OIT - World Employment and Social Outlook May 2025 Update

 World Economic and Social Outlook: May 2025 Update 1  World Employment and Social

Outlook: May 2025 Update

 The economic and labour market outlook for 2025 is increasingly fragile, with global GDP growth recently revised down to 2.8 per cent from 3.2 per cent due to persistent geopolitical tensions, recent trade disruptions, and heightened uncertainty. ● Slower economic growth is expected to reduce global employment growth from 1.7 to 1.5 per cent in 2025, corresponding to an increase in employment of 53 million, down from the previous forecast of 60 million. ● Across 71 countries with data, around 84 million workers whose employment is linked to consumer demand in the United States face elevated risks of disruption due to higher tariffs and trade uncertainty.

 Labour markets remain resilient but show signs that labour demand is weakening: in countries with available high-frequency data (mostly high-income), low unemployment coexists with job vacancies below their long-term trend and declining business and consumer confidence in the first quarter of 2025.

 Over the past decade, global economic growth has been moderately employment-intensive, with productivity growth outpacing employment growth, but the persistence, and in some cases expansion, of informal employment remains a critical concern in developing countries.

 The labour income share fell from 53.0 per cent in 2014 to 52.4 per cent in 2024, reinforcing upward pressure on inequality. ● Had the labour income share remained at its 2014 level, global labour income would have been $1 trillion (in constant PPP) higher in 2024, and each worker would have earned an additional $290 (in constant PPP) on average that year.

 Over the past decade, shifts in the occupational structure of employment were substantial. ● Employment is shifting toward high-skill

trillion (in constant PPP) higher in 2024, and each worker would have earned an additional $290 (in constant PPP) on average that year.

 Over the past decade, shifts in the occupational structure of employment were substantial. ● Employment is shifting toward high-skill occupations, particularly in high-income countries. Middle-income countries are also experiencing a gradual occupational upgrading, with medium-skill occupations expanding as employment in elementary occupations and those related to agriculture declines. ● Rising educational attainment has improved educational alignment but overqualification has also increased. Between 2013 and 2023, the share of under-educated workers relative to their occupations declined from 37.9 to 33.4 per cent, while the share of over-educated workers rose from 15.5 to 18.9 per cent.

 Generative AI is set to transform the labour market, though its future impact remains difficult to predict. ● Nearly one in four workers is employed in occupations with some level of exposure to tasks that could be automated by AI. ● 16.3 per cent of workers are in roles with medium exposure to generative AI and 7.5 per cent face high exposure – particularly in high-skill occupations – where generative AI could automate most tasks. Key messages World Economic and Social Outlook: May 2025 Update 2 The macroeconomic and employment outlook under heightened uncertainty1 Global macroeconomic conditions Economic uncertainty has been high in 2025, shaped by ongoing conflicts, geoeconomic realignments, and traderelated disruptions. While output continues to expand at a modest pace and inflationary pressures continue to ease, the combined weight of this uncertain landscape and systemic transitions – such as those related to climate, technology, and demographics – casts a long shadow over both growth trajectories and labour market dynamics. Against this backdrop, the global economy is expected to

modest pace and inflationary pressures continue to ease, the combined weight of this uncertain landscape and systemic transitions – such as those related to climate, technology, and demographics – casts a long shadow over both growth trajectories and labour market dynamics. Against this backdrop, the global economy is expected to grow by 2.8 per cent in 2025, according to the International Monetary Fund’s (IMF) April 2025 World Economic Outlook (WEO) projections. This figure represents a downward revision of 0.4 percentage points compared to the IMF WEO October 2024 projections, highlighting the volatility that has characterised the past six months.2,3 Inflation, while expected to fall across most regions, remains above target in many countries, with a projected global average of 4.4 per cent in 2025 compared to 5.8 per cent in 2024. Although the decline in inflation has created room for more accommodative monetary policy in some economies, disinflation gains have been offset by rising trade barriers, volatile capital flows, supply chain disruptions, and persistently high public debt levels. High-frequency labour market indicators, available for mostly high-income countries, tell a similarly mixed story. While unemployment rates in countries with early 2025 data remain at historic lows, job vacancies are slightly below their long-term trends, and business and consumer sentiment has declined in the first quarter of 2025 (see Figures 1 and 2). The low unemployment rates, coupled with leading indicators such as job vacancies and business confidence both below

