employment analysis

7/29/2019 employment analysis

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Employment Diagnostic Analysis

A methodological guide

Employment

Sector


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A methodological guide

Employment Sector International Labour Ofce


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Copyright International Labour Organization 2012First published 2012

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Employment diagnostic analysis: a methodological guide / International Labour Ofce, Employment Sector Geneva: ILO, 2012

ISBN 978-92-2-125987-9 (print);ISBN 978-92-2-125988-6 (web pd)

International Labour Ofce; Employment Sectoremployment / unemployment / labour orce participation / human resources / economic analysis / methodology13.01.3

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iii

Foreword

The challenge o productive employment creation is today arguably more daunting than ever, in

both developing and developed countries. Faltering growth and structural weaknesses in many o

the largest economies have undermined the prospects or a sustained and rapid global economic

recovery. To make matters worse, the past ew decades have been characterised by a secular trend

o decreasing employment content o growth and increasing inequality. Overall, economic growth

per se has become less and less ecient as a vehicle or generating productive employment and

incomes rom labour at the same time as the gap between the rich and the poor has widened.

Inclusive, job-rich growth has never been a natural outcome o economic growth; there is no con-stant or invariant relationship between the two. Yet, standard analysis o economic development

has not ocused suciently on the challenges o making economic growth more job-rich and

more inclusive. For a long time the ruling paradigm, as translated into political economy at both

multilateral and national levels has been based on an assumption that employment is a derivative

outcome a residual o growth and on a trickle down assumption, that growth will eventually

also benet the poor.

Employment diagnostic analysis aims to understand the nature o the deciency o productive

employment and the context-specic constraints, challenges and opportunities or increasing pro-

ductive employment through sustainable and inclusive job-rich growth as a basis or a sharper

and more eective ocus o policies and strategies on productive employment. The purpose o thepresent guide is to provide a user-riendly methodological tool or such analysis. The methodol-

ogy has been developed with three important considerations in mind:

It should acilitate a clear identication o the causes behind the main constraints and chal-

lenges, through a highly structured and step-wise approach, with a view to provide a basis or

prioritisation and a sharp ocus in policy-making

The country specic situation should serve as a starting point and basis or the analysis

Participation by the end users in the analytical process is crucial or result. Those responsible

or designing and implementing policies should also play an active role in the identication o

the constraints and challenges that need to be addressed

The development o this guide was made possible by a generous nancial contribution by the

Swedish International Development Agency (Sida) within the rame o a partnership between

the ILO and Sweden. The nal product has been strongly infuenced by experiences and lessons

rom extensive testing in a number o countries and has beneted greatly rom collaboration and

constructive comments rom a large number o experts within the ILO as well as ILO constituents.

It is our hope that the Guide will be extensively used within as well as outside the ILO and that it

will prove its worth as a useul tool or achieving knowledge or policy discussion and or policy

making aimed at achieving productive employment and decent work.

Jos Manuel Salazar-XirinachsExecutive Director

Employment Sector


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Acknowledgements

The present guide was developed by Per Ronns, Miranda Kwong and Leyla Shamchiyeva, within

the ramework o a project on Promoting Inclusive Job-Rich Growth generously unded by the

Swedish International Development Cooperation Agency (Sida) in partnership with the ILO. Em-

pirical testing has played a key role in the development o the methodology and the experiences

and lessons learnt rom its application in a wide range o countries and settings have strongly in-

fuenced the nal product. Not least the decision to opt or a highly participatory mode o analysis,

where ILO constituents themselves play a main role, resulted rom the highly positive experiences

and eed-back received as this approach was tested in dierent settings. Hence, the present guideis very much the result o a collective eort. The work has benetted greatly rom the constructive

interaction, comments and involvement o a large number o ILO colleagues, both at headquarters

and in the eld. Comments and eedback rom ILO constituents in dierent countries have been

similarly crucial. The authors alone bear responsibility or any remaining shortcomings.


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Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

CHAPTER ONE: Conceptual and methodological considerations. . . . . . . . . . . . . . . . . . 1

1 Introduction and general considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Dening inclusive and productive employment . . . . . . . . . . . . . . . . . . . . . . . . . . 22 The conceptual ramework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2.1 The human resource base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2.2 Opportunities or and returns to human resources through productive

employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2.1 The quantitative growth actor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2.2 The qualitative growth actor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.3 The equality actor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.4 The issue o sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.5 Some additional considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3 From concept to methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.1 Main considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.2 Taking the growth diagnostic approach as a starting point. . . . . . . . . . . . . . . . . . 11

3.3 From growth diagnostics to a methodology or employment diagnostics . . . . . 12

4 Implementing an Employment Diagnostic Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4.1 Implementation model A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4.2 Implementation model B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

CHAPTER TWO: The frst phase o the analysis:Understanding the dynamics o employment, the labour market and the economy. . . . 17

1 Demographic structure and its dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1.1 Population: Age and sex composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1.2. Migration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2 Labour orce characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.1 Working age population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.2 Labour orce participation: Employment and unemployment . . . . . . . . . . . . . . . . 22

2.3 Inormal employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3 Development o the human resource base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.1 The qualitative aspects o human resources: Education and skills, health

and employability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


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3.2 Investment in human resources development . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

4 Income inequality and poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.1 Income inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.2 Poverty and the working poor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

