JobsOutline of the concept note

September 12, 2011

3

A growing concern about jobs

• The global financial crisis resulted in massive job losses in both emerging and industrial countries.

– In industrial countries, the increase in long-term unemployment raises the specter of a jobless recovery.

– In emerging economies, a robust comeback cannot hide workers’ vulnerability to shocks.

• The Arab uprisings highlighted the discontent of educated youth whose employment opportunities fall short of their expectations.

– These uprisings hold promise, but if jobs don’t follow instability may increase.

• Around the world, there is anxiety about the pace of job creation and the prospect of a global fight for jobs.

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Moving jobs to the center stage

• Our clients tell us that the most pressing issue they face is jobs, but our support to them is not structured around jobs.

• In our macroeconomic work, we tend to assume that employment will

follow growth.

• At a more disaggregated level, we use a partial equilibrium lens, focusing on labor supply, demand and matching.

• The WDR 2013 aims to articulate a vision that cuts across sectors, addressing the dynamic links between growth strategies and jobs.

• The WDR 2013 also aspires to provide analytical tools to consider policies and programs from a jobs perspective.

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Main messages from the report

• Jobs are transformational. We tend to neglect jobs when thinking about growth, while in reality they are at the center of development. Jobs connect improvements in living standards, productivity gains and social cohesion.

• What is a “good job”? Some jobs do more for development than others, because they reduce poverty and inequality, strengthen production chains and clusters, or help build trust and shared values.

• Policies through the jobs lens. Understanding how labor markets interact with equity considerations, market imperfections and collective action is the key to identifying and evaluating policies for good jobs.

Introduction:The jobs challenge

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Dramatic demographic transitions

0% 10% 20% 30% 40% 50% 60% 70% 80%0%

10%

20%

30%

40%

50%

60%

E Asia & Pacific Europe & Central Asia Latin America &Carribean MENA S Asia Sub Saharan Africa

Employment Growth Rate

Wor

king

Age

Pop

ulati

on G

row

th R

ate

Employment growth needed to reduce unemployment by half

Source: Based on data from ILO and WDI. The figure assumes a constant activity rate and no migration. The size of the globes indicates absolute numbers.

8

A changing structure of employmentMain sector of employment (62 countries)

Agriculture Industry Services0

10

20

30

40

50

60

70

19802000

Perc

ent o

f Tot

al E

mpl

oym

ent

Source: Based on data from ILO and WDI.

9

Stubborn labor productivity gapsRegional labor productivity relative to industrial countries

10

Potentially explosive situations

Source: FAFO (2011) background study for World Bank (2011).

Rebel participation Gang participation0

5

10

15

20

25

30

35

40

To earn income Idle Security/power/want to fight Other Not specified

Perc

ent%

repo

rting

as

mai

n re

ason

Part I:Jobs are transformational

Jobs

Living standards

Productivity gains

Social cohesion

Jobs as the “hinge” of development

13

Jobs are the main source of earnings

Living standards

Income shares of households by source

Albania0

5

Bangla

desh00

Bulgaria

01

Ecuad

or98

Ghana9

8

Guatemala

00

Indonesia0

0

Malawi04

Nepal0

3

Nicarag

ua01

Nigeria

04

Pakist

an01

Panam

a03

Tajik

istan

03

Vietnam

980%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Wages Self-employment Other (including transfers)

Perc

ent o

f tot

al h

ouse

hold

inco

me

Source: FAO, 2011.

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Jobs are a trigger of poverty reduction

Source: WDR team compilation.

Living standards

Bangla

desh

Vietnam

Kenya

Rajhast

an, In

dia

Kwazulu-N

atal, S

A

Argentina

Chile

UKUSA

Swed

en

Netherl

ands

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

labor-related events non labor-related events

Key

even

ts fo

r fam

ilies

who

exi

t pov

erty

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Jobs also affect subjective wellbeing

Source: Gallup 2009 and 2010.

Living standards

Employment status and life satisfaction

Full-time workOut of LF

Unemployed

05

101520253035404550

SSA

SA

MENA

ECA

EAP

LAC

High Income

Perc

ent r

epor

ting

high

life

sta

tisfa

ction

16

But who gets the earnings matters

Living standards

Women’s earnings can influence their bargaining power both within households and in society more broadly.

When women have more income relative to men: • Household spending on food, health, and education increases.• Investments in children are greater.• There is increased use of prenatal care.• Women’s risk of domestic violence is reduced.

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Labor productivity varies across sectors…

Productivity

Source: McMillan and Rodrik (2011)

Its dispersion is greater in developing countries

18

…and within sectors

Productivity

Source: Hsieh and Klenow (2009)

19

Therefore, job reallocation matters

Productivity

Decomposition of productivity growth by region, 1990-2005

Source: McMillan and Rodrik (2011)

20

And some reallocations matter more

Productivity

• Clusters. Firms benefit from the proximity of other firms in the same line of business.