1 This section incorporates the IMF’s WEO projections based on information available as of April 4, 2025. Additionally, the high -frequency data referenced extends through the first quarter of 2025 and reflects updates available as of April 30. 2 The IMF’s WEO projections from October 2024 are used as a reference point, as these provide full country-level yearly estimates. In contrast, the January 2025 WEO update only includes global and regional figures.

updates available as of April 30. 2 The IMF’s WEO projections from October 2024 are used as a reference point, as these provide full country-level yearly estimates. In contrast, the January 2025 WEO update only includes global and regional figures.

trend, may suggest that employers are more cautious about hiring new workers during this period of uncertainty, though they are retaining their existing employees. This potential slowdown in hiring could be 3 Although GDP is unable to capture the many aspects of workers’ wellbeing, it and other high-frequency indicators offer early signals of change emerging at the start of 2025, while more direct income measures more closely relate to household well -being often lag months or even years behind. World Economic and Social Outlook: May 2025 Update 3 offset by the still prevalent labour shortages in many highincome countries; however, in some developing countries it could lead to higher unemployment and increased informality. Trade policy developments are significantly influencing global economic prospects. The decision by the United States in April 2025 to introduce (and in part later pause) sweeping “reciprocal tariffs” has profoundly altered the global trading landscape. With new minimum duties of 10 per cent on all imports and tariff increases exceeding 40 per cent in various large Asian economies, trade flows are expected to contract (WTO, 2025), raising the risk of a synchronized global slowdown.4 In response to growing protectionism, businesses are reassessing sourcing strategies. While there is no clear evidence of the overall direction that these new supply chain models might take, these reconfigurations may be unevenly distributed as they require high upfront investment, potentially excluding smaller economies and exacerbating regional disparities in employment and investment. Changes in tariffs are disrupting supply chains and increasing inflation expectations across regions. In the Americas, GDP growth is expected to slow to 1.8 per cent in 2025, against a previous forecast of 2.3 per cent from

disparities in employment and investment. Changes in tariffs are disrupting supply chains and increasing inflation expectations across regions. In the Americas, GDP growth is expected to slow to 1.8 per cent in 2025, against a previous forecast of 2.3 per cent from October 2024, with downgraded forecasts for the US and neighbouring economies (see Figure 3a). Labour markets in the Americas have shown resilience, with unemployment rates remaining low by historical standards despite seeing an increase over the past two years. Yet, informality and fiscal pressures remain high in developing countries in the region. Asia and the Pacific remains among the world’s fastestgrowing regions, with projected growth of 3.8 per cent in 2025 led by strong growth in South Asia. However, headwinds are intensifying as trade tensions are weighing negatively on regional prospects, particularly in China, Vietnam, Sri Lanka, and Cambodia. On the upside, disinflation and resilient electronics exports are supporting stable macroeconomic conditions. The Europe and Central Asia region remains significantly affected by geoeconomic disruptions, with growth projected to remain sluggish (1.5 per cent in 2025), and consumer sentiment declining, reflecting political

4 The WTO report, released on 16th April 2025, notes these tariff changes, though trade policies remain fluid and subject to rapid developments. uncertainty and challenges associated with reducing dependence on external energy sources and advancing the green energy transition. The resurgence of trade protectionism and global fragmentation have led governments across the region to rethink industrial policy and supply chain dependencies (Hodge et al., 2024). Africa’s economic growth is projected to rise to 3.8 per cent in 2025 from 3.0 per cent in 2024. Despite this improvement, progress remains fragile. High inflation rates, debt vulnerabilities, and regional instability continue to constrain recovery. In addition, the current trade climate has generated new challenges for this region, which generally faces lower tariffs in developed

improvement, progress remains fragile. High inflation rates, debt vulnerabilities, and regional instability continue to constrain recovery. In addition, the current trade climate has generated new challenges for this region, which generally faces lower tariffs in developed country markets due to preferential trade agreements

(UNCTAD, 2025).