5 Economic and employment growth: Patterns and dynamics . . . . . . . . . . . . . . . . . . . . 32

5.1 Sector composition and growth dynamics o employment and GDP . . . . . . . . . . 34

5.2 Wages and returns to labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6 Setting targets or productive employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6.2 The methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6.2.1 Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6.2.2 Methodological approaches to measuring working poverty . . . . . . . . . . . . 416.3 What targets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

6.4 Linking targets to the employment diagnostic analysis. . . . . . . . . . . . . . . . . . . . . 42

CHAPTER THREE: The second phase o the analysis

The joint employment diagnostic analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

The participatory workshop approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

1 Productive resources/employability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

1.1 Human resources development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

1.2 Investments in human resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

1.3 Access to land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2 The rate and quality o economic development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

2.1 Integration in global economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

2.1.1 Degree o integration in global economic structure . . . . . . . . . . . . . . . . . . 56

2.1.2 Terms o integration in global economic structures . . . . . . . . . . . . . . . . . . 57

2.2 Cost o nance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

2.2.1 Access to international nance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

2.2.2 Availability/access to local nance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

2.2.3 Financial intermediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

2.3 Social returns to investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

2.4 Macroeconomic policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

2.4.1 Macroeconomic (in)stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

2.4.2 Macroeconomic policies impairing / aiding growth . . . . . . . . . . . . . . . . . . 60

2.5 Market ailures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

2.6 Sector composition o growth and technology . . . . . . . . . . . . . . . . . . . . . . . . . . 61

2.7 Quality o business environment / institutional actors. . . . . . . . . . . . . . . . . . . . . 62

2.8 Rent extraction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

2.9 Labour market institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63


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2.10 Regional concentration o economic growth . . . . . . . . . . . . . . . . . . . . . . . 63

2.11 Social protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

3 Inequality: Forms and causes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

3.1 Unequal employability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

3.1.1 Education and skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

3.1.2 Health and nutrition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

3.1.3 Access to production actors other than labour . . . . . . . . . . . . . . . . . . . . . 67

3.2 Inequality o access to labour market and opportunities . . . . . . . . . . . . . . . . . . . 67

3.2.1 Geographical, occupational and social mobility . . . . . . . . . . . . . . . . . . . . . 68

3.2.2 Functioning o labour markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

3.2.3 Business environment or the working poor and unemployed . . . . . . . . . . 68

3.3 Unequal availability to work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

4 Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

4.1 Environmental sustainability / climate change. . . . . . . . . . . . . . . . . . . . . . . . . . . 70

4.2 Investment in the young . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Annex 1. Example o a workshop agenda

(Nusa Tenggara Timur, Indonesia, January 2011). . . . . . . . . . . . . . . . . . . . . . . 75

Reerences, key tools and data sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

ListoftabLes

Table 1 Labour orce characteristics by sex, Indonesia, 2010. In millions,

except when stated otherwise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Table 2 Share o inormally employed as a percentage o total employed by education

attainment level, NTT, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Table 3 Inormal employment as a percentage o total employment by sector,

NTT, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Table 4 Education attainment rates in Bosnia and Herzegovina, 2009. Percentages . . . . . 27

Table 5 Labour orce characteristics in BiH by level o education as a percentage

o the working-age population (15+) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Table 6 Labour orce and poor people by sector and labour market status, Maluku,

Indonesia, 2009. Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Table 7 Contributions o sectors to GDP and employment, Maluku, Indonesia,

2002/2010. Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Table 8 Contribution o sectors to growth in GDP and employment, Maluku, Indonesia,

2002-2010. Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Table 9 Productivity growth and employment elasticity by sectors, Maluku, Indonesia,

2002-2010. Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


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Table 10 Estimates o productive employment and o the nature o the decit

o productive employment in Mongolia, 2008. In thousands . . . . . . . . . . . . . . . 44

Table 11 Estimates o productive employment and o the nature o the decit

o productive employment in Mongolia, 2008. Percentages . . . . . . . . . . . . . . . . 44Table 12 Change in labour orce in Mongolia, 2008-2015. . . . . . . . . . . . . . . . . . . . . . . . . 45

Table 13 Poverty incidence by characteristics o head o household and location

in Mongolia, 2007-2008. Percentages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Listoffigures

Figure A Population pyramid, Maluku, Indonesia, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure B Population pyramid, East Java, Indonesia, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . 20

Figure C Labour orce status o working age population diagram. . . . . . . . . . . . . . . . . . . 23

Figure D Inormal employment as percentage o total employment, NTT and Indonesia,2004/2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Figure E Labour market participation by the education attainment levels in BiH, 2009.

Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Figure F Provincial GDP and employment growth index, Maluku, Indonesia. 2002-2010

(2002=100) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Figure G Decomposition o the labour orce rom a poverty perspective diagram . . . . . . . 40

Figure H The employment diagnostic reerence tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Figure I The employment diagnostic reerence tree in Nusa Tenggara Timur (NTT),

Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

boxes

Box 1 Key labour orce denitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Box 2 Calculating labour orce indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Box 3 Calculating productivity and productivity growth . . . . . . . . . . . . . . . . . . . . . . . 38

Box 4 The workshop approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Box 5 The workshop approach applied in NTT, Indonesia: . . . . . . . . . . . . . . . . . . . . . 52

Box 6 Example o questions or group work in NTT: Productive resources . . . . . . . . . 54

Box 7 Some ndings rom group work presentations: Productive resources . . . . . . . . 54

Box 8 The workshop approach applied in NTT, Indonesia: The rate and quality

o economic development session summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Box 9 Some ndings rom group work presentations in NTT: The rate and quality

o economic development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Box 10 Results o group discussions on the subject o Inequality in NTT, Indonesia . . . 69

Box 11 Examples o conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71


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Abbreviations

BAPPEDA Regional Body or Planning and Development

BiH Bosnia and Herzegovina

BPS Central Bureau o Statistics o Indonesia

DySAM Dynamic Social Accounting Matrix

EDA Employment Diagnostic Analysis

GDP Gross Domestic ProductHBS Household Budget Survey

ICLS International Conerence o Labour Statisticians

ILO International Labour Organization

LF Labour Force

LFP Labour Force Participation

LFS Labour Force Survey

MDGs Millennium Development Goals

NA National Accounts

NTT Nusa Tenggara Timur Province o Indonesia

PREMPR Poverty Reduction and Economic Management, Poverty Reduction Group

SAKERNAS Indonesian National Labour Force Survey

SUSENAS Indonesian National Socio-economic Survey

WB World Bank

WDI World Development Indicators


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CHAPTER ONE:Conceptual and methodological considerations

1. introductionandgeneraLconsiderations

The purpose o the present guide is to provide a tool or context-specic analysis o the dynamics

and characteristics o employment and to identiy and understand the causes behind the main

constraints and challenges, as well as opportunities or increasing productive employment in an

inclusive and sustainable manner. It aims to provide a tool:

That allows or the combination o a broad-based approach with ocus and depth in the nalanalysis

where the country specic situation serves as a starting point and basis or the analysis, and

which acilitates a highly participative orm o analysis and the combination o in-depth knowl-

edge o the local situation with sound theoretical and generic knowledge

A main target group or the guide is the ILO constituents governments and social partners who

in various capacities play a central role in designing and implementing policies and interventions

where productive employment and decent work is a main objective. It is our hope that ILO sta

and others with a proessional interest in employment will also nd the guide useul.

In general terms, the objective o diagnostic analysis or inclusive and job-rich growth, hereater

reerred to as employment diagnostics, is to understand the nature o the deciency o productive

employment and to identiy the constraints on and opportunities or enhancing inclusive job-rich

growth. The analysis is to provide a sound knowledge base or eective policies, institutional

reorms and other interventions aimed at reducing the deciency o productive employment.

The most important role o employment diagnostics is as an instrument or the broad-based

charting and understanding o the country specifc landscape o employment and economic

development; or a frst diagnosis o where the main constraints, challenges and opportunities

or enhancing inclusive job-rich growth are to be ound. Through a well-structured process o

deduction and elimination it aims to identiy the issues that require priority attention in order

to enhance productive employment and to reach established employment targets. A related

important role is as an aid to narrowing down the ocus or any urther in-depth analysis and

providing a context specifc basis or subsequent thematic analysis. Pursuing the parallel with

pathology (where the concept has its origin), it is as a tool or the general practitioner to make

a diagnosis beore remitting the patient to more specialised analysis and care that employment

diagnostic analysis has its most clear-cut role. It precedes, provides the basis or and needs to

be complemented by, orward looking analyses and development policies1 aimed at guiding

structural change onto a path o inclusive and sustainable job-rich growth.

The present guide consists o three main chapters. Chapter One lays down the conceptual rame-

work. Chapters Two and Three provide a detailed guide on how an employment diagnostic

analysis can be undertaken.

1 Which are likely to require a strategic combination o human resources development, economic, industrial and other

policies.


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2

1.1. DefininginclusiveanDproDuctiveemployment

In headcount terms, deciency o productive employment at a given point in time can be quanti-

ed and dened as the sum o unemployed and working poor.2 In other words, the decit o

productive employment consists o those who are in the labour orce, but do not have productive

employment. Achieving ull and productive employment, which is a Millennium Development

Goal Target, requires the elimination o this decit.3 The working poor may be urther categorised

according to the proximate causes and expressions o the inadequate returns to labour:4

Underemployment

Open underemployment; those working less than ull-time, but who would like to work

more hours, and whose income is insucient to permit an escape rom poverty

Disguised underemployment; those working ull time but at a low intensity, within an

institutional ramework that permits both work sharing and income sharing

Low returns to labour

Those working or low returns to labour, as wage workers or own account entrepreneurs,

because they have to compete with potential entrants (a pool o surplus labour), who have

a very low reservation wage thesurplus laboursyndrome

Those working with poor skills, poor technology and/or inadequate complementary actors

(e.g. capital and/or land) the low productivitysyndrome

Those suering rom adverse terms o tradebecause o either low product prices or high

input costs or both the adverse terms o trade syndrome

The proximate causes behind deciencies in productive employment are obviously not mutually

exclusive, but may come in a large variety o combinations.

The objective is thus to reduce the deciency o productive employment and decent work, withthe ultimate aim o eliminating it, through quantitative increases and qualitative improvements in

employment. The relative emphasis on the quantitative versus qualitative aspects depends on the

nature o the proximate causes and expressions o the deciency o productive employment and

on the growth rate o the labour orce.