• Cities. Higher density and greater diversity increase everybody else’s productivity.

• FDI companies. Knowledge spillovers make local firms operating in the vicinity of an FDI company more productive.

• Green jobs. Some jobs are more productive than others, because their adverse environmental impacts are less severe.

Because some jobs have productive externalities

21

Jobs are correlated with trust

Social cohesion

Wage employment Self-employed Unemployed Not in labor force0

5

10

15

20

25

30

35Pe

rcem

t rep

ortin

g ge

nera

l tru

st in

peo

ple

Source: World Values Survey 2005-07, based on data from 57 countries.

22

And also with civic engagement

Social cohesion

Wage employment Self-employed Unemployed Not in labor force66

68

70

72

74

76

78

80

82

84

Perc

ent r

epor

ting

at le

ast o

ne so

urce

Source: World Values Survey, 2005-07, based on data from 57 countries. Information sources about what is happening in their country and the world include newspapers, radio or TV, printed magazines, books, internet, email, talk with friends or colleagues.

23

Jobs may thus matter for social cohesion

Social cohesion

Source: Based on data from ISS and the World Bank.

.3.4

.5.6

.7

0 20 40 60 80 100Percent of Adults Wage Employed

Social Cohesion Index Fitted values

Intergroup Social Cohesion Social Cohesion and Wage Employment

Intergroup social cohesion and wage employment

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But not all jobs are alike

Social cohesion

• Identity. Jobs are part of who we are, and may convey a sense of belonging in society. Not having a job, or deriving earnings from social assistance can undermine dignity and self-esteem.

• Rights. Some jobs are considered socially unacceptable so that their mere existence could undermine trust in institutions. Exploitative child labor or human trafficking harm not only those directly affected.

• Voice. Jobs differ not only in their earnings and benefits, but also in access to voice. Adherence to common values could be higher when effective voice mechanisms exist.

• Mobility. It has been argued that a growing middle class results in greater demands for transparency and accountability. But the middle class is associated with the expansion of wage employment.

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• Living standards. Growth in labor earnings leads to improvements in households’ material and subjective wellbeing. But growth in earnings cannot be taken for granted and who gets those earnings matters.

• Productivity. Job creation, destruction and reallocation matter more in developing countries, where the dispersion of labor productivity is wide. Some jobs lead to sizeable productive externalities.

• Social cohesion. Employment status is correlated with trust and with civic engagement, which suggests a possible impact on social cohesion. But some jobs may have a greater impact on cohesion than others.

Main messages from Part I

Part II:What is a “good job”?

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What is a job, to begin with?

• From the point of view of these three transformations, jobs are earnings opportunities associated with the use of labor.

• Wage employment is less prevalent in the developing world than in industrial countries and formal wage employment even less so.

• Even the notion of unemployment may be of limited relevance when only a fraction of the labor force works for a wage or a salary.

• There are jobs not leading to monetary payments, or not involving a contractual relationship between an employer and an employee

• Therefore, the growth of formal wage employment should not be the only yardstick to assess progress towards job creation.

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Individual Collective

Short term

Long term

Workings of the labor market

Goals of the development

strategy

Conceptualizing “good jobs”

Structural effects, coordination

Asset accumulation

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Good jobs from which perspective?

• The upper left corner. While definitions vary, many see good jobs as those providing high pay and generous benefits. But that could be at the expense of others in society.

• The lower right corner. A good job is one contributing to the maximization of a social welfare function, incorporating distributional concerns, externalities and dynamic effects.

• A shadow price approach. The societal value of a job is given by its multiplier in the maximization of the social welfare function. Difficult to measure but easy to conceptualize.

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Good jobs in practice

• Living standards. Jobs that make a greater contribution to poverty reduction; female employment; jobs with greater potential for growth in earnings and satisfaction.

• Productivity. New jobs whose productivity is above the country’s average; jobs with greater productive externalities; jobs with potential for productivity growth.

• Social cohesion. Jobs that convey a greater sense of dignity and belonging in society; jobs that do not conflict with human rights; jobs providing voice and encouraging participation.

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Diverse jobs agendas

• Sub-Saharan Africa: increasing earnings from farming and creating enough off-farm jobs (all informal).

• South Asia: creating enough productive jobs to absorb one million new entrants to the labor market every month.

• Middle East: finding alternatives for educated (not necessarily skilled) youth who aspire to civil servant jobs

• East Asia: handling the massive destruction and reallocation of jobs in low-end manufacturing as wages increase.

• Latin America: rebuilding a social compact that requires formalization without undermining efficiency

• Eastern Europe: coping with a jobless recovery amidst an ageing labor force

Interconnected jobs agendas

• Global spillovers. The global rights agenda and the coordination mechanisms set up in the aftermath of the global crisis establish common floors and goals.

