IMF warns of the 'human cost' of public spending cuts

The Guardian

The International Monetary Fund undermined the main thrust of the UK coalition's economic strategy today after it warned western governments that they risked holding back the recovery and creating a massive pool of disaffected labour if they pursued draconian cuts in spending.

IMF director general, Dominique Strauss-Kahn, told a conference in Oslo that governments needed to identify ways to generate employment to prevent a generation of workers losing their skills and joining the long-term unemployed. He said cuts in public spending had a "human cost" and could result in "tragedy" for millions of young people.

His speech will add to pressure on the chancellor, George Osborne, after the Organisation for Economic Co-operation and Development (OECD), the rich nations' thinktank, said last week that cutting budget deficits this year risked derailing economic recovery.

Analysis by the IMF and the OECD is expected to feature in campaigns by trade unions and rivals for the Labour leadership at the TUC conference this week.

Ed Balls, the Labour leadership candidate, said the government needed to scrap much of its programme of cuts in favour of projects that create jobs and generate growth. The shadow chancellor, Alistair Darling, said the reports from the OECD and IMF showed the prevailing economic analysis was firmly allied to Labour's argument for cuts to be delayed until the economic recovery was secure and unemployment falling.

Strauss-Kahn said: "The labour market is in dire straits. The Great Recession has left behind a wasteland of unemployment, and this devastation threatens the livelihood, security and dignity of millions of people across the world."

He said the severity of the recession was in part to blame, but also how the fallout from the recession affected particular sectors.

In a reference to the UK, Ireland, Spain and the US, which suffered a banking crisis made worse by the after-effects of a housing bubble, he said: "Job loss was greatest in countries where housing and financial markets collapsed. Most of this came from manufacturing and construction, showing that ordinary workers have paid the price for mistakes made elsewhere."

The International Labour Organisation, which hosted the conference with the IMF and Norwegian government, has estimated that 34 million more people worldwide are unemployed as a result of the crisis. The latest data on unemployment showed the increase took the total unemployment figure to about 210 million, which is the highest level of official unemployment in history.

With 45 million new job seekers a year entering the labour force, Strauss-Kahn said the situation was likely to worsen.

"And what about the human costs? This is the real tragedy," he said. "Unemployment leads to a loss of earnings that is both substantial and long-lasting, especially among younger people. The crisis hit them especially hard.

"We must not underestimate the daunting prospect we face: a lost generation, disconnected from the labour market, with a progressive loss of skills and motivation.

"And the human costs do not end there," he added. "If you lose your job, you are more likely to suffer from health problems, or even die younger. If you lose your job, your children are likely to do worse in school. If you lose your job, you are less likely to have faith in public institutions and democracy."