2. theconceptuaLframework

The undamental importance o human resources and employment to economic growth and to

increased material well-being and reedom rom poverty stems rom two considerations:

Employment and income derived rom employment (sel-employment or wage employment)are the most important links between economic growth on the one hand and increased mate-

rial well-being and reedom rom poverty on the other hand

Human resources and their deployment in the pursuit o economic gain in the orm o produc-

tive employment are a key actor in the production and achievement o sustainable economic

development

2 The working poor are dened as employed persons living in a household whose members are estimated to be below

the nationally dened poverty line.

3 MDG Target 1B is ormulated as To achieve ull and productive employment and decent work or all, including women

and young people. For a guide to measuring and setting targets or productive employment, seeUnderstanding decits o

productive employment and setting targets: A methodological guide(Geneva: ILO, Employment Sector, 2012).4 See Siddiqur Osmani in Exploring the Employment Nexus: The Analytics o Pro-Poor Growth in Rizwanul Islam

Fighting Poverty: The Development Employment Link(Boulder, CO & London: Lynne Rienner, 2006).


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Chapter One: Conceptual and methodological considerations

Human resources also determine the pace at which productive transormation in the orm

o structural change, absorption o new technologies and the mode o production can be

achieved. An important dimension o a societys capability to achieve sustained economic

development resides with human resources5

For the vast majority o people and households, returns to own labour are by ar the most important

source o income. Returns to capital and rents obtained rom land or other sources do not provide

a main source o income or most people. Public cash transers can and should provide a crucial

orm o sustenance or the most vulnerable and can play an important role in redistributing income

across households and individuals in a society, but should have a complementary role to income

rom labour. Indeed, the undamental importance o productive employment and decent work to

the elimination o poverty, explicitly recognised by the international community as achievement o

ull and productive employment and decent work or all, including women and young people, was

adopted in 2007 as a third target with the overriding goal o eradicating extreme poverty and hunger.

Sustained, high levels o investment in human resources in the orm o education, health etc. are an absolute prerequisite or achieving high levels o sustainable economic development.6

Viewing human resources as a creator o growth through productive employment and decent

work, rather than productive employment as an outcome o growth.

The traditional analytical approach has typically ocused on growth per se, as economic growth

has tended to be seen not only as a prerequisite, but as a more or less sucient condition or gen-

erating productive employment and reducing poverty. Standard growth models tend to assume

ull or near-ull employment as a state o market equilibrium and to ascribe deviations rom this

norm to market ailures. Indeed, even economic analysis aimed at poverty reduction has tended

to ocus on growth to the point where productive employment has been treated as a residual out-

come, and an implicit standard trickle down assumption, sometimes complemented by assump-

tions o redistribution policies and basic social security, has de acto been the reigning paradigm.

An alternative and arguably more conducive and logical approach, is to view human resources

and the labour orce not primarily as beneciaries o growth, but as creators o growth. Just as

increases in employment and in labour productivity combined, by denition, make up economic

growth, investments in a qualitative development o human resources, together with improved

opportunities to maximise and enhance the economic returns to these resources make up the

oundation and essence o job-rich growth. On moral as well as eciency grounds two additional

considerations need to be added to the conceptual ramework: inclusiveness and sustainability.

A ocus on inclusiveness is particularly important rom the perspective o increasing productive

employment, as this requires a special ocus on the working poor and the unemployed.

Hence, the human resource base provides the point o departure or understanding and address-

ing the constraints, challenges and opportunities or inclusive and sustainable job-rich growth.

The outcome, in terms o the sustainable generation o productive employment and in the reduc-

tion o the number o working poor and unemployed in an economy, can be seen as a result o

the combined impact o our categories o actors:

The supply side. The human resource base, i.e. the rate o growth o the labour orce and the

qualitative level, structure and characteristics o the human resource base, e.g. the structure o

5 Irmgard Nbler,Industrial policies and capabilities or catching up: Frameworks and paradigms, Employment Work-

ing Paper No. 77 (Geneva: ILO, 2011).6 Commission on Growth and Development,The Growth Report: Strategies or Sustained Growth and Inclusive Develop-

ment(Washington D.C.: The World Bank, 2008).


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4

educational and skills attainment, health status. In the medium to long term the institutional ca-

pacity to develop human resources the societal capability needs to be brought into the picture

The demand side. Opportunities or / returns to employment, which in turn requires a ocus

on the rate and the quality o economic growth rom an employment perspective. In the shortterm, the level o employment (labour utilisation rate) is determined by the level and composi-

tion o aggregate demand. The growth o the potential or employment is largely determined

by private and public investments. Public policy can oster growth in the medium and long

term, while in the short term it can ensure that the potential output is realised

Equality and inclusiveness. The equity aspects o the supply side and the demand side

(above). This includes equality in access to quality education, health care and other important

aspects o human resources development and employability.7 Equality in access to other pro-

duction actors, such as land and capital is also important. It also includes equal and air access

to employment and to economic opportunities

Thesustainabilityo the present trajectory o job-rich growth and the sustainability consider-ations o alternative, uture trajectories. That is, the extent to which present job-rich inclusive

growth is achieved in a manner that does not compromise the possibility or the coming

generation(s) to access productive employment

2.1. thehumanresourcebase

Investments in the health, knowledge, and skills o the people human resources base are as

important (or growth) as investments in the more visible, physical capital o the country. 8 The

qualitative attributes that determine employability9 education, skills, health, cognitive abilities

etc. set the parameters or individuals ability to access productive employment as well as or

the scope or technological advancement, increased labour productivity and returns to labour atthe aggregate national level.

