Sarah Cook - Director, UNRISD.
Naila Kabeer - Professor of Development Studies, SOAS, University of London.
Christina Weller -Senior Policy Advisor, CAFOD
Claire Melamed - Head of Growth and Equity programme, ODI.
Rising unemployment, with its human cost, link to political instability, and the waste of productive resources it implies, is shaping up to be one of the biggest economic and political issues of all in many developing countries. The MDGs have been criticised for neglect of economic growth and employment as a key dimension of poverty reduction, although MDG 1 has a target on employment and latterly more attention has been paid to this issue. DFID’s recent Bilateral Aid Review committed the organisation to using UK aid to create tens of thousands of jobs in the countries where DFID operates. But what can governments and donors can actually do to create jobs and foster equitable growth, and how could an international agreement after 2015 contribute?
The meeting was opened by Claire Melamed where she explained the 3 reasons why this issue is important and timely:
1) jobs are the missing link between growth and poverty (in terms of job creation), and poor people know this. A recent Gallup world survey reported that poor people ranked creating jobs for young people as more important than expanding education, reducing maternal mortality or tackling malaria and TB.
2) there is a renewed interest in job creation amongst donors with DFID’s recent Bilateral Aid Review committing to using UK aid to create one million jobs in the countries where DFID operates;
3) Discussions on what happens after 2015 is an opportunity to revisit this agenda. The issue is insufficiently covered by existing frameworks and it is time to look at a new architecture.
Sarah Cook’s presentation was based on report published end of last year titled “Combating Poverty and Inequality: The role of employment”. The focus was on few key messages that relate to the links between poverty and employment. The report came out of a long term research project which examined why after high levels of attention on poverty, there was no progress. The report explores the causes, dynamics and persistence of poverty. It draws lessons from countries that successfully reduced poverty in relatively short time periods. Key messages include:
o Variations in poverty outcomes are linked to differences in development trajectories or patterns of structural change and the interconnections of ideas, institutions, policies and practices in the social, economic and political spheres. The fall in poverty generally results not from policies aimed at poverty or the poor per se, but those with wider social, political and economic objectives: employment and inequality matter;
o Historical experience looked at cross country comparisons and examined the relationship between labour markets and social policies. Successful social policies (productivist and redistributive = transformative) linked to the industrial process and premised on full employment (e.g. South Asian countries). There is a link between social policy and employment (either high employment or informal employment) and the challenge for countries wanting to create employment with low levels of social protection.
o Third world countries have been unable to follow the historical pattern of transformation by developed countries with the exception of South East Asian economies where they focused on social issues (e.g. education). Data from 1997 to 2006 shows that shares of agricultural employment has reduced as per capita income went up but the increase in industrial employment did not go up as highly as expected. Higher increase in services employment (segmented).
o Global and national inequalities are rising, which shows that intersectoral terms of trade are leading to higher levels of inequality with inequalities within poor agricultural countries growing. Data shows that from 1981 to 2002, inequality has risen even with the global effect removed. Implication about job creation and policy agenda – links to macroeconomic policies;
o Comprehensive social policies are essential for employment and reducing poverty and inequality i.e. transformative social policy. There is a need to think of social policy as reinforcing the progressive redistributive effects of economic policies. Labour has to be produced and is an unpaid input into productive;
o There is potential for employment creation within the macroeconomic agenda. Fiscal stimulus policies need to be more redistributive and can be an investment into labour and skills; trade regimes – link to commodity prices and how that feeds into economies;
o Concluding thoughts:
§ It is not possible to delink the employment debate from welfare but will need a different way of looking at it with a movement to informalisation and flexible labour markets;
§ Need to look at inputs into production of labour and how they are financed;
§ Revisiting of macro frameworks and connection to demand side of the economy;
§ The service and public sector has had a huge impact on where jobs can be created. In developed countries, the public sector has been a critical force for bringing women into the labour market particularly in the care, service sector and education. The other sector is the environmental sector – climate friendly economy will potentially provide more jobs. Need to think how much they can benefit low income countries
§ Link between collection action and labour organising – critical to maintaining jobs and ensuring returns to labour and the quality of labour.
