B7 Employment Recommendations

B7-BDA-IOE-BIAC employment and education recommendations for the G7 Introduction We live in times of great uncertainties. As the world is wrestling with recovering from the COVID pandemic, Russia’s invasion of Ukraine and the geopolitical situation has caused major human tragedy for the Ukrainian people and is deeply impacting growth and employment. In these challenging political and fragile economic circumstances, a razor-sharp focus on pro-growth and pro-employment frameworks is needed. This means to determinedly addressing long existing flaws in labour markets, social protection and education and training systems, to break down silos and to ensure a haul of government approach and policy coherence for growth and employmentoriented policies across ministries. Now it is more important than ever to undertake the necessary reforms, to avoid piece meal approaches and to avoid supply chains disruptions.

Besides current geopolitical tensions, on the long term, economies are deeply impacted by digitalisation, demographic change, and decarbonisation. The B7 very much supports the decision of the German G7 Presidency to focus on these three “ds” as the structural changes that are challenging employment, labour markets, and social protection. Addressing these three priorities is crucial for employment creation and sustainable economic growth.

Against this background, business calls on the G7 Employment Task Force to focus on the following key areas within the “3Ds”: The G7 should fully harness the opportunities which digitalisation offers for a job rich recovery Digitalisation has dramatically impacted the world of work. That is not new, but Covid-19 has greatly accelerated this process. During this pandemic technology and innovation have allowed business continuity and resilience. It has helped to save jobs and to maintain productivity. 20 to 25 per cent of the workforce on average in formal economies work remotely. This represents four to five times more remote work than before the pandemic. More than 80 per cent of employers report they are accelerating the digitalisation of work processes. At the same time, the pandemic has accelerated the experience and popularity of flexible ways of working through digital means also among employees.

Page 1 of 8

Studies by the World Bank and the OECD have pointed out the potential of digitalisation, robotics, and artificial intelligence (AI) to create more jobs. Some estimates say that 85 million jobs may be lost, but at the same time there is an expectation of the creation of 97 million new jobs worldwide.

Digitalisation, AI, and robotics will also lead to long-term gains in efficiency and productivity. Small and medium enterprises (SMEs) with internet access have been found to have experienced an average of 11 per cent of productivity gain. However, SMEs tend to be under- digitalised and struggle to exploit fully the opportunities afforded by digitalisation. This is an especially alarming problem given that SMEs play a critical role for economies by creating employment, particularly for the more vulnerable populations. Joint IOE-ILO research shows that not only external factors, but also access to finance and particularly also internal structures including insufficient capabilities, are key challenges for SMEs in adapting digital strategies to become more resilient and productive. Indeed, skills gaps in the local labour market, particularly with regards to IT skills linked to coding, cybersecurity, AI and the freedom of independent contractors, are generally the most critical barriers to adopting new technologies. Even before the pandemic, we have seen that education and trainings systems were not in line with labour market needs. Covid-19 has resulted in a quantum leap in digitalisation, which has made even more urgent the need to modernise education and training systems. According to the Manpower talent survey, the skills gap is at a 15 years high.

The G7 should focus on:

➢ Modernising education and training systems need to ensure that they are future- proved and provide people with the skills needed to enter and stay in the labour market. Business has a key role to play in the implementation and governance of education and training systems.

Governments alone are overwhelmed to keep pace with the rapidly changing skills demands of labour markets. Employability must be a key component of education and training systems in order to avoid skills mismatches. In the modernisation of education systems, digital access for learning to all citizens needs to be improved. Particularly due to COVID-19 we have seen that many education systems have been struggling to offer quality online learning.

➢ Making lifelong learning systems more accessible, more effective, and more efficient to ensure that workers are not marginalised but empowered by digitalisation and AI. Digital solutions can play a key role in this regard. However, Lifelong learning systems have not sufficiently embraced digital teaching approaches. Lifelong learning is a shared responsibility of workers, employers, and governments. Companies, especially SMEs, that are experiencing cash-flow problems that hamper their transition towards digital technologies, should be supported and the freedom of independent contractors preserved.