There is a strong interrelationship between human resource development and economic develop-

ment. Economic resources are needed or investing in education, health and other orms o human

resource development at the same time as the qualitative level and characteristics o the human

resource base set limits or both the pace and pattern o economic development. The long lead

times required or investments in human resources development imply a need or strategic long

term planning and provide grounds or policy-guided structural change and economic develop-

ment. Hence, the need or investments in human resources will need to be cast against the desired

uture development trajectory.

I the economy is not in a position to oer employment opportunities at parwith the capabilities

and productive capacities o the labour orce, then labour is likely to migrate abroad attracted by

better opportunities elsewhere. Conversely, inadequate levels o human development may impose

a truly binding constraint on economic development. For instance, a high share o workers with

7 Employability reers to the endowments o the labour orce with qualitative attributes that enhance a persons attrac-

tiveness on the labour market, their capabilities as independent economic agents and their productivity.

8 Commission on Growth and Development,The Growth Report: Strategies or Sustained Growth and Inclusive Develop-

ment(Washington D.C.: The World Bank, 2008) p.37.

9 The concept o employability is interpreted to reer to the combined qualitative attributes (education, skills, health

etc.) that determines/sets the limits or a persons capability to be economically productive/to get maximum returns or

her/his own labour. Although employability inevitably contains an element o context specicity, it should not be con-used with opportunities to make ull and optimal use o one's resources, which may be constrained by a poor economy,

institutional actors, discrimination, lack o basic security etc.


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only primary education may suce to attract FDI in low technology sectors, but may act as a

binding constraint on entering into high-tech activities.

An assessment o the human resource base rom the perspective o employability and productive

capabilities needs to be context specic. However, because o the long gestation periods suchassessments should not only be cast against the present characteristics o the economy, but also

against the desired development trajectory o the economy. Furthermore, assessments need to be

made o both the level and characteristics o the stock o human resources and the investments

and institutional capacity to invest in human resources, viz. the institutional systems or education

and vocational training, health care systems etc.

2.2. opportunitiesforanDreturnstohumanresourcesthrough

proDuctiveemployment

The opportunities or and returns to productive employment depend on the combined impact and

the interaction o three types o actors.10

The quantitative economic growth actor: The rate o economic growth as measured by (per

capita) GDP

The qualitative growth actor: The qualitative aspects o growth pertain to the eciency by

which the growth is translated into more productive employment, i.e. more employment and/

orhigher returns to labour, in a sustainable manner.11 In other words, the larger the weight o

labour (as a production actor) and returns to labour in GDP and GDP growth, the higher the

quality o economic growth rom the perspective o productive employment

The equality actor: Dierences and inequality with regard to employability and access to

productive employment opportunities. The extent to which the working poor and the unem-

ployed have the necessary resources, opportunities and protection against vulnerability to beable to participate ully, and on an equal ooting, in the economic development process and

ully benet rom the ruits o their participation in this development

2.2.1. ThequanTiTaTivegrowThfacTor

A dynamic economic environment is essential or generating opportunities or productive em-

ployment. Hence, growth diagnostics need to be an integral component o the demand side o

employment diagnostics. A great deal o eort has been devoted over the years to understand-

ing the triggers and ingredients o growth. This generation o knowledge has not always been

cumulative. Indeed, the past ew decades have seen a variety o quite diverse schools o thought

succeeding each other as the dogma o the day. The Commission o Growth established in the

context o a progressive erosion o the dominance o the Washington Consensus12 and in the

wake o a soul-searching retrospective assessment by the World Bank13 provides an authoritative

10 This discussion draws heavily on earlier conceptual work done by Rizwanul Islam and by Siddiqur Osmaniop. cit.

pp. 12-13.

11 It should be noted that the eciency concept used is broader than the standard denition o employment elasticity

which reers to the relationship between the growth o GDP and the growth o employment in quantitative terms. A

distinction is made between sustainability in the medium term and in the long term. The latter is treated as a separate

consideration (below).

12 See or instance Dani Rodrik, Goodbye Washington Consensus, Hello Washington Conusion? A Review o the World

Banks Economic Growth in the 1990s: Learning rom a Decade o Reorm inJournal o Economic Literature, vol. 44,no. 4 (December 2006).

13 World Bank,Economic Growth in the 1990s: Learning rom a Decade o Reorm (Washington D.C.: World Bank, 2005).


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6

synthesis o what we know (and do not know) about how high rates o growth can be achieved

and sustained.14 For the purpose o employment diagnostics the ndings and conclusions o this

report provide a useul basis or understanding the growth actor.15 While stressing that there is no

blueprint or achieving sustained growth, the Commission did identiy a number o shared char-acteristics o countries that have managed to sustain a high level o growth over several decades.