In the Arab States, growth remains divided between oilexporting and import-dependent economies, with the whole region now projected to grow at 2.3 per cent in 2025 (against a previous forecast of 4.1 per cent). While easing global energy prices are improving inflation dynamics, conflict spillovers continue to dampen confidence. The employment outlook The weakening of the global economy in 2025 has important implications for employment prospects worldwide, with lower economic growth likely to translate into slower employment growth in the short term. A key driver of the more pessimistic outlook is the recent shift in trade dynamics, which has heightened uncertainty around global demand. This is especially relevant for workers tied to US consumption and investment demand, who now face elevated risks of partial or total income loss due to higher tariffs and the unpredictability of future trade measures. As of 2023, an estimated 84 million workers have jobs linked directly or indirectly through supply chains to final demand from the United States in the 71 countries with available data (see Table 1).5 That amounts to 4.3 per cent of total employment in these countries. Most of those workers – 56 million – are in Asia and the Pacific, though the share of total employment is highest in Canada and Mexico, at 17.1 per cent. While 5 More details on the calculation of the number of workers with jobs that linked to final demand in the United States can be found in the Technical Annex. World Economic and Social Outlook: May 2025 Update 4 some of those workers are already at risk of being affected by higher tariffs, a cloud of uncertainty is affecting a wider swath of workers. The final employment

linked to final demand in the United States can be found in the Technical Annex. World Economic and Social Outlook: May 2025 Update 4 some of those workers are already at risk of being affected by higher tariffs, a cloud of uncertainty is affecting a wider swath of workers. The final employment impact will depend on the evolution of US demand for imports, trade diversion effects and employment shifts into other sectors. The latter effect could cause a deterioration in employment quality, since trade-related sectors tend to have higher average job quality – measured by indicators such as lower informality – than many non-trade-related alternatives.6

Historical trends in the responsiveness of employment to GDP fluctuations can also shed further light on the projected changes in employment in 2025 that are due to the overall weakened economic outlook.7 Globally, with GDP growth now estimated at 2.8 per cent for 2025, employment is forecast to increase by 1.5 per cent (see Figures 3a and 3b). This corresponds to an increase in

6 Using the share of trade-related employment within each sector as weights, the average incidence of informality is 11 percentage points higher for non-trade-related employment than for trade-related employment in Asia and the Pacific in 2023. 7 The response of employment to GDP growth is calculated considering the average employment to GDP growth elasticity over the period 2014global employment of 53 million in 2025, a downward revision compared to earlier estimates from October 2024, which had projected an employment growth rate of 1.7 per cent (or 60 million new workers globally).8 The slowdown in economic growth is expected to reduce global employment growth by approximately 7 million workers this year. It is important to note that this projection does not imply a comparable rise in unemployment, as slower economic growth may reduce labour force entrants or increase exits.

2024. More details about the methodology can be found in the

Technical Annex.

workers this year. It is important to note that this projection does not imply a comparable rise in unemployment, as slower economic growth may reduce labour force entrants or increase exits.