➢ Improving labour market frameworks so that business can create jobs and workers get into employment. Open, dynamic and inclusive labour markets are a key requirement for fully harnessing the opportunities which digitalisation offers. Active labour market policies and a public infrastructure are crucial parts of such frameworks. Social Partners should be fully engaged in the modernisation of labour markets.

Page 2 of 8

The G7 should make Social Protection Systems more resilient and address labour shortages The ageing of populations will deeply affect the economic and social systems in G7 countries and beyond. 60 per cent of all people live in nations with stagnant or shrinking populations, while the number of elderly people is on track to double by 2050, rising from 841 million in 2013 to more than 2 billion. Demographic changes have become an important concern for business and society.

26 per cent of businesses from high-income countries reported demographics as the secondhighest impact on their businesses behind technology. The predicted growth of ageing populations in Europe and Asia is increasingly becoming a key issue, with 62 per cent of companies in Europe and 58 per cent in Asia reporting that a declining working-age population will have a large impacton their business.

It is a positive development that people live longer. However, if governments are unable to adapt their employment, social, and immigration policies, the ageing of societies will threaten the growth potential of many economies, have serious negative consequences for the supply of skilled workers, and weaken the stability of social security systems. Policy areas for action include higher labour market participation from older workers, development of insurance-based private pensions systems, and immigration of qualified labour to address the labour market needs. It is critical that the actions required be implementedtogether. If applied individually, the impact will fall short of mitigating in any significant way the serious challenge of population ageing.

The G7 should focus on:

➢ Adjusting retirement ages in ways that stabilise the old-age dependency rate and reducing the incidence of early retirement.

➢ Increasing employment levels of all groups underrepresented in labour markets, in particular older people and women, through comprehensive strategies which focus on activation, improving labour market prospects, making work pay, both in terms of in-work benefits and fiscal policy, better care infrastructure for children and dependant family members, strengthening access to effective and efficient lifelong learning.

➢ Making pension systems more financially sustainable. ➢ Aligning employment related migration policies with labour market needs to allow the immigration of the labour force, which is needed for the economy.

Page 3 of 8

What can and what should the G7 contribute in order to facilitate more social protection for all people throughout the world?

55 per cent of the world’s population has no access to social protection benefits at all, because of lacking capacities to implement and operate appropriate social protection systems as well as because of lacking resources. Strengthening domestic resource mobilisation through formalising the informal sector as well as comprehensive technical assistance will be key for building-up sustainable social protection systems.

The International Labour Organization (ILO) has the mandate and the expertise to support countries in the development of their social protection systems. It is the only UN agency with a tripartite constituency, which is capable of integrating the specific national perspectives and needs as well as the views and positions of workers, employers and governments in their policy approaches. This is of critical importance, particularly in the field of social protection.

With the ILO Social Protection Flagship project, the ILO has already a focus programme for strengthening Social Protection across 50 countries.

Support for strengthening social protection for all should be channeled through the ILO because of its existing expertise, global reach and to ensure ongoing tripartite engagement. The G7 should consider to increase funding and support for the ILO Social Protection Flagship programme, connecting it to other ILO programmes, particularly on informality, and strengthen south-south peer learning.

The G7 should ensure just transitions in the process of decarbonization that promote job creation and business continuity Climate Change is one of the five main global trends impacting business worldwide; almost 70 per cent of employers asked in an IOE-ILO survey see considerable impact in their operations from increasing environmental and disaster risks. On 28 February, the IPPC underlined in its latest report the urgent need to address climate change as a threat to human wellbeing and health of the planet. Decisive action is necessary to secure our future. However, reducing CO2 emissions will have significant effects on labour markets in terms of employment. The real impact on jobs and employment depends, however, very much on regulations and policies adopted as well as the responses and transition strategies put in place. Although impacts of climate change on employment, skills and labour markets have been assessed by several institutions, analysis on the employment impact directly due to policies and regulations implemented by governments to decarbonise their economies are still insufficient. Despite the potential for job creation negative employment and labour market effects of climate change policies,

Page 4 of 8

thereby, should not be underestimated. The full transitioning to electric vehicles (EV) and abandoning current production of the internal combustion engine, could, for instance, result in net loss of 275,000 jobs (-43% jobs) projected from now until 2040 in the EU. Moreover, the energy transition due to recently exploding energy prices poses measurable upside risks with indirect but important consequence on employment and social cohesion.