• Migration of workers. Seen through the lens of the three transformations, it can increase productivity but it may also have an adverse impact on social cohesion.

• Migration of jobs. Shaped by globalization, it should result in greater economic efficiency. But it also increases the risk of a global competition for good jobs.

The migration of jobs

.12

.14

.16

.18

.2th

eta_

man

4446

4850

5254

(sum

) man

_em

p

1990 1995 2000 2005Year

Manuf. Employment (millions)Manuf. share in tot. emp (%)

HI

.1.1

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2.1

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4050

6070

80(s

um) m

an_e

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1980 1985 1990 1995 2000 2005Year

Manuf. Employment (millions)Manuf. share in tot. emp (%)

ASIA High-income countries Asia

Source: Data kindly provided by Margaret McMillan.

Going where now?

34

• Good jobs. They are usually seen from an individual angle (earnings and benefits). But from a development perspective they are those contributing the most to long-term societal goals.

• Diverse jobs agendas. Countries differ in the set of job creation possibilities realistically available to them; they often do in their societal goals too. Jobs agendas are thus country-specific.

• Interconnected jobs agendas. The global migration of jobs and workers creates opportunities to increase efficiency and improve wellbeing. But it raises the specter of a global fight for good jobs.

Main messages from Part II

Part III:Policies through the jobs lens

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Obstacles to good jobs (1)

Living standards Individual Collective

Short term

Long term

Structural effects, coordination

Discrimination in access to jobs

Uneven bargaining powerAsset accumu-

lationObstacles to skills accumulation

Lack of insurance markets

37

Obstacles to good jobs (2)

Productivity Individual Collective

Short term

Long term

Structural effects, coordination

Allocative inefficiencies

Production externalitiesAsset accumu-

lationObstacles to capital accumulation

Obstacles to entrepreneurship

38

Obstacles to good jobs (3)

Social cohesion Individual Collective

Short term

Long term

Structural effects, coordination

Abusive forms of labor

Lack of voiceAsset accumu-

lationLack of trust

Obstacles to social mobility

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Potential Policy Implications

• A strategic view: Because of the potential trade-offs between the living standards, productivity and social cohesion perspectives, the policy focus needs to be informed by societal choices.

• Policy priorities: Obstacles to the creation of more good jobs may not necessarily lie in the labor market itself. But the ways in which the labor market interacts with those obstacles matters.

• Costs and benefits: If jobs have consequences going beyond the earnings associated with them, the evaluation of policies and programs has to take those other effects into account.

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How to think about those implications?

• A solid database. Including households surveys, firm surveys, value surveys and population censuses, it will contribute to the Open Data-Open Access initiative.

• Digesting existing knowledge. Analytical literature reviews and background papers will update our understanding of the existing evidence on well-threaded issues.

• Country case studies. The WDR approach will be applied by local research teams to half a dozen countries covering the full spectrum of jobs agendas, and lessons will be drawn.

• The difficult questions. The WDR approach also suggests that in some critical areas there could be a need to re-think our approach to policies. Some of those questions are listed next.

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#1. Growth strategy or jobs strategy?

• Korea abandoned development planning in 1996, but in 2010 it adopted a jobs strategy as its highest-level policy document. Its leading author, Mr. Bahk Jae-Wan, is now the Finance Minister.

• A jobs strategy differentiates between good jobs and bad jobs. It also makes the trade-offs between the living standards, productivity and social cohesion perspectives on good jobs explicit. When are those differentiations and trade-offs relevant enough?

Jobs

Employment-friendly

economic and industrial

policy

Creation of a fair and dynamic

workplace

Skills development and jobs for

disadvantaged workers

Employment- friendly social

safety net (welfare to

work)

GROWTH WELFARE

The architecture of Korea’s jobs strategy

towards 2020

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#2. A targeted investment climate?

• In Brazil, the list of microeconomic distortions accumulated over the years is long. Yet, while those distortions were building up, the government actively supported the development of the successful agribusiness sector though a research corporation (EMBRAPA) focused on technology generation and transfer.

• The traditional approach is to get the investment climate right across the board. But the potential to create good jobs may be stronger for firms of specific sizes, in specific locations, with different ownership structures or in specific sectors. Should the information from investment climate assessments be used more selectively?

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#3. Skills: general, specific, or on-the-job?

• In the 1990s Vietnam experienced one of the fastest poverty reductions ever documented. Distributing land to farmers and allowing competition in commercialization were fundamental. But the building of farmers’ skills through agricultural extension (on rice and coffee cultivation in particular) was crucial too.

• Current approaches to human capital accumulation emphasize general cognitive and non-cognitive skills, especially at early stages in life. Would the good jobs lens give more pre-eminence to specific and technical skills, and to on-the-job learning?