2024. More details about the methodology can be found in the Technical Annex. 8 For more details on the ILO modelled estimates series, please refer to ILO

(2025). World Economic and Social Outlook: May 2025 Update 5 The estimated shortfall of 7 million workers is especially concerning considering the global jobs gap – defined as the number of people who would like a job but currently do not have one – which is estimated to reach 407 million people in 2025. Slower employment growth also raises concerns if it were to result in a greater share of workers taking lower-quality or more vulnerable jobs. Looking at regional patterns of employment growth, the most significant changes in employment projections are concentrated in regions with the largest downward revisions in GDP growth. Asia and the Pacific remains the region with the fastest employment growth, followed by Africa. However, while employment in Asia and the Pacific region was previously expected to grow by approximately 1.9 per cent (or 38 million employed people) in 2025, the current forecasts predict employment will grow by a more modest 1.7 per cent (or by 34 million) in the current year. Following a revision in economic growth forecasts from 2.3 to 1.8 per cent, employment growth projections in the Americas have also been substantially revised, from a previous forecast of 1.6 per cent in 2025 to a current projection of 1.2 per cent. Under these revised forecasts, the Americas is the region with the second-slowest projected employment growth, preceded only by Europe and Central Asia at 0.6 per cent. Economic growth, productivity and employment over the last decade As the global economy is operating in a period of heightened geopolitical and economic uncertainty, it is timely to reflect on the key changes and transitions in the

and Central Asia at 0.6 per cent. Economic growth, productivity and employment over the last decade As the global economy is operating in a period of heightened geopolitical and economic uncertainty, it is timely to reflect on the key changes and transitions in the world of work over the past decade. Figure 4 presents the global evolution of GDP, total employment and output per worker between 2014 and 2024. Over this period, global GDP grew by 33.5 per cent. However, this solid trend was not without its setbacks. The COVID-19 pandemic triggered a global recession, generating profound disruptions in labour markets and challenging societies to strengthen and reform existing social protection policies. The post-pandemic economic recovery has been made more difficult by rising geopolitical tensions, conflicts across the globe and increased debt vulnerabilities due to large deficits accumulated during the pandemic. Regionally, the strongest economic performance over the past decade was recorded in Asia and the Pacific, where GDP grew by 55.0 per cent (see Table 2). In contrast, the Arab States experienced the slowest growth, at 16.5 per cent.9 Looking at trends in total employment and output per worker from 2014 to 2024 can help better understand the nature of economic growth over the past decade. Employment growth remains a critical priority for many countries, particularly those facing underemployment, as it contributes directly to improved livelihoods and social

9 The slow growth in the Arab States may at least in part be driven by a significant drop in oil prices from their 2014 level. stability. However, for gains in employment to translate into meaningful improvements in living standards, they must be accompanied by rising labour incomes. This, in turn, depends on sustained productivity growth and, crucially, on how the benefits of that growth are distributed.

Globally, total employment has grown by 13.2 per cent over the period from 2014 to 2024, against more

turn, depends on sustained productivity growth and, crucially, on how the benefits of that growth are distributed.

Globally, total employment has grown by 13.2 per cent over the period from 2014 to 2024, against more pronounced productivity growth (or growth in output World Economic and Social Outlook: May 2025 Update 6 per worker) of 17.9 per cent. Productivity growth was highest in Asia and the Pacific (39.8 per cent), which is the region that also recorded the strongest GDP growth in the last decade (55.0 per cent) against more modest employment growth (10.5 per cent). In other words, economic growth in the region has been accompanied more by productivity improvements than by the creation of new jobs. This productivity-driven growth could be the result, among other factors, of a higher demand for highskilled workers, as well as stronger growth in capitalintensive industries, and industries where automation is more likely to substitute labour. At the opposite end of the spectrum, GDP growth in the Arab States was associated with even higher employment growth, but challenges related to economic diversification continue to hamper productivity gains.10 Similarly, Africa also experienced strong employment growth over the last ten years, against a more modest increase in output per worker. The economic growth in these two regions over the past decade was therefore accompanied by more labour rather than higher productivity. The creation of new jobs is an important target for policymakers, but even when strong economic growth translates into high employment growth, the quality of employment outcomes is not an automatic byproduct (Lee et al., 2020). As such, countries must also ensure that the newly created jobs offer decent wages and working conditions. An analysis of how formal and informal employment have evolved over the past decade is informative regarding job quality trends. Globally, formal and informal employment have grown at a similar pace over the past ten years (see Figure 5).11 While at the beginning of the last decade formal employment growth