According to ILO research “almost 25 million jobs will be created and nearly 7 million lost globally.”

The job creation potential will only be achieved if it goes hand in hand with timely and comprehensive training, reskilling, and upskilling of the workforce. However, although two-thirds of countries recognise intheir contributions (NDC) submitted within the framework of the Paris Agreement, the importanceof capacity development and climate change literacy, less than 40 per cent of NDCs globally include any plans for skills training to support their implementation, and over 20 per cent do not plan any human capital related activities at all. Skills and adaptation measures are especially important in the context of small and medium enterprises (SMEs). They employ over 80 per centof people worldwide but often have lower capacity to adapt and transform their business model; they have lower productivity and usually employ people with skills that are harder to adapt. Moreover, jobs in the green economy are not automatically decent jobs, but can be “dirty, dangerous and difficult“, as the ILO pointed out. Thus, the transition to the low carbon economy must go hand in hand with the implementation of the ILO decent work agenda.

Successful and inclusive transitions to a low-carbon economy rely on dynamic labour markets which enable people to move easily between jobs, sectors, and regions. Rigid labour market regulations will not only be an obstacle for employment creation but also an impediment for the ability of workers to move from shrinking sectors to the sectors that are growing and in need of skills and manpower. Dynamic labour markets also include the context of regional flexibility to support people to move into regions where employment is created.

Without effectively combating the informal sector, without effectively reducing poverty and, above all, without creating more and better jobs, the decarbonisation of economies will not besuccessful.

There is a direct link between the call for more global efforts to protect the environmentand the ILO's Decent Work Agenda. More growth, employment and environmental protection arenot mutually exclusive, but rather interdependent.

The G7 should focus on:

➢ A continuous, coherent, and anticipatory assessment of skills needs, incollaboration with the private sector.

➢ Linking decarbonisation with economic growth and employment creation. It is therefore more critical than ever to focus on a proper enabling environment for businesses, particularly SMEs, which facilitates, accelerates, and incentivises the creation of more resilient and sustainable enterprises that can achieve decarbonisation objectives while creating quality employment.

Page 5 of 8

➢ Ensuring targeted funding and dedicated frameworks/institutions to support transition planning and implementation to increase resilience and sustainability for enterprises. At the same time policy certainty is needed which gives business the confidence to undertake the necessary investment.

➢ Developing thorough employment impact assessment of climate change related policies and regulations to avoid too abrupt transitions with unintended socio- economic consequences.

➢ Designing employment strategies to fully harness the job creation potential of the decarbonisation of the economy.

The G7 should promote decent work in supply chains by addressing the root causes of decent work deficits in countries with limited capacities

International trade and open markets have been critical drivers for economic growth, job creation, decent work, innovation and societal progress in developed and developing economies alike and has helped bring hundreds of millions of people out of poverty. The current challenges confronting trade amid the Covid19 pandemic has underlined the importance of robust trade and investment frameworks that enable enterprises to create more and better jobs.

However, decent work and respect of the fundamental principles and rights at work remain a challenge in too many countries due to the lack of capacity to implement and enforce national laws. A recent ILO gap analysis of ILO normative and non-normative measures to ensure decent work in supply chains confirms that, stating “ILO standards address most of the decent work deficits that are associated with supply chains. The problem is that these standards are not fully implemented or applied to all relevant segments of the workforce.” Similarly, the report of the UN Working Group on Business and Human Rights to the UN General Assembly stresses that “a lack of government leadership in addressing governance gaps remains the biggest challenge. A fundamental issue is that host Governments are not fulfilling their duty to protect human rights, either failing to pass legislation that meets international human rights and labour standards, passing legislation that is inconsistent, or failing to enforce legislation that would protect workers and affected communities.”