These included:

Engagement with the global economy as a source o demand and knowledge

Macroeconomic stability

High levels o savings and public and private investments, including high levels o public

investment in human resources and in physical inrastructure

The quality o the business environment

Reliance on markets or resource allocation and continuing structural transormation, ostering

fexibility and resource mobility

Credible government commitment to inclusive growth combined with capable administration

2.2.2. ThequaliTaTivegrowThfacTor

As dened above, the quality o growth essentially hinges on the use o and returns to labour in

the creation o value added in the economy. In other words, it depends on the relative weight o

use and returns to labour as against the use o and returns to other production actors, such as

capital, land, material property and extraction o rents in various orms. This, in its turn, will be

infuenced by and warrants a ocus on several important eatures o the growth process, such as:16

The sectoral composition o growth and choices o technology

The domestic terms o trade, i.e. the extent to which movements in the domestic terms o trade

avour or disavour the employment intensive sectors o the economy17

The prevalence o various orms o rent-seeking

Wage bargaining power

Regional concentration o growth

Social protection

The eciency by which growth translates into the generation o productive employment is infu-

enced by the sector composition and product-mix. In a situation o ree trade and open econo-

mies one might expect that the law on comparative advantages would compel a labour abundant

economy to specialize in products and services with a high labour content. There are a number o

reasons why this may not take place; such as market imperections at the global and national level,

policy distortions avouring capital over labour, a large share o non-tradables in the economy,unequal land distribution, poor inrastructure and, not least poor employability and/or restricted

labour market access o parts o the labour orce. Hence, one should not assume that internal and

external liberalisation o the economy will automatically result in adequate improvements in the

demand or labour.

14 Commission on Growth and Development,The Growth Report: Strategies or Sustained Growth and Inclusive Develop-

ment(Washington D.C.: The World Bank, 2008).

15 This should not be interpreted as an unreserved endorsement o the Report. For a critical review see comments by

Jos Manuel Salazar-Xirinachs.

16 For a discussion o the rst three o these, see Siddiqur Osmani,op.cit. pp. 15-17.

17 Strictly speaking it is not just the labour intensity o the sector in question that matters, but the labour intensity o thesectors providing inputs into the sector in question, that is the entire value added chain, should also need to be brought

into the equation.


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The sector composition also has a strong bearing on the sustainability o growth. A broad eco-

nomic and export base where tradables play the predominant role as growth engine is generally

perceived as a prerequisite or sustaining a high rate o economic growth. Economic growth that

is driven by non-tradables tends to be sel-limiting, as does growth that is based on the exporto raw materials. Excessive reliance on natural resources as a source o growth and export oten

leads to a resource curse where volatility, a crowding out o the private sector, rent-seeking and

exchange rate appreciation undermine the prospects or sustained and inclusive job-rich growth.

Technology choice is closely linked to the product mix and sector composition. Stringent require-

ments with regard to standardisation and detailed product specication, not least in the OECD

countries, and a demand or both uniorm and high quality are some o the actors imposing

restrictions on the choice o technology in the production o tradeables. However, even within

these connes there may be scope or the use o alternative technology that is better in tune with

a countrys relative endowment o capital and labour. Within the non-tradeable sectors the scope

or technology choice is likely to be much less restricted. The HIMO (Haute Intensit de Main-

duvre) initiative, providing labour intensive alternatives or the construction o public physical

inrastructure, clearly shows that there may indeed be a large scope or selecting more labour

intensive technologies.

Extraction o rents can take a variety o orms, many o which are legal as well as taxable (viz. rent

generation) while others are illegal, such as most orms o rent seeking18 Rent generation typically

reers to economic benets obtained rom control over nite resources or a monopoly position.

Land rents extracted by land owners rom tenants are a classic type o rent extraction, as are ex-

cessive prots19 derived rom control over natural resources. Generation o rents can also take the

orm o excess prots derived rom a monopoly situation which may be due to control over im-

material property rights or other circumstances. Rent seeking is oten associated with corruption,

i.e. the dishonest abuse o power or personal gain. Inormal and non-authorised ees levied bygovernment ocials and other public servants are a case in point, but it may also take other orms,

such as protection rackets or excessively high ees charged by middlemen on labour migrants.

Belonging to the weakest groups in the labour market, the working poor are arguably particularly

exposed to various orms o rent seeking as they tend to be the underdogs in any power relation-

ship. Some orms o rent seeking do not only aect the employment content o growth negatively,

but can also signicantly impair the rate o growth as well as labour market access.

More broadly, the quality o the business environment, or the investment climate, exerts an in-

fuence both over the rate and the quality o economic development. A wide variety o actors

are subsumed within this concept, such as the legal and regulatory environment, the quality o

governance and political stability. Much work has been put into measuring the quality o the busi-ness environment, which has resulted in a number o dierent sets o indicators and composite

indices.20 The methodology and indicators developed by ILO to analyse the environment or

sustainable enterprises also captures the essence o the business environment, as well as a range

o other aspects.21

18 Economic rent is dened as an excess distribution to any actor in a production process above the amount required

to draw the actor into the process or to sustain the current use o the actor.

19 Excess prots are prots above what the rm would need to pursue its activities.

20 See or example the Doing Business survey by IFC (www.doingbusiness.org), World BankInvestment Climate As-

sessments (www.wbginvestmentclimate.org) and the Global Competitiveness Reportsproduced by the World Economic

Forum.21 www.ilo.org/employment. See also International Labour Conerence, June 2007, Conclusions concerning the promo-

tion o sustainable enterprises (Geneva: International Labour Oce).


