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«Jobs and Labour Markets in Developing Countries Policy Issues and Priorities Steven Miller 1. Introduction The challenge of providing productive ...»

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The World Bank’s annual Doing Business Report provides an illustration of the perceived tradeoff between quality and quantity of employment. The Report ranks countries according to their scores in respect of ten indicators. Previously, they also included an ‘Employing Workers Indicator’ (EWI), but due to concerns within the ILO that the EWI ranking encouraged low levels of social protection, and even non-compliance with ILO labour standards (Berg and Cazes, 2007), a consultative group was set up to revise it. (For now the EWI has been dropped from the overall Doing Business rankings, although data is still presented in an annex to the overall Doing Business Report.) The consultative group’s final report persists with the view that providing social protection to workers, on the one hand, and providing flexibility to employers with respect to working hours, wages, hiring and firing, on the other, are tradeoffs to be balanced against each other, rather than legitimate goals to be pursued in tandem.10 The reality is much more complex. While it is true that the relatively high levels of protection afforded to formal sector (and particularly public sector) workers are a feature of the division between ‘insiders’ and ‘outsiders’ in developing country labour markets, it does not follow that the former causes the latter. Rather, the impact of regulations on the ability of an enterprise to ‘do business’ needs to be weighed against the intended purpose of the regulation as well as more specifically on the ability of enterprises to create jobs. A number of non-labour market regulations (zoning, procurement, etc.) in fact can be designed and used to stimulate, rather than obstruct, job creation.

Moreover, the trade-off argument pertains largely to employment in the formal economy, which forms a small proportion of the overall economically active population in developing countries. In the case of most developing countries the problem is not unemployment per se, but rather informal or vulnerable employment. Unemployment is a luxury most workers cannot afford since they do not have access to social protection. Therefore employment strategies to create new job opportunities should be complemented by strategies to upgrade existing informal jobs. From that policy perspective, job creation and pursuing decent work is a win-win strategy.

However, since informally employed workers are usually beyond either trade union organisation or official statistics, particularly in occupations in which women predominate, there is a dangerous tendency for development policy to focus on raising working conditions in formal sector jobs (for example, factory workers in export-oriented industries) while ignoring working conditions for those in informal sector enterprises. Yet the latter not only form a larger part of the overall labour market but can also be tied into the same global supply chains. In addition, the role of unpaid labour – again done predominantly by women – in the production of labour itself, in the absence of formal social protection systems, is routinely overlooked in evaluation of actual as opposed to paid labour costs. (This is one of many points of criticism of the approach being taken by the World Bank in the production of its 2013 World Development Report on Jobs, the outline of which defines a job as a ‘productive activity that is remunerated’.11) PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 5 To return to the ILO’s perspective, quantity and quality of employment are combined through the creation of decent work which is achieved through the implementation of four strategic objectives,

with gender equality as a crosscutting objective:

• Creating Jobs – an economy that generates opportunities for investment, entrepreneurship, skills development, job creation and sustainable livelihoods.

• Guaranteeing rights at work – to obtain recognition and respect for the rights of workers. All workers, and in particular disadvantaged or poor workers, need representation, participation, and laws that work for their interests.

• Extending social protection – to promote both inclusion and productivity by ensuring that women and men enjoy working conditions that are safe, allow adequate free time and rest, take into account family and social values, provide for adequate compensation in case of lost or reduced income and permit access to adequate healthcare.

• Promoting social dialogue – Involving strong and independent workers’ and employers' organizations is central to increasing productivity, avoiding disputes at work, and building cohesive societies.

3.2 Job creation: direct or indirect strategies?

Does job creation result from promotion of economic growth, sound macro-economic policies and support to the private sector, or can it be pursued as a direct goal? This paper will argue that all policy avenues for job creation should be pursued, and that they are complementary rather than mutually exclusive, because the evidence suggests that while economic growth can contribute positively to job creation it is certainly not a sufficient condition and in some circumstances not even a necessary one.

Global GDP grew by 4.3% from 2001 to 2006, but the global unemployment rate did not decline, and since 2007 it has risen. The overall employment-intensity of growth is on the decline for a large majority of developing countries and in most countries economic growth is not creating sufficient employment opportunities to absorb new labour market entrants. In an analysis of the relationship between value added in manufacturing and employment growth for close to 20 developing countries for the periods 1980-1989 and 1990-2002, only slightly over half showed positive growth in both value added and employment for both periods. However, the employmentintensity of value added was markedly lower in the second period than in the first. In short, whereas the growth-employment relationship appears to be generally positive, there are many notable exceptions; and even when positive, the impact of growth on job creation is insufficient to provide the amount of employment required. Furthermore for economic growth to have a robust impact on employment creation, this growth must be employment-intensive.

In a study of developing countries, Islam (2010) evaluates the growth-employment relationship

with respect to four categories as follows:

• Low output low employment (stagnation)

• Low output high employment (growthless jobs)

• High output low employment (jobless growth)

• High output high employment (employment intensive growth) Productivity growth is a double-edged sword with respect to the growth-employment relationship.