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#4. Can entrepreneurship be fostered?

• In the 1970s, the Daewoo corporation teamed up with Desh Garment Ltd. from Bangladesh to train 130 of its workers in Korea. Those workers (soon ex-Desh) became the entrepreneurs behind a garment boom creating millions of salaried jobs, mainly for women. But many programs to support entrepreneurial skills (e.g. for self-employed women in Kenya) have failed.

• Some microenterprises can thrive and lead to good jobs, but many more amount to little more than subsistence jobs. Some large firms have poor management practices undermining the creation of good jobs. Is there anything policy can do facilitate improvements in management , beyond getting the business environment right?

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#5. What prevents job reallocation?• China ’s total factor

productivity would increase by a quarter if the dispersion of marginal plant productivity in each sector was the same as in the US. India’s productivity would increase by more than half.

United States 1997

China 2005

India 1994

Source: Hsieh and Klenow (2009). Gains from moving to the TFP distribution in red; gains from equalizing TFP across plants within the same industry in blue.

• The wide dispersion of productivity in developing countries is well documented, but the underlying reasons are not clear. Constraints on hiring and firing can be part of the explanation but so can lack of competition in product markets or poor infrastructure. How to facilitate rapid reallocation towards good jobs?

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#6. How can jobs increase trust?

• In 2002, in response to a macroeconomic crisis, Argentina introduced a massive public works program. Instituted under the constitutional “right to social inclusion”, it was targeted to poor household heads (Jefes). Together with previously existing programs, at its peak it provided jobs to more than two million people every month.

• Values change with development and jobs presumably play an important role in that transformation. The lack of jobs can undermine positive social change. Also, jobs which are not seen as dignified, or are characterized by conflictive labor relations, may not do the trick. What are the features of the good jobs that contribute the most to trust and how can they be fostered?

47

#7. Is protecting jobs ever advisable?

• Through the 1980s and 1990s, China supported its state-owned enterprises (SOEs) until the private sector could generate enough jobs to productively absorb the redundant SOE workers. In 2009, Germany introduced a massive wage subsidy (Kurzarbeit) to protect private sector jobs, while the United States government injected capital into major carmakers to prevent their collapse.

• Good jobs provide more than earnings: they can increase subjective well being, create productive externalities or contribute to social cohesion. But protecting jobs is prone to rent seeking and could fuel the global fight for good jobs. Can the circumstances under which protecting jobs is defensible be spelled out?

48

#8. Competing for jobs?

• “If you were to ask me, from all the world polling Gallup has done for more than 75 years, what would fix the world -- what would suddenly create worldwide peace, global wellbeing, and the next extraordinary advancements in human development, I would say the immediate appearance of 1.8 billion jobs -- formal jobs. […] We can’t see that quest for good jobs as an internal skirmish between warring political ideologies. It’s an international war ” (Jim Clifton, Chairman and CEO of Gallup, author of The Coming Jobs War)

• Economists point out to the fallacy implicit in the idea of a given number of jobs. But in times of rapid technological progress public opinion does not see it that way. Trade in services (through electronic platforms) will only add to the anxiety. What policies or arrangements can reduce the perceived competition for jobs in the short-run and shift policy makers’ attention to the creation of good jobs at a global scale?

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• The jobs lens. Because of imperfections in the labor market and elsewhere in the economy, the social value of a job can be different from what the earnings associated with it suggest.

• Policy evaluation. Those wedges may be difficult to quantify, but understanding their source can guide the selection of appropriate policies and inform the evaluation of their costs and benefits.

• The difficult questions. The jobs lens allows analyzing in a rigorous manner some of the most controversial issues policy makers around the world are confronting.

Main messages from Part III

Timetable and process

51

Timetable

• July: Approach discussed with the President.

• August: Issues paper discussed at the Board.

• October: Bank-wide review of the Concept Note.

• February: White cover draft of the report for discussion.

• April: Bank-wide review of the yellow cover draft.

• July: Presentation of the gray cover version at the Board.

• October: Launching of the report at the Annual Meetings.

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Process• Advisory panels. One made of policy makers from developing countries. The other

made of academics, also involved in the preparation of background papers and country case studies.

• Engagement with the ILO. Launched in June. Technical meetings to follow in October. A senior ILO director has been appointed as the focal point for the dialogue.

• Collaboration with IFC.In the context of the ongoing IFC effort to better align its business with its strategic goals, and to assess its contribution to job creation.

• The Jobs Knowledge Platform (JPK). Together with FPD, PREM, HDN and DEC. The JKP would provide a vehicle to collect inputs and views during the preparation of the WDR and to disseminate it afterwards.

• Dialogue with countries. Regular meetings with government authorities, researchers, trade union leaders. Some donor countries to finance individual country case studies.