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8

The institutional structure o the labour market also has a strong bearing on the employment

intensity o growth. Asymmetric power relationships in the labour market tend to work to the

detriment o workers and not least the working poor as they are oten in a very weak bargaining

position. Respect or the principles o collective bargaining and unionisation o workers can helpovercome the asymmetry in power relationships and enhance the returns to labour in the orm o

higher wages. The organisation o workers in trade unions can also help protect against intimida-

tion and discrimination at the work place. Minimum wages, i judiciously determined and labour

regulations may also serve as instruments or enhancing the employment content o growth and

the ecacy by which growth results in increased productive employment and reduction in the

number o working poor.

Regional concentration o growth, or more generally, the regional distribution o economic ac-

tivities and productive employment opportunities, has implications or the quality o economic

development rom an employment perspective. Labour is not perectly mobile. Moving rom one

place or part o the country to another is usually associated with high economic and social costs,and oten also with considerable risks. A regional concentration o growth arguably reduces the

quality o economic growth as well as increases inequality o opportunity. It implies that human

resources in economically deprived areas remain underutilised. Workers will typically ace the

choice o low quality jobs or unemployment, unless they are willing and able to assume the costs

and risks o relocation to the main centre(s) o economic growth.

Social protection matters to the quality o economic growth or a number o reasons. A social pro-

tection foor oers protection against unacceptably low returns to labour as it raises the minimum

wage or which a worker is prepared to work (the so called reservation wage). It also acilitates

mobility o labour. Moving rom one job to another requires a certain amount o risk-taking,

particularly when the jobs are ar apart. Social protection makes it possible or workers to assume

a calculated risk that they would otherwise not be able to aord.

2.3. theequalityfactor

Sustained economic growth always entails structural change. The sectors, occupations and geo-

graphical areas with the greatest potential or growth change over time, but they seldom coincide

with those where the majority o the working poor are to be ound. For the working poor to be

able to access opportunities oered by growth andstructural change they must be suciently

endowed with the actors that determine employability, they must be suciently mobile and they

must enjoy a basic economic and social security that allows them to take calculated risks. Revers-

ing inequality may be particularly dicult in situations where it is entrenched and has resultedin social value systems characterised by a high tolerance o inequality among the elite. Inequality

o resource endowment and o opportunities and a lack o basic security to permit calculated

risk-taking not only constrain the inclusiveness o economic development, but also undermine its

robustness and pace inter alia through inecient resource use.

At the most basic level, the capabilities employability proles o the working poor and unem-

ployed must meet the requirements o emerging and existing opportunities or productive employ-

ment. However, there are also a large number o other actors that may limit the opportunities o

the working poor and unemployed to access productive employment opportunities, even when

employabilityper seis no hindrance. Poorly unctioning markets, not least credit markets, corrup-

tion and illegitimate orms o rent seeking tend to discriminate against the working poor in theirrole as entrepreneurs, thus unduly reducing their competitiveness and returns to labour. In certain

situations labour market institutions may create insider outsider problems. Poor geographic,


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vocational and social mobility may prevent the working poor and unemployed moving to more

dynamic areas o the country and sectors o the economy. Cultural and social stereotypes may

result in a ragmentation o the labour market along gender, ethnic or other lines, thus conning

large parts o the labour orce to specic segments o the labour market. A society that severelyconstrains the access o women to productive employment opportunities, will not only see higher

inequality, but also lower growth and a lower employment content o growth than a society that

oers equal opportunity. An inordinate burden o reproductive work may also limit womens ability

to engage in economically productive work. The list o possible inhibiting actors is long. Indeed,

most o the actors that infuence the development o the human resource base and the rate and

quality o economic development, discussed above, also have important equity dimensions.

Poor employability, access and lack o basic security lead to unemployment and/or working

poverty. It leads to an expansion o the ranks o unemployed and discouraged workers and

orces people into vulnerable orms o employment and involuntary sel-employment. For the

sel-employed, it restricts their room or manoeuvre and results in low productivity, which is oten

combined with long working hours under precarious conditions.

2.4. theissueofsustainability

Promoting inclusive and productive employment at present must be done in a manner that does

not compromise the possibilities or the coming generation(s) to access productive employment.

Productive employment, much like growth, needs to be sustainable. Policies aimed at achieving

inclusive and productive employment need to take the legitimate rights and interests o uture

generations, as well as those o the present, into account. Three broad groups o aspects pertain-

ing to sustainability deserve to be singled out: environmental aspects, investments in the young

and climate change. The importance o saeguards against environmental degradation and deple-tion o the natural resource base is so obvious that it ought not to need any elaborate justication.

The well-being o uture generations will crucially depend on their ability to benet rom the

same ecosystem services that we do. Long term investment in the young to ensure that the next

generation obtains a human resources endowment and a level o employability that makes them

attractive to the labour market o tomorrow and permits them to access productive employment is

another core aspect o sustainability. In view o the increasing evidence that the impact o climate

change on economies and livelihoods will be both pervasive and rapid, exposure to the impact

o climate change and measures taken to adapt to these should arguably be included as a third

key aspect o sustainability.