As long as output increases exceed productivity growth, then productivity will result not only in increased, but also in better quality employment. However, if productivity growth applies only to a PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 6 small proportion of the labour market, then productivity increases can lead to jobless growth and have little impact on overall employment growth or poverty reduction. This is in fact the situation in many developing economies where the majority of workers are self-employed in agriculture, unpaid family workers or working in micro-enterprises in the informal economy. Productivity gains in the limited employment opportunities which the formal sector has to offer are unlikely to have positive spin-offs in the overall economy (ILO 2012).

Furthermore employment is a necessary, but not sufficient, condition for poverty reduction. The ILO estimates that there are “456 million workers around the world living below the US$1.25 a day poverty line in 2011, a reduction of 233 million since 2000 and of 38 million since 200712....

Nearly 30 per cent of all workers in the world – more than 910 million – are living with their families below the US$2 a day poverty line. These workers and their dependants remain highly vulnerable to further economic shocks... In Sub-Saharan Africa, North Africa, South Asia and the Middle East, the number of workers living with their families on less than US$2 a day continues to grow.”(ILO 2012) Research shows that the relationship between economic growth, employment creation and poverty reduction are far from automatic, and positive outcomes rely heavily on additional accompanying factors, many of which fall within the realm of public policy. With respect to the Millennium Development Goals, employment-intensive growth (i.e. growth that creates jobs) generates private income which contributes directly to the achievement of the first (End Poverty and Hunger), second (Universal Education), fourth (Child Health) and fifth (Maternal Health) MDGs by increasing employment and incomes, thereby making food, education and health services affordable to a greater share of the population. Such growth also contributes to increased public investments in health and education which is justified since they can have significant externalities, carrying benefits not only to those receiving the services, but also to society as a whole. Other MDGs (namely those empowering women, combating epidemic diseases or protecting the environment) can be seen as public goods and are much more dependent of public investments than on private consumption. Therefore rather than being the direct result of employment intensive growth, these MDGs would help lay the foundations for equitable and sustainable growth. (Khan 2007b, which draws heavily on Khan 2007a and Khan 2007b). In other words, employment-rich growth requires gender equality, a sustainable environment and a healthy and productive workforce.

3.3 Roles of the public and private sectors

The neo-liberal development policy paradigm held that the public sector was an obstacle rather than a facilitator of job creation, and that public employment was an obstacle to poverty reduction because it crowded out private investment. It followed that deregulation, privatisation and cuts in public spending were held to be necessary components of economic growth, which in turn would bring job creation. (Similar arguments are made in Europe today in support of the ‘austerity agenda’ in response to the debt crisis.) As with the ‘quality’ vs. ‘quantity’ dilemma, however, the reality is more complex. Many countries undoubtedly suffer from a weakness of public sector institutions and service delivery, and there are certainly many cases of public resources that could be used more productively -- in ways that would stimulate or directly involve job creation -- but are used corruptly or inefficiently instead to benefit relatively privileged interests. However, it does not necessarily follow that privatisation improves public institutional governance or service delivery, or that cutting public employment leads to growth in private employment.

PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 7 Moreover, the state and public sector can play both indirectly and directly positive roles in

employment creation, through:

• Macroeconomic policies to stimulate employment intensive growth;

• Public investment policies, particularly in sectors with strong employment generating potential;

• Reviewing and designing regulatory frameworks with a specific view to job creation and to decent work;

• Supporting human capital development through investments in education and training;

• Supporting the private sector’s ability to create jobs; and

• Direct job creation and public employment programmes, including taking on the role of employer of last resort.

3.4 Supply or demand driven strategies?

Employment policy should not only help the workforce get ready for the labour market but also help the labour market get ready for the workforce. All too often, the ‘labour market’ is portrayed as an immutable reality which cannot be changed, thereby implying that it is the responsibility of the workforce, even in cases where this may involve lowered expectations, to acquire the skills required by employers. However, developing countries are largely characterized by structural unemployment, under-employment and informality, meaning that there is a chronic shortage of decent jobs and no amount of training will resolve this decent work deficit. Such structural unemployment points to the need to calibrate and match additional training of an already educated workforce with policies to create new jobs responding to the aspirations of that workforce. Whereas these aspirations may be characterized as unrealistic, they should never be ignored and in fact provide a basis for social dialogue between workers, employers and governments which link training policies with demand stimulation and job creation. To do otherwise will only intensify competition for a limited number of job opportunities, a situation which contributed, for example, to the rising frustration of young people and eventually to revolution, in the Middle East and North Africa in 2011.

In some situations, such as in Egypt, unfilled vacancies can co-exist with high levels of unemployment. This, for example, has been the case in job openings in the export-oriented ready-made garment industry where the nature and conditions of work did not correspond with the educational and gender profile and aspirations of young job seekers. Elsewhere, as in much of Sub-Saharan Africa, the labour market is characterized by an educated workforce displaying high levels of unemployment juxtaposed with informal workers with low levels of education and low open unemployment. Although the exact labour market configuration will vary from one country to another, on the whole job creation policies will trump those focusing on skills mismatch.

3.5 Job creation in the context of growing informal and precarious employment

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