conditions. An analysis of how formal and informal employment have evolved over the past decade is informative regarding job quality trends. Globally, formal and informal employment have grown at a similar pace over the past ten years (see Figure 5).11 While at the beginning of the last decade formal employment growth slightly outpaced that of informal employment, informal employment proved more resilient during the COVID-19 pandemic, and rebounded more quickly thereafter. As of 2024, formal employment worldwide increased by 12.6 per cent since 2014, while informal employment grew by 13.7 per cent over the same period. The more rapid growth of informal employment over the last decade is at least in part attributable to differences in the employment composition of countries: on average, some of the countries with large employed populations and a high

10 See for example Erumban (2023) for a discussion of the trade-off between productivity and employment growth in the region. 11 Informal employment refers to working arrangements that, either in practice or by law, are not covered by national labour legislation, income taxation, or entitlements such as social protection or prevalence of informal employment also experienced significant growth in total employment.

More than 2 billion people were in informal employment in 2024 – representing 57.8 per cent of all employed workers worldwide (see Table A1 in the Statistical Annex). In Africa, a region where around 85 per cent of workers were employed informally, informal employment expanded by 29.3 per cent over the past decade. In the Arab States, informal employment grew even faster – by more than 36.1 per cent – significantly outpacing the 22.3 per cent growth in formal employment. In contrast, Europe and Central Asia, where only 12 per cent of workers were in informal jobs in 2024, experienced a decline in informal employment of – 11.3 per cent over the past ten years, while formal employment recorded growth of 10.5 per cent. Similarly, in the Asia and the Pacific

Europe and Central Asia, where only 12 per cent of workers were in informal jobs in 2024, experienced a decline in informal employment of – 11.3 per cent over the past ten years, while formal employment recorded growth of 10.5 per cent. Similarly, in the Asia and the Pacific region, total employment was primarily driven by more formal employment opportunities, suggesting an ongoing shift toward more formal labour market structures in the region. employment guarantees. The informal employment rate is calculated as the proportion of informal employment within total employment. World Economic and Social Outlook: May 2025 Update 7 The persistence of informal employment – and in some regions its expansion – highlights the ongoing challenges of translating economic growth into formal and decent job opportunities. Regional disparities underscore the need for continued efforts to ensure that economic growth is not only employment-intensive, but also inclusive.

A downward trend in the labour income share While GDP growth has been solid but uneven since 2014, the distribution of income between capital and labour has also undergone significant changes. A key metric to assess this evolution is the labour income share - the proportion of GDP that workers receive as income for their work. In contrast, capital income refers to the returns received by owners of assets such as land, machines, buildings or patents. Together, labour income and capital income make up the bulk of GDP generated within an economy.12 Since capital income tends to be concentrated among wealthier individuals, the labour income share is widely used as an indicator of economic inequality, including for

12 Taxes on production and imports minus subsidies are also part of the income generated within an economy. 13 The data used for projections include ILO wage data from the ILO Global Wage Report 2024/2025, GDP and inflation data from IMF WEO April 2025 data, and the unadjusted share of labour income from OECD tracking progress toward Sustainable Development Goal 10: Reduce inequality within and among countries. The updated ILO estimates of the labour income share

