G7_JAPAN

Growth, jobs and structural reform
KEY TAKEAWAYS
G7 leadership is required to reduce
the effects of increased uncertainty
Increasing spending power for low- and
middle-income groups will spur growth
Strong growth
requires strong
leadership
With income inequality and joblessness on the rise, it
is incumbent on governments to address weak growth
and ensure a decent future for the world’s citizens
Current trends of rising inequality
and slowing growth must be
quickly reversed by concerted
action to reduce inequality,
generate decent jobs and invest
in the infrastructure for faster, greener
and more inclusive growth. G7 leadership is
vital to help diminish the social and
political tensions in many parts of the
world that are both a cause and a
consequence of increased uncertainty.
The growth of the global economy has
steadily slipped to the weakest pace since
the financial crisis. There are more than
70 million people not in work today who
would have had a job if pre-crisis growth
had resumed. With the latest downward
revisions in growth prospects, the jobs gap
could rise above 80 million by 2020.
Unemployment remains high in many
advanced countries and is starting to rise
in some emerging economies. Participation
rates are falling in many countries. Of the
200 million unemployed worldwide, more
than 70 million are young women and men.
Two in five economically active youth are
jobless or working yet living in poverty.
Weakening growth has slowed the
transformation of low-productivity,
poorly remunerated jobs into better work
opportunities. Earlier improvements in
reducing the numbers of people living
and working in poverty have stalled. In
2015, an estimated 327 million employed
people were living in extreme poverty and
967 million in moderate and near poverty.
There is a broad trend towards rising
inequality and declining labour income
share, although it varies across countries.
In most advanced economies, income
inequality has risen significantly and
reached a historical high in some
countries. The effect is most dramatic
at the top end, with increasing
concentrations of income at the very
top of the distribution. The bottom 40%
has fallen significantly behind in many
countries, particularly since the crisis.
Cumulative effects
High income inequality has adverse
consequences for economic growth and
leads to large gaps in educational outcomes
and weaker social mobility. Similarly, the
decline of labour income shares limits
household consumption and reduces
overall aggregate demand, since the
evidence from most advanced economies
is that redistributing income to capital
does not increase investment.
Because these trends of high un- and
under-employment, depressed wages and
widening income inequality are occurring in
many countries at the same time, they lower
household spending and depress global
aggregate demand. The global demand
deficit is deterring private investment,
especially in advanced economies, notably
the euro area, despite extraordinarily low
interest rates and accommodating monetary
policies. As a result, cyclical weakness is
feeding into structural constraints with weak
investment inhibiting productivity growth.
The global economy’s underperformance,
especially in terms of jobs and wages,
is a major cause of heightened political
and social tensions and great political
uncertainty. People increasingly question
the capacity of the institutions and actors
of public life to offer solutions to their most
pressing concerns or even the sincerity and
legitimacy of their attempts to do so. New
approaches and simple answers to complex
questions are in demand, and some of these
do violence to the values of democracy,
human rights, tolerance and solidarity.
The world needs strong frameworks
for collective action more than ever. But
many political leaders seem to be turning
inward, making it difficult to construct a
concerted international programme to
break out of the slow-growth trap.
Sustainable Development Goals
The 2030 Agenda for Sustainable
Development adopted in September 2015
is a beacon of hope. It addresses the major
global challenges that must be tackled by
2030 if our societies are to hold together and
offer a decent future for the world’s citizens.
Implementing the Sustainable Development
Goals (SDGs) will require mobilising the
full multilateral system in support of
countries’ national strategies.
A key driver of progress across the
SDGs is a shift towards more inclusive
growth patterns that generate decent
work and decouple economic growth from
environmental degradation. Investing
in new infrastructure for greener growth,
108 G7 Japan: The Ise-Shima Summit • May 2016 g7g20.com