miles workshop: identifying binding constraints to job...

The World Bank

MILES WORKSHOP: IDENTIFYING BINDING

CONSTRAINTS TO JOB CREATION AND PRODUCTIVITY GROWTH

AN INTRODUCTION

Robert HolzmannDirector, Social Protection & Labor

Washington, D.C. Dec. 7, 2007

Enhancing Job Opportunities in ECA 2

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Background and Motivation

Mission of the Bank is poverty reduction and development (or inclusive and sustainable globalization/ equitable growth)Labor is the most important asset of the poor, hence its productive use must be forefront of our concerns


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Motivation (2/3)There are no valid/competing labor market paradigms that are able to explain labor market outcomes (incl. employment) for low- and middle income countries (a la Layard-Nickell-Jackman)Many of these countries do not even have a single model that attempts to explain labor market outcomes


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Motivation (3/3)Sitting down and trying to establish and propose such a paradigm is quite likely little successful– Past attempts no successful– Critical knowledge gaps in LM understanding– Even if successful, uphill battle to get buy-in

Hence, what would be a process that helps us move toward the formulation of a paradigm?


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Initiated 2 pronged ApproachProcess to fill the knowledge gaps– Regional stock taking conference in 2004– Identified 7 LM research priorities, resulting from

international consultations (incl. with ILO)– “Employment and Development” program (IZA-

WB) with annual conferences et al– Multi-donor trust fund to support research

priorities, capacity building, country pilotsOperational framework to support country interventions for employment creation: MILES


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List of Research Priorities1. Improve diagnosis of the labor market and

identification of vulnerability2. Understand the linkages between investment climate,

labor demand, and poverty3. Identify the benefits/costs of structural reforms and

globalization for workers4. Understand the different aspects of formality and

informality5. Identify appropriate labor market regulations and

institutions6. Identify best practices in skills development and skills

upgrading7. Assess the role of international migration in smoothing

labor market and demographic imbalances across countries and promote knowledge flows


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Multi- sectoral policy frame-work for good job creation - MILES

MMII

LLEESS

AcroeconomicsAcroeconomicsnvestmentnvestment climateclimateaborabor market institutionsmarket institutionsducationducation and skillsand skillsocialocial protectionprotection

Labor supply

Job creation


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Key elements of MILES approachMulti-sectoral demand/supply-side approachFocus on binding constraints– Political mandate is limited– Universe of potential sector improvements unlimited

Use as much as possible existing diagnostics tools (data, information and analysis) Assess consistency of policy interventions across sectorsBring together the relevant policy makers and engage the key stake holders within a country


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Binding constraints – how to identify?Use multiple methods and compare (i.e. do a triangalization)– If yielding similar binding constraints, some

confidence in result– Otherwise, less confidence, and …

Do in various countries, compare identification and policy outcomes after interventionsInterplay with research agenda (on the way to a LM paradigm …)


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Annex: MILES in some detail


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M : Macro-economicsA sound macro-economic framework crucial for the decision by entrepreneurs to expand their business and to create new jobsConditions are likely to include macroeconomic stability and fiscal spaceIndications that economic and political instability hurt mostly SMEsMILES framework focuses on how reforming macro policy settings – by providing a more stable and predictable environment – can contribute to foster investment, growth and job creation.


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I : Investment climate, institutions and infrastructure

Firms will expand and create formal sector jobs when costs of doing business are low and predictableEven when market costs appear to be low, the shadow costs for doing business – such as the lack of access to finance or to markets or corruption – can be very high.A poor investment climate often has disproportionately negative effects on SMEsMILES framework use of existing tools – Doing Business and Investment Climate Surveys– To diagnose the status of the business environment and how this

affect those firms/sectors with the greatest potential to create more jobs

– To develop the policy instruments to create a more employment-friendly climate for businesses


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L : Labor market regulations and institutions