Page 6 of 8

The G7 must focus on addressing the root causes of decent work deficits in supply chains by: building the capacity of countries to better implement and enforce ratified international labour standards, including through strengthen labour inspectorates, complying with human rights conventions; realising the fundamental principles and rights at work, strengthening judicial systems, enhancing anti-corruption measures, urgently reducing informality, and assisting in the development of sustainable social protection systems. Moreover, the supervisory mechanisms in the ILO and the UN need to be strengthened and properly followed- up. The focus on these root causes is all the more important in view of the fact that 80 per cent of GDP and 90-95 per cent of all workers are working in the domestic economy and are not linked to exports.

Collective action is key to address systemic challenges. Innovative examples for such collective action are the Vision Zero Fund as well as the Alliance 8.7. The G7 has an important role to play in supporting these initiatives. Employer and Business Organisations play an important role by reaching large parts of the economy that no one else does, and able by coordinating action between the private and public sectors.

The draft EU supply chain directive as well as national due diligence legislation in a number of countries have received much attention. There is no question that human rights due diligence is a fundamental part of the corporate responsibility to respect human rights under the UN Guiding Principles. However, the unintended consequences of too burdensome and rigid supply chains laws should be taken into consideration as companies will reduce the number of suppliers from high-risk countries or withdraw from them altogether (Study Institute for the World Economy Kiel, Economic evaluation of a due diligence law). Furthermore, mandatory due diligence does not address systemic human rights challenges or the root causes stemming from the lack of national capacity, which impacts all workers and all enterprises in a country. The vast majority of decent work challenges occur in the domestic economy, and individual companies alone will not be able to address deeply rooted systemic challenges in the supply chains, particularly widespread informality.

Companies, particularly small and medium-sized companies, will need practical support. What is missing is concrete information on specific countries` risks, relevant stakeholders at local level, possible partners for collective action. In addition to supporting efforts to build the capacity of national institutions to address the root causes of decent work deficits in supply chains, the G7 should support the development of a global help desk that can provide such information to companies

Page 7 of 8

The G7 should focus on

➢ Targeting development cooperation on the root causes of decent work in supply chains, including building the capacity of national institutions to implement and enforce national laws.

➢ Actively promoting the strengthening of the Universal Peer Review ➢ Supporting the roll-out of Alliance 8.7 and the Vision Zero Fund to enhance collective action in supply chains on OSH, Child- and Forced Labour.

➢ Supporting the development of a global helpdesk to help small and medium-sized companies.

Conclusion History has shown repeatedly that we cannot stop transitions, but we can frame them. The key aspect is how we manage the transitions connected to digitalisation, demographic change, and decarbonisation. There is no determinism. The way we address them will determine their socioeconomic impact.

This is the time for bold and ambitious reforms. The laggards of today will be the losers of tomorrow. Creating more dynamic, open, and inclusive labour markets, including through improved access to diverse forms of work, and modernizing education and training systems is essential to open opportunities for both companies and employees, to support growth and employment and to address the challenges linked to the “3Ds”.

The last International Labour Conference adopted in June 2021 a “global call to action for a human-centred recovery from the COVID-19 crisis that is inclusive, sustainable and resilient”. The Call for Action is an important commitment to address the longstanding flaws in labour markets and education systems that have hampered decent work, productivity growth and sustainable development. The Call to Action highlights the important role of the private sector for broad-based, job-rich recovery and it stresses the importance of: • • • • • •

supporting business continuity an enabling environment for innovation, productivity growth and sustainable enterprises an enabling environment for entrepreneurship boosting productivity through diversification and innovation promoting skills development opportunities that are responsive to labour market needs prioritisation and mainstreaming of strategies to address informality

This is a Global Call to Action! It needs to be transformed into reality. In concrete terms, this means that resources need to be prioritised, partnerships need to be strengthened and implementing agencies need to be mobilised in coordination with employer organisations. The G7 has a key role to play in this regard. ***** Page 8 of 8