Naila Kabeer began her discussion by commenting on how remote the issue of employment has become from concerns of poverty reduction. In 1990, the World Development Report (WDR) spoke about labour intensive growth as the route to poverty reduction whereas the MDG on poverty reduction a decade later makes no mention of employment. In the poorer developing world, the problem is not unemployment but underemployment and a lack of access to stable and well paid employment. The employment elasticity of growth has reduced since the 1980s but this doesn’t capture the informal employment sector. Informal jobs in informal sector rarely provide a route out of poverty. Key transmission through which growth translated into poverty reduction is stable and regular employment, not found in the informal employment.
What can developing countries do as orthodox theories of growth have not resulted in the expected levels of growth? Heterodox economists have suggested 3 levels of interventions:
- Establishment employment centred framework - research shows that inflation of up to 20% can be beneficial to employment and growth. Fiscal policies would have to be more varied/expansionary, with a focus on various instruments and fiscal expansion;
- More structural interventions intending to influence the pattern of growth and employment – distributional impact and looking at the different sectors;
- Make employment friendly policies that enable poor population to access the jobs/opportunities which relies on the supply side of labour and the mobility of labour across sectors/locations/hierarchies (e.g. explicit policies such as social protection, cash transfers, microfinance etc)
A study in Bangladesh based on panel data from 1990 – 2003 found that a respectable number of households classified as “poor” in 1990 had crossed the poverty line; what allowed them to move? Evidence suggested the following:
i) The households were well endowed with labour (educated adult male labour). Households left behind had a large ratio of children to adults, reliant on female breadwinners and a high ratio of disabled;
ii) Availability of external income injections e.g. dowry, patronage and microfinance. This provided the capital to make an investment;
iii) Changes to the labour structure e.g. the green revolution increased employment opportunities for women increased. Export of labour, changes in government policy and a movement away from reliance on labour apart from land have changed the structure of labour;
The reduction of poverty reduction has also been aided by globalisation and the greater connectedness of the economy (via roads, canals, bridges, TV, radio, mobile phone). There is significantly more movement of goods, people and ideas. This interconnectedness should inform strategies of the heterodox economics – how do you plug holes in people’s endowments i.e. how to you prevent the barriers that are preventing mobility across markets. Investment in people capital is one part of it.
There is also the regulatory dimension to be considered as this is at the heart of the formal/informal divide. The cost of setting up and registration of businesses is an important factor– the less time to register (e.g in Vietnam and Uganda) resulted in an increase in formalisation of SMEs and more women entrepreneurs. The other side of regulation is labour and what can be expected from the inform sector to enforcing labour standards. There may need to be an introduction of social protection that is not connected to employment.
With regards to human resources there is a need to go beyond formal learning and examine a lifelong learning approach to the investment in human beings. To what extent can we rely on the government as not only the employer of last resource but also providing the ongoing investment to anticipate changes in the labour market?
Christina Weller spoke about a recent study where CAFOD spoke to their partners on poverty and what is it they are looking for in improving interactions with markets and poverty reduction. The big answer was jobs and employment. The study looked at where the jobs were located and it showed that most jobs were within small enterprises and usually in the rural and/or informal sectors. Evidence shows that donors do not consider these to be proper jobs or sustained pathways out of poverty. What needs to be done? There needs to be more focus on these SMEs in terms of interventions like getting products to the market and directing finance. There is also a need to abandon the usual ideas of growth and poverty reduction with more focus on human development e.g. health; political power of the groups (farmers coops). Christine concluded that the post MDG agenda needs to looking at not separating growth and poverty but identifying the links between them and looking at commitments and responsibilities of local governments and what the government will and will not do.
