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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 ILO writes that “skills training for young entrepreneurs is regarded as one of the most important investments to carry out in developing countries where employment opportunities are scarce and self-employment is the only option for disadvantaged youth.” (ILO 2010) The World Bank’s Doing Business Report focuses on “regulatory reforms” to “make it easier to start and operate a business” which in turn is linked to “empowering entrepreneurs.”19 However, not all young people have the desire, motivation and capabilities to succeed in business and many young entrepreneurs are driven by lack of wage employment opportunities.

A 2006 survey of young entrepreneurs in 14 Latin American countries (Llisterri et al 2006) found that: “Young entrepreneurs can be divided into two broad groups: those who become entrepreneurs by necessity because they are unable to find other forms of formal employment or continue their education, and what can be called “vocational entrepreneurs” who seize a business opportunity.” The research showed also that: “Businesses created by youths tend to have a weak impact and uncertain evolution. Most of the businesses created by young people have a relatively small impact on job creation (95 per-cent of young employers have less than 10 employees compared to 90 percent of all employers), but provide jobs and a source of income for their owners.” On the other hand, the report added: “The creation of a new business in itself PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 16 could help young people transition into paid employment or, in some circumstances, their first attempt at being an entrepreneur could eventually turn into a growing company.” Programmes to support young people in self-employment and entrepreneurship are often promoted for those who might be expected to be most likely to fail in business and who most aspire to stable work in the formal economy -- namely, disadvantaged youth working in the informal economy. In many cases “self-employment” is a misnomer that conceals casual employment in the informal economy. In fact, in research on the impact of regulatory frameworks on informality, “self-employment” is used as a proxy for informal employment.20 A World Bank report found that the evaluation literature on micro-enterprise development and selfemployment programmes is thin, and that those studies which do exist, the focus on business development rather than employment per se. It added: “The evaluations tend not to cover displacement and substitution effects which presumably could be significant in this type of intervention. With these caveats, it does appear that these programs can provide effective support for the small minority of unemployed workers who are interested in starting their own business.

The literature does suggest that programs offering mentoring and business counseling, in addition to financial aid, are more likely to succeed than those only offering the latter.” (Betcherman et al 2004) A study on “Active Labor Market Programs for Youth in Africa: A Framework for Engagement” states that “in the face of low labor demand in many African countries, self-employment may be the only viable option. Hence, promoting gainful self-employment may be one of the more promising options.” Yet it goes on to explain that “unfortunately, there does not seem to be any evidence identifying which constraints most affect young people’s ability to start a business. Nor is there a discussion in the literature about the extent to which anyone could be an entrepreneur or the cultural influences that encourage or discourage starting one’s own firm.” Specifically with respect to entrepreneurial training, “the evidence base is very weak.” An analysis of a Youth Employment Inventory carried out by the World Bank (Betcherman et al

2007) reveals that there is a severe lack of rigorous evaluation of youth employment interventions leading to a gap in the evidence base to support effective program design and implementation.

The analysis of the inventory suggests that only 15% youth employment programs from developing countries provide evidence of net impact. The youth employment evaluation facility, sponsored by the Youth Employment Network, is one promising initiative to support counterfactual evaluations of youth entrepreneurship programmes.21

4.4 Employment-intensive investment policies

There is renewed interest in public employment programs as a vehicle for directly providing employment opportunities, coupled with training and work experience. Over the past three decades, the ILO’s Employment-Intensive Investment Programme22 (EIIP) has evolved considerably from a series of relatively stand-alone labour intensive projects – with positive but limited impacts of employment and living conditions in target populations – to more systemic interventions which, based on the earlier pilot experiences, contribute to both job creation and infrastructure deficits on a larger and more systematic scale. The EIIP has involved a wide variety of infrastructural improvements, initially mainly in rural areas including water supply, reforestation, erosion control, small dam construction, irrigation, feeder road construction and improvement, and construction of schools, health centres and cereal banks, and later branching out to involve urban works such as slum upgrading, street paving, sanitation and drainage. Maintaining as a common feature the dual objectives of asset and employment creation, employment-intensive investment PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 17 programmes feature a varying mix of these and other objectives and can be categorized as


Sectoral infrastructure investment programmes where priority is given to implementing good quality assets and where the objective of job creation is important, but secondary, in that employment is maximized without compromising the quality of infrastructure. Such programmes are typically implemented by technical ministries and works are contracted out to small or medium enterprises or to community-based organisations.

Local area-based development programmes that have infrastructure components, support decentralization and are implemented and funded by local government authorities. These tend to be multi-sectoral programmes where, in addition to job creation, there is a broader objective of local economic development and optimizing the use of local resources.

