If you are worried about the Western middle class – and we all should be – you may have started to have some doubts about the virtues of flexible labor markets. In theory, flexible labor markets should make our economies more productive, and all of us richer, by making it easier for people to do the work the economy needs and to stop doing the work it doesn’t.
Regular readers of Chrystia’s column will remember that she recently called out the IMF for failing to foresee the destabilizing effects of rising youth unemployment in Egypt. Specifically, in its April 2010 Article IV assessment of Egypt, the IMF concluded the country’s economy was in fact more resistant to external shocks thanks to “sustained and wide-ranging reforms.” Well, it turns out that the IMF has evolved in its thinking. In an exclusive interview today with Chrystia and Reuters IMF correspondent Lesley Wroughton, IMF First Managing Director John Lipsky announced that going forward the Fund will more heavily weight unemployment risks in its annual country assessments. “We think that these are very important issues and need to be looked at, and again, not just in cases where it might result in political turmoil but just as a matter of course in examining economic developments and policies,” Lipsky said.