Claire Melamed concluded by commenting that employment creation involves thinking about social policies together and how they feed into people’s lives. Creating employment involves looking at the macroeconomic framework and investment which is nothing new but restructures the thinking. Looking at development through an employment lens is helpful in terms of putting people at the centre and seeing how the policies interact. The outstanding question is how much of this can be effective through policy and what the donor can do? Also need to look at issues around trade policy, investment policy, and private sector. Where will this take the 2015 framework?
Questions from the participants
o Dirk te Velde (ODI): Firstly, Sarah’s chart in the presentation shows that as countries are richer, there is more employment in service sector – which direction is it going? Research shows that services contribute to jobs more strongly. Secondly, on the contribution of SMEs to growth, research shows that the size is not an issue as both large and small firms contribute to growth. It is important not to skew the agenda towards SMEs only. What is more crucial to consider is the type of organisation. Constraints were determined by the type organisation e.g. small organisations have difficulties in accessing finance for example.
o Alison Evans (ODI): Playing devil’s advocate, the presentations have not uncovered anything – this was the same discussion the development community was having 20 years ago. It is difficult to see where to go from here. What is different to what we already know? What is new in terms of effective policy response on this issue?
o Sheila Page (ODI): The data in Sarah’s study seemed to stop in 2002 which excludes India and China which have had some relevant lessons about growth and what could be learnt from it?
o Steven Biggs (University of East Anglia): Bangladesh is the most mechanised agricultural economy in South Asia which is closely linked to employment and rural development which is an exceptional. These lessons have not crept into India and Nepal, but selective patterns of mechanisation have emerged in Thailand and India. Current debates on food and agriculture exclude mechanisation and focus on large farms. Need to look at how experience and information doesn’t always flow and examine the different interest groups that prescribe how employment and growth take place.
Response from the panel
o Naila: Interesting that lessons and information and experience do not flow – India and China dominate the Asian vision at the moment and this tends to exclude a smaller country like Bangladesh. Excluding India and China is necessary as they have access to large domestic populations which is different to other smaller economies. Bangladesh is seen as not having any lessons to offer and it is not clear what it has done right. It seems to have played to its strengths i.e. its unskilled labour force. Cambodia was held up as a success (but this was mainly due to its reliance on the US investments and markets) but its clothing industry collapsed with the economic crisis whereas Bangladesh’s clothing industry didn’t as it utilised internal capital which protected its economy. What is different about this discourse (response to Alison)? The heterodox view that high inflation is not a bad thing and may stimulate employment. Also globalisation has opened up routes e.g. international migration. But there is nothing new that we did not know already.
o Christina: Agreement with Dirk that there are good and bad in large and small firms but there seems to be more of a feeling from donors that small firms are bad due to issues like high failure rates. As a result, the agenda is already skewed towards large firms. In response to Alison, there is more focus on the tool sets that can be used, measures, definitions (e.g. SMEs), and data (gender dissagregation etc).
o Sarah: In response to Dirk, important issue is structure of growth. Services don’t always produce growth e.g. Ireland. In addition, manufacturing industry is not creating jobs as it did in the developing countries. Therefore high end services are important. Can lessons be learnt from China and India? Most of the macro framework and policies that have been developed have been around small economies and China doesn’t fit into this model – it is export orientated but closed off in other areas (domestic policies, infrastructure investment). China is now moving up the value chain from high levels of manufacturing which is interesting and the next question is where will export driven manufacturing go? To smaller countries in a more proportional manner – how quickly will it happen? China is already having a big impact in S.E Asia and Africa – growth in jobs, quality of jobs etc. What is new? Getting employment back on the policy agenda. Employment needs to become a national policy target not just an outcome. An example of China where it looked at what percentage of growth it needed to employ the labour. Another aspect could be using historical experience to see how successful outcomes came about like the Nordic countries and what policies were implemented.
o Claire: Not much is known about employment as most of the research (policies, outcomes etc) is based on OECD countries and there is no data or policy interest in doing research so in reality we don’t know what we don’t know and this provides room for more learning. More will be investigated through a new programme of work by the Growth Poverty and Inequality team on jobs and employment as well as part of the post 2015 agenda.