Public Employment programmes (PEP) can help protect the most vulnerable groups, while at the same time developing infrastructure, assets and services that promote social and economic development. Such programmes can be designed either in response to a crisis, or as part of longer term, counter-cyclical employment policy. Primary objectives focus on both employment generation and income support. As well as providing employment for marginalized and unskilled workers, PEPs can be a source of small enterprise creation by subcontracting works to labourbased contracting enterprises, including consulting engineers.23 As the ILO programme has evolved over the past decades, the focus has been on increasing the employment content of infrastructure investments through labour-intensive approaches, without compromising technical standards and long-term sustainability. The programme has been largely supply-driven in that it seeks to increase the employment impact of already-allocated project funding and infrastructure investment budgets. However, there is new interest in moving from a supply-driven to a demand-driven approach in the form of employment guarantee programmes, which provide many multipliers that can help contribute to demand-led economic growth and sustainable employment. (World Bank 2010) Since employment-intensive techniques imply increasing the employment:capital ratio of public investments, such approaches can be viewed as favouring “employment” to the detriment of “productivity” and relegated to the role of special or crisis-response programmes. Such a conclusion would be misleading because participants are employed at a higher level of productivity than their alternative economic activities could provide and the multiplier impacts can have a direct and positive effect on the communities in which poor people live.24 These effects are quantifiable, as shown by a comparison of the economic outcomes of employment-based versus equipment-based production methods in Uganda (Taylor & Bekabye 1999). The labour-based method not only has three times the impact on employment creation but also twice as much on GDP growth because a higher proportion of income and consumption remains in the local economy.

Labour-intensive works can provide a wide spectrum of positions and tasks appealing to those of different educational backgrounds and workplace aspirations. Therefore it is important not to stereotype labour intensive works as low-skilled. For example, potential workers can be attracted to creating their own labour-based contracting enterprise, or setting up and managing computerbased monitoring and evaluation systems, or carrying out various worksite supervisory roles, or overseeing implementation and payments on public contracts, and so on. Others without higher education might be attracted to the predictable income provided by manual work, particularly if this is accompanied by training and possibilities for advancement.

PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 18 Such programmes can also include specific support mechanisms for setting up labour-based contracting enterprises, such as training in bid preparation (balancing competitive pricing with accumulation for investment and growth) and other technical areas.

For both intrinsic and political reasons, employment impact assessments can be important strategic tools to apply to programmes of this sort, and the ILO is currently developing a methodology. Robust assessments could be integrated into investment climate surveys and integrated into bidding and tendering documentation, and hence become an integral part of public contracts.

4.5 The state as employer of last resort

Unemployment in developing countries is mostly structural in nature, and a further policy option is to put in place a public employment guarantee, which aims to provide employment to all job seekers who are ready and able to work. Rather than making training a pre-requisite to young people finding employment, an employment guarantee programme can make jobs available that ‘take workers as they are,’ regardless of their skills, education, or personal characteristics.25 This may be cost-effective in view of the high costs to society of forgone production, increased welfare and transfer payments, decreased fiscal revenues, social unrest and deterioration of human capital.26 Studies have shown that a universal employment guarantee could be put in place in many countries for 1 to 2 per cent of GDP.27 Kaboub estimated that an employment

guarantee programme in Tunisia could be implemented for between 3 to 5 percent of GDP:

“One-point-five percent of GDP spending on ALMP is an extremely low level of spending for a country that has consistently wasted the human capital of at least 15% of its most vibrant working-age population—the same population that the government has spent so much to educate and keep healthy in the last five decades. Gradually increasing the budget line for ALMP (under an ELR program) to 3–5% of GDP is something that the Tunisian economy can easily handle.” (Kaboub 2007) An employment guarantee would provide protection against economic risks and poverty traps as well as a means of defusing social tensions and buying time for employment-friendly economic reforms to take root. By drawing in young people who have often never been part of the workforce before, well-designed employment guarantee programmes can potentially increase their ‘employability’ and/or facilitate re-entry into the private sector, suggesting that in many instances the private sector prefers to hire people who already have work experience or are working.28 Employment guarantee programmes can also complement some of the programmes aimed at retraining and retaining workers in other sectors by helping to stabilize local demand and income.

Although in theory these programmes provide a universal employment benefit to everyone able and wishing to work, in practice the programmes tend to be targeted or rationed to particular groups or regions, either through wage rates which are attractive only to low-income groups, or by limiting participation, for example, to rural areas or to heads of households. For example, the Indian NREGA scheme is a rights-based, demand-driven programme that provides 100 days of work per year to everyone who applies for a job card and for work in rural areas. Job cards, clear and transparent payment mechanisms, real time and public monitoring of payments, activities and achievements through the programme’s website, plus regular social audits and beneficiary consultations all are in place to enable transparency and fight corruption.29 In conclusion, this section has reviewed different policy options, both at the macro and micro levels and from both supply and demand side perspectives. All of these options are complementary and not mutually exclusive and should be pursued in a coordinated manner. It PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 19 is also important that job creation be a specific direct goal of policy, and therefore that this goal be quantified and that its achievement be monitored and evaluated.

5. Avenues for policy reform and implementation The discussion in this paper leads to the conclusion that the policy options explored in the previous section face many obstacles. Some of these arise from market failure, others from government and institutional failure and in other cases, there is a lack of political will linked to allocation of the required resources within national budgets and within ODA resources. However, lack of action on job creation also arises due to diverging views on how to most effectively proceed. It is for this reason that this paper, in providing background to the policy discussion in section 4, lays out the different debates or dilemma confronting employment policy makers and practitioners, to help promote a better understanding of the policy options available and of the hard choices to be made.

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