Wage Report 2024/2025, GDP and inflation data from IMF WEO April 2025 data, and the unadjusted share of labour income from OECD tracking progress toward Sustainable Development Goal 10: Reduce inequality within and among countries. The updated ILO estimates of the labour income share include projections up to 2024, based on the latest macroeconomic data.13 According to these estimates, the global share of labour income has declined from 53 per cent in 2014 to 52.4 per cent in 2024, contributing to upward pressure on inequality (see Figure 6). If the labour income share had stayed at its 2014 level, labour income globally would have been $1 trillion (in constant PPP) higher in 2024 and workers would have earned about $290 more (in constant PPP) on average. This downward trend in labour income share has been well documented since the 1980s, with studies showing a steady erosion in the proportion of income accruing to workers relative to capital owners.14 A temporary increase in the labour income share occurred during the COVID-19 annual national accounts. The estimates account for the labour income earned by the self-employed, which represent almost half of the global workforce. This group is particularly relevant in developing countries. 14 See Karabarbounis, 2024; Dao, Das & Koczan, 2020; Karabarbounis & Nieiman, 2013. World Economic and Social Outlook: May 2025 Update 8 pandemic, when profits and other forms of capital income declined more sharply than labour compensation. This pattern is consistent with historical responses of the labour income share during economic or financial crises. However, the rebound was short-lived: by 2022, the global labour income share had already fallen below its prepandemic level, reaching 52.3 per cent. Over the period from 2014 to 2024, the global labour income share declined by 0.6 p.p.

However, the rebound was short-lived: by 2022, the global labour income share had already fallen below its prepandemic level, reaching 52.3 per cent. Over the period from 2014 to 2024, the global labour income share declined by 0.6 p.p. Between 2014 and 2024, regional disaggregation of the labour income share reveals divergent trends across the world. Africa, the Americas, and Europe and Central Asia experienced notable declines, with the labour income share falling by approximately 0.5 p.p. in Africa, 1.3 p.p. in the Americas and 1.7 p.p. in Europe and Central Asia, respectively. In contrast, the Arab States and Asia and Pacific regions recorded increases of 4.6 p.p. and 0.3 p.p. respectively, over the same period.15 These regional patterns underscore the uneven evolution of the contribution of labour income to GDP across different parts of the world. The global decline in the labour income share reflects the influence of multiple factors, including technological change, shifting market structures, labour market transformations, globalisation, and developments in capital markets.16 To fully understand some of the forces behind this trend, it is important to examine occupational dynamics and the role of skills in shaping labour market outcomes. The next section turns to these questions.

Occupational dynamics in the world of work Over the past decade, significant shifts have occurred in the occupational composition of the world’s employed population, partly driven by changing skill requirements and technological advancements. Before examining these shifts, it is useful to first understand the occupational composition of employment.17 Figure 7 provides a snapshot of the occupational structure in 2023 using the

15 The rise in labour income share in the Arab States during this period is partly influenced by the economic effects of the sharp decline in oil prices starting in 2014. 16 As detailed in WESO September 2024 update; Karabarbounis, 2024;

15 The rise in labour income share in the Arab States during this period is partly influenced by the economic effects of the sharp decline in oil prices starting in 2014. 16 As detailed in WESO September 2024 update; Karabarbounis, 2024; Grossman & Oberfield, 2021. 17 The latest year with available data from the ILO modelled estimates of employment by occupation is 2023. All analyses in this section refer to occupational dynamics that have occurred between 2013 and 2023. 18 The International Standard Classification of Occupations – ISCO-08 – offers four different levels of granularity, from major group occupations with ten categories to more specific sub-occupations. Most of our analysis focus on the ten ISCO-08 major groups. Because of the small ISCO-08 major group occupations (1 digit level).18 Around four in ten workers globally (40.2 per cent) were employed in elementary occupations or skilled agricultural, forestry and fishery occupations, which are henceforth grouped into one category and labelled as low/medium-skill level occupations.19 These occupations are often marked by limited formal education requirements and low wages. Other medium-skill occupations – including clerical support workers, service and sales workers, craft and related trades workers and plant and machine operators, and assemblers – accounted for 39.7 per cent of global coverage for the “Armed Forces Occupations” category within the ISCO08 classification, this group is excluded from the analysis. 19 Each major group occupation is classified based on their skill requirements. Due to issues related to the classification of workers between occupations within major group 6 (Skilled agricultural, forestry and fishery workers) and 9 (Elementary occupations), f o