In its annual Global Employment Trends report, released yesterday, the International Labour Organization (ILO) notes that despite the positive trend of falling unemployment over the past two years, the number of unemployed worldwide rose by 4.2 million in 2012 with gloomy expectations of a further increase in 2013.

“An uncertain economic outlook, and the inadequacy of policy to counter this, has weakened aggregate demand, holding back investment and hiring,” Guy Ryder, the ILO Director-General, announced in a news release accompanying the report.

“This has prolonged the labour market slump in many countries, lowering job creation and increasing unemployment duration even in some countries that previously had low unemployment and dynamic labour markets,” he added.

In particular, the report singles out the impact of the global unemployment crisis – already afflicting over 197 million people worldwide – on the world’s youth, who risk losing vital professional and social skills as the length of their joblessness continues to grow. “Many of the new jobs require skills that jobseekers do not have,” Ryder confirmed.

According to the ILO, some 35 per cent of unemployed youth in advanced economies have been out of a job for six months or longer – an absence which directly impacts their long-term career prospects as their skills deteriorate. Others, meanwhile, get discouraged and leave the labour market altogether.

With almost 74 million people in the 15 to 24 age group unemployed around the world, translating into a 12.4 per cent unemployment rate for this subset, job prospects for the world’s younger workers are looking increasingly bleak, says the report.

The UN official pointed out that regional differences in youth unemployment were likely to be marked, with the situation expected to improve slightly over the next five years in the developed economies while emerging economies in Eastern Europe, East and South-East Asia and the Middle East would continue to see rising joblessness among its young labour force.

He added, however, that it was incumbent on international policy-makers to find a coordinated response to reversing the problem and urged governments to establish coordinated retraining activities to help young people bridge the skills gap caused by extended bouts of joblessness.

“The global nature of the crisis means countries cannot resolve its impact individually and with domestic measures only,” declared the ILO Director-General.

The report specifically calls on policy-makers to engage in three areas crucial to employment generation, including injections of public investment into job-creating initiatives while private funding remains shy; addressing rising labour market mismatch problems through retraining and re-skilling programmes; and focusing action on youth joblessness.

“The high uncertainty, which is holding off investments and job creation, will not recede if countries come up with conflicting solutions,” cautioned Ryder. “The costs of inactivity, of allowing long-term unemployment to grow and young people to disconnect further from society, would be far higher.”

The current level of commitment to the rescue funds is not enough to restore market confidence, he said. A credible financial firewall will provide governments with the breathing space they need to focus crucially on revitalising Europe’s economic growth and competitiveness.

“Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short-term before the long-term benefits on stability and growth are felt,” Gurría said. “Decisive action to restore confidence and support demand is needed now.”

Presenting the OECD’s Economic Surveys of the Euro Area and the European Union in Brussels, Mr. Gurría said: “The recent measures already taken to strengthen fiscal discipline, provide liquidity and implement growth-enhancing reforms – particularly in Greece, Italy, Portugal  and Spain -  are  important advances towards a brighter economic outlook, but the challenges remain daunting.”

The economic, fiscal and financial imbalances of the area have led to weak bank balance sheets, high unemployment and low growth.

The survey calls for an ambitious programme of reforms in product and labour markets, tax systems and education to rebalance the economies, restore competitiveness, boost growth and bring down stubbornly high levels of unemployment – particularly among the young. It argues many reforms would stimulate growth even in the short-term.

“Europe is stalling. It needs to get out of first gear and make growth the number one priority,” said Mr. Gurría.

To boost economic activity at the EU level, a step change in the political commitment to the Single Market is needed. The OECD says national regulations, rigidities and poor implementation of existing EU rules are frequently holding back cross-border economic activity, growth and job creation, and are undermining the EU economy’s efficiency and competitiveness. Greater progress is needed in opening services markets.  The report calls for an annual review for each country of the obstacles to benefitting fully from a market of 500 million consumers.

Despite some 24 million unemployed people across Europe, most EU countries expect growing skill shortages in certain sectors. Labour mobility within Europe is low. The EU should encourage migration in order to help workers and firms to achieve the most productive job matches.

The two surveys highlight the need for Europe to make fundamental changes to financial supervision and regulation.  Europe needs an effective system of crisis resolution and excessively close ties between domestic banks and governments need to be undone.