Employment usually lags growth: That’s the answer one can expect of an economist when asked about a jobs recovery. But that’s a difficult answer for policymakers to offer to the 20 million who have lost their jobs across 51 countries, or the five million at risk of losing them. Chances are, even in the face of a nascent recovery, governments will insist on chugging along on the stimulus gravy train that has sped up the world economy.

That’s the backdrop to the positive labour market signs that have started to trickle in. Friday’s US jobs report showed lower-than-expected losses. And a survey released on Tuesday by Manpower Inc., a staffing services firm, shows Indian employers are most optimistic—among the 71,000 interviewed across 35 nations—about hiring in the January-March quarter.

Illustration: Jayachandran / Mint

Still, US Federal Reserve chairman Ben Bernanke insisted on Monday that his monetary accommodation would continue for “an extended period". And Reuters reported on Tuesday that India’s government was seeking parliamentary approval to spend Rs25,000 crore more—some of this on fertilizer and food subsidies—this fiscal.

To be sure, there is serious concern that labour markets haven’t recovered from the turmoil triggered by last year’s panic. This week’s World of Work Report 2009, published by the Geneva-based International Labour Organization (ILO), discusses this still-perilous job situation. ILO’s takeaway: “Avoid premature or ill-conceived exit strategies," else the “risk of long-term joblessness" can be aggravated.

But there are also risks if governments don’t exit. Yes, discretionary fiscal measures have ensured that labour markets haven’t soured as they did during the Great Depression. In India, for instance, three stimulus packages have kept up consumer demand; the government has put faith in its rural jobs scheme by expanding it this year.

First, any fiscal spending brings with it the politics of rent seeking. A powerful financial services lobby in the US or a rural vote bank in India is the unmentioned elephant in the room every time a politician argues against exiting.

Second, there’s the danger of public debt burdens. ILO is aware of this, but the danger takes a new twist after Dubai World’s debt holiday announcement last month that spooked global markets. As an International Monetary Fund working paper noted last week, high government debt and the threat of sovereign default in emerging countries only worsen corporate borrowing—another dampener for labour market recovery.

So if they want to keep up the largesse, policymakers should at least keep their fingers crossed that the train they’ve relied on so far doesn’t suddenly crash.

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