Sound regulations are crucial for both the employer and the worker to engage in a productive and longer-term working relationshipRegulations need to strike a balance between protecting jobs andenhancing working conditions with the need for firms to adapt to the evolution of demandLabor market regulations and institutions also play an important role for working conditions and in the wage setting process, by mandatingminimum wages and by setting rules for wage negotiations among the social partner Recent and innovative empirical work in developing countries indicates that these regulations and institutions have a significant bearing on job creation and wage growth through their impact on sector choice and firm size MILES framework assesses the status of labor market regulation, the impact on labor market outcomes, and thus the effects of reforming such regulations on job creation and workers’ protection on the job


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E : Education and skills Good/decent jobs, i.e., higher productivity jobs, are invariably based on good formal education and require appropriate skills for all age groupsMany employers consider skill shortages as a main constraint to the operation of their business and growth potentialMILES framework reviews education attainment and enrollment rate, information on skill shortages and returns to education, and the policies of school to work transition and life-long learning


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S : Social protection Social risk management programs, if well designed and implemented, can potentially enhance efficiency and the proper allocation of resources:

– Social insurance schemes can stimulate the emergence of more risky, but more productive, jobs and industries

– Uninsured transient shocks which reduce individual consumption below a threshold needed to retain productivity can give rise to “dynamic poverty traps” and lead to chronic poverty.

– Uninsured risk also reduces efficiency through costly production and portfolio choices, such as the use of outdated but less risky production technologies

– Uninsured risk can adversely affect human capital accumulation, for example, when children are forced to drop out of school in the wake of an income shock

But badly designed and expensive social risk management programs can be a critical obstacle for formal and informal job creationMILES framework reviewes the options for social risk management programs given the administrative and resource constraints and assess the benefits and costs of different options


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Annex: Research priorities in some detail


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1. Improve diagnosis of the labor market and identification of vulnerability

Diagnostic tools to assess labor market conditions in countries at different stages of developmentAllowing for the comparison of labor market outcomes across countriesImproving identification of vulnerability and social exclusion in the labor market


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2. Understand the linkages between investment climate, labor demand, and poverty

Existing bottlenecks in the investment climate affect the three main channels through which growth can affect poverty reduction:– the sustainable growth path– the employment content of growth (i.e. the elasticity of

employment to output growth)– poverty-reduction effect of employment growth (the

poverty elasticity to employment). Further required work:– Assessing labor demand in countries at different levels of

development and with different investment climates– Understanding the role of labor in the link between

growth and poverty, especially in low-income countries


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3. Understand the Different Aspects of Formality and Informality

Investigating the dynamics and links of the formal and informal labor marketsIdentifying the effects of labor regulations and social protection programs on formality/informalityRe-thinking social protection for informal workers


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4. The benefits/costs of structural reforms and globalization for workers

Identifying the main channels by which different types of reforms affect labor market outcomesThe medium-term job growth prospects of structural reforms The optimal sequencing of reforms for job creation Best mechanisms of income support and re-deployment for reform-affected firms and workers.


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5. Identifying appropriate labor market regulations and institutions

Identifying the impacts of labor regulations on labor market and other economic and social outcomesUnderstanding the political economy of labor market reforms Identifying alternative protection mechanisms with lower economic costs Better understanding of labor standards and the role of social dialogue


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6. Identify best practices in skills development and skills upgrading

Identifying the role of labor force skills in determining economic outcomes in a context of globalizationIdentifying optimal government interventions for formal and on-the –job training programsIdentifying good practices for school to work transition


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7. International migration

Understanding demographic disequilibria and skill gapsAssessing and improving the labor market impact in receiving countries Assessing and improving the labor market impact in sending countries Improving the portability of social benefits for migrant workersImproving employment services for prospective migrants in sending countries


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Implementation of StrategyMulti-donor trust fund that supports

– Scaling-up Research• Support cutting-edge research by the global academic and research

community on key policy issues related to good job’ creation (together with IZA to strengthen link with research community)

– Capacity Building• Build capacity of developing country policy-makers and researchers on

labor market data analysis, evaluation techniques, and good practice in labor market policy

– Actions on the ground• Catalyze country-level activities to analyze specific labor market

conditions and pilot promising approaches

Dissemination strategies, including– WB-IZA “Employment and Development” conferences

(next in Morocco, Rabat, May-June 2008)

miles workshop: identifying binding constraints to job...

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