-19 pandemic led to a reconsideration of the prevailing consensus on macroeconomic policies, including a greater appreciation of counter-cyclical fiscal and monetary policies in fighting recessions and of policy frameworks that support inclusive growth and productive employment.

In the face of climate change and biodiversity loss, macroeconomic frameworks have been increasingly called on to integrate climate and biodiversity goals and smooth the impacts of these shocks on economies and ensure a just transition in labour markets.
 

How can macroeconomic policies be “pro-employment”?

The specific elements of such a pro-employment macroeconomic policy framework that has the explicit goal of creating decent jobs in line with SDG 8 will differ with country needs and circumstances and shifting political, economic, environmental, and social realities - Table 1 identifies a number of areas that could make the national macroeconomic policy stance more employment friendly.


For example, monetary policy mandates depending on country circumstances can include full employment in addition to price stability. While not explicit mandates, a number of central banks in developing countries, including in Asia (such as Bangladesh, Bhutan, Fiji, Pakistan, the Philippines and Thailand) identify the broader objectives of supporting inclusive economic growth, financial inclusion or development in their vision or mission statements.

Institutional capacities to undertake countercyclical policies to manage aggregate demand over the business cycle can be strengthened to achieve full and productive employment. In terms of foreign exchange policies, stable and competitive exchange rates can also play an important role in supporting economic diversification and managing cyclical swings in capital flows. An exchange rate framework of that kind can support the development of the non-resource tradable sector (agriculture and manufacturing) and also of sectors with large “learning spillovers”, leading to the dissemination of new technologies.

Country and region-specific contexts matter in the design of pro-employment macroeconomic frameworks. In Africa, for example, in light of commodity dependence, high levels of informality and working poverty, and a fast-expanding labour force, macroeconomic policy needs to widen its focus from a stabilizing role to a “transformative” role which actively targets decent and productive employment that is inclusive and sustainable. In this regard, a three-pronged approach developed by the ILO with the Institute for Economic Justice, involving: (i) direct employment creation where policy space allows; (ii) resolving macroeconomic imbalances that retard employment generation; and (iii) advancing structural transformation and supporting complementary sectoral and labour market policies can increase aggregate demand in the economy without unduly increasing imports while expanding domestic supply.
 

Need more resources on pro-employment macroeconomic policies? Check out:

Tool and reports:
 

• Towards a transformative macroeconomic policy framework for employment generation in Africa
• Demand-side policies for employment promotion in low- and middle-income countries (ilo.org) 
• Rethinking macroeconomic policies for full employment and inclusive growth: Some elements (ilo.org)
• Structural transformation for inclusive growth and productive employment
• How do macroeconomic and sectoral policies affect employment? A Workers Guide
• Delivering on SDG8 – Integrated pathways to economic transformation and inclusive labour markets
• Productive transformation and sectoral policies during the COVID-19 crisis in El Salvador and Costa Rica (ilo.org)
• Working paper on Development central banking: A review of issues and experiences
• Working paper on The crisis of orthodox macroeconomic policy: The case for a renewed commitment to full employment · Working paper on The return of fiscal policy (ilo.org)
• Working paper on The return of fiscal policy (ilo.org)

Policy briefs
 

• Policy brief: Greening macroeconomic policies: Current trends and policy options

Events and videos 
 

• Event: 4th Employment Policy Research Symposium, Employment policies for a job-rich recovery and a better future of work