Last week the IMF issued a 94-page policy paper on Jobs and Growth: Analytical and Operational Considerations for the Fund, produced jointly by the IMF’s policy, research and fiscal affairs departments (dated 14 March but posted on 4 April).

The report is intended to offer guidance on employment and distributional issues to IMF staff working on a country level.

Although it includes some positive language favouring job creation, inclusive growth and more equal income distribution, there is little follow-through in the substantive sections of the paper that deal with IMF programmes and policy advice and how Fund staff should change their practices.

In particular, there is almost nothing in the new policy paper that would lead Fund staff to question their current approach to labour and employment issues in country reports.

As the ITUC showed in a recent background paper on IMF loan conditions and policy advice concerning labour issues in Europe, the approach consists overwhelmingly of weakening or dismantling labour market institutions and regulations in the interests of achieving greater labour market flexibility.

One of the more useful analytical parts of the paper is the section on "Inclusive Growth", which discusses the importance of reducing inequality for stable and sustained growth (p. 24-31).

A later section of the paper, which takes stock of IMF country programmes and surveillance, acknowledges that currently little attempt is made by the Fund to mitigate the effects of inequality-producing austerity programmes: "While the majority of [country] reports examined discuss the likely effect of fiscal consolidation on social spending, only few propose options for mitigating the resulting impacts on the poor" (p. 35).

However, still later, in a section of the report with recommendations on what should change in the IMF’s work, only the following timid suggestion is put forward: "Discussion of inclusiveness could be enhanced where it is a priority. Staff could provide more discussion of the effect of proposed policies on inclusiveness, and where country authorities request, discuss policy options for enhancing inclusiveness." (p. 41)

The paper includes a recognition that lack of aggregate demand subsequent to the 2008-2009 crisis and global recession is an important cause of the current global jobs deficit. However, it devotes more space to the impact of "megatrends" such as technological change, globalisation (which the report appraises positively while acknowledging that it has contributed to within-country inequality, especially in advanced economies) and demographic changes (p. 7-12).

A section on growth issues refers in large part to the Commission on Growth and Development ("Spence Commission") that carried out its work in 2006-2009, and seems to acknowledge the importance of the role of the state in achieving sustained long-term growth, including for implementing policies to achieve industrial diversification (p. 13).

However, the report seems to hide behind the fact that "no generic formula exists" for a successful growth model. The key lesson it draws from the Spence Commission’s work is that the "one element … on which there is little disagreement is the critical importance of macroeconomic stability" (p. 1), which IMF staff have generally used as an alibi to push for fiscal discipline and monetary policy that prioritises low inflation above job creation.

The report refers to some positive aspects of the World Bank’s World Development Report 2013: Jobs (WDR 2013) emphasising the centrality of job growth as being essential to inclusive development and poverty reduction. It says that this may require a "jobs strategy" to complement a growth strategy.

However the report then trots out the tired slogan of "protect workers, not jobs", which IMF staff have regularly used to attack labour market regulations (p. 16-18 & 24).

Efforts to weaken labour regulations have taken place with simultaneous IMF proposals to reduce the cost and therefore the scope of social protection regimes (which are supposed to "protect workers"), such as is the case currently in several European countries. In developing countries, labour market deregulation has often taken place in contexts where social protection is grossly under-funded and deficient.

Lack of evidence acknowledged but ignored in recommendations

The report skims over the important finding of the WDR 2013, which is based on an extensive review of economic literature, that labour market regulations constitute an insignificant or minor obstacle to job creation in most countries.

Its praise of the "Nordic flexicurity model", supposedly based on the premise that "workers should be protected mostly through unemployment insurance rather than high employment protection" ignores indicators presented on the same page (p. 21).

 These show that three of the four Nordics (all but Denmark) have levels of employment protection in the same range as most of the southern European countries that the IMF has accused of having overly rigid labour markets.

The section of the report on the IMF’s surveillance and programme work concedes, in a footnote, that the "near-consensus" that greater labour market flexibility is good for growth disappeared several years ago.

It blames IMF staff’s continued promotion of labour market deregulation on the "lingering effects" of incorrect analyses disseminated by the OECD – in 1994:

"The apparent tendency [of IMF staff] to recommend greater flexibility may reflect in part lingering effects of a near-consensus established by the influential OECD (1994) Jobs Study. The study recommended flexible rules for protecting employment and setting wages…. By the mid-2000s, however, this consensus had largely disappeared. As methods had improved and better data had become available, the impact of labor market institutions became less—not more—clear." (footnote 18, p. 35)

One would have thought that this important admission that IMF staff promote labour market deregulation polices on the basis of two-decade-old false premises should lead to a strong recommendation that staff be instructed to cease propagating fairy tales as truth. Instead, the recommendations section of the paper simply drops the issue.

One potentially promising recommendation in the report is that IMF staff should provide evidence-based advice when dealing with labour and employment issues.

Curiously, the term "evidence based" is used in quotation marks in the executive summary. Whether this is because "evidence based" is an unfamiliar term for most IMF staff or it is intended that staff interpret the term figuratively rather than literally is not explained.

The IMF’s policy paper also reveals that the Fund has produced a "Surveillance Toolkit for Jobs and Inclusive Growth" (p. 45), but the toolkit is not provided with the report.

The full report is available in English only, here.