2.5. someaDDitionalconsiDerations

While the categories and types o actors determining outcome in terms o generation o produc-

tive employment discussed above have considerable explanatory power, a static review o them

would leave some issues unaddressed. The quantitative and qualitative aspects o growth and

employability and access actors exert considerable infuence on each other, as does economic

growth or investments in the human resource base. Hence, a purely static analysis will not suce,

but the interrelationship between the dierent actors and the dynamics this creates also need

to be understood. This also implies that the qualitative and quantitative aspects o growth need

to be analysed jointly and that this combined growth analysis should not only inorm but also

be inormed by an analysis o the employability, access and sustainability actors. Similarly, theinterplay between the qualitative development over time o the human resource base and the rate

and characteristics o economic development needs to be understood as ar as possible. As will


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be elaborated urther below, this is also one argument or a stepwise analysis that proceeds rom

the general to the more specic.

The concept implicitly assumes a labour market conned by the borders o the country in ques-

tion, i.e. the labour market equivalent o a closed economy. Relaxing this constraint by allowingor cross-border movement o labour, which de acto is a major and increasing phenomenon in

many countries, can change the picture signicantly. The working poor and unemployed are

no longer limited to aspiring to the productive employment opportunities on oer at home, but

i attracted by prospects o better employment and income opportunities elsewhere they may

choose to invest their labour abroad.22 At the same time the domestic labour orce, and not least

the working poor, may ace increased competition on the domestic labour market rom migrant

workers arriving rom other countries.23

3. fromconcepttomethodoLogy

The above ramework helps us understand how employment outcomes result rom the interplay

o dierent types o actors and thus helps us structure an employment diagnostic. However, while

it does give guidance on what to analyse, it does not answer the question o how to do it.

3.1. mainconsiDerations

A main consideration in the design o the methodology has been that participation by the end

users, that is ILO constituents and other policy-makers, is crucial to the result. Those responsible

or designing and implementing policies should also play an active role in the analysis leading

up to the identication o the constraints and challenges that need to be addressed and the op-portunities and strengths that may be exploited. Involving the stakeholders in the analysis is es-

sential or achieving impact; in order to orge a strong link rom analysis to policy design to policy

implementation. Another compelling reason or a close involvement o the ILO constituents in

the analysis has to do with quality and relevance. Combining the theoretical and methodological

knowledge and an outsiders perspectives with the detailed situation-specic knowledge o local

ILO constituents provide the best basis or achieving a high quality and policy-relevant analysis.

The need or close involvement o the ILO constituents in the analytical process has been a

guiding principle in the design o the methodology. It calls or a structured, stepwise knowledge

building process with a clearly dened modality or involvement o the ILO constituents in the di-

erent stages o the analysis. To this end, the methodology outlined below has two distinct phases.

The rst phase aims at arriving at a common understanding owhat has happened and includes

an analysis o the characteristics and development o the labour orce, the economy and the

22 Despite the oten very high costs and risks involved and the total absence o anything resembling a ree movement

o labour, the number o overseas labour migrant is estimated to have increased rom 156 million in 2000 to 214 million

in 2010 (http://esa.un.org/migration). Ocially recorded remittances by international migrants are estimated to have in-

creased rom 132 billion USD in 2000 to 338 billion USD in 2009 (World Bank Migration and Development Brie [April 23,

2010] Outlook or Remittances Flows 2010-11[http://econ.worldbanik.org]).

23 For statistical purposes migrant workers are included in the labour orce o their country o origin i they are residing

or expected to reside less than a year abroad. I their stay abroad exceeds one year they are included in the labour orce

o the country o destination. In practice, it is oten dicult to distinguish between short term and long term migrant

workers. In countries with large in and/or out fows o migrant labour a special eort is needed to incorporate this aspectinto the analysis. For a comprehensive treatment o migrant workers rom an ILO perspective, seeReport VI, Towards a

air deal or migrant workers in the global economy, International Labour Conerence, 92nd Session (Geneva: ILO, 2004).


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labour market and o the interaction between economic development, the labour market, em-

ployment, incomes and poverty. The methodology applied in this phase is presented in detail in

Chapter Two, below.

The second phase ocuses on why and consists o a comprehensive employment diagnostic anal-ysis aimed at exploring causal chains and identiying key constraints and challenges to increasing

productive employment. The second phase is ideally done by the ILO constituents themselves

during an analytical workshop. To this end, a methodology based on a well-structured, stepwise

diagnostic approach has been developed (see Chapter Three, below).

3.2. takingthegrowthDiagnosticapproachasastartingpoint

The development o an analytical and conceptual ramework or growth diagnostics by Hausmann,

Rodrik and Velasco has had a major impact on growth analysis.24 Inspired by medical science, it

combines a binding constraint approach25 with the use o a decision tree as tools or disentanglingcausal chains and identiying the undamental, rather than proximate, constraints on growth.

The growth diagnostics approach has a number o attractive eatures:

The unnel-shaped step-by-step approach acilitates a combination o breadth and depth in the

analysis and the highly structured nature o the analysis makes it ideally suited to a participatory

approach, not least because it provides methodological rigour to a discussion-based analysis

The ocus is on understanding causal links and identiying core actors, rather than on address-

ing symptoms and proximate causes. The use o the decision tree acilitates, indeed compels,

such a ocus

It requires situation-specic analysis and results in country-specic conclusions. The approach

does not lend itsel to stereotype prescriptions or a narrow ex ante ocus Its ocus on identiying the key constraints and challenges to productive employment creation

makes it an eective tool or prioritisation and sequencing o policies and reorms

However, the approach also has limits and weaknesses. The most undamental o these arguably

has to do with the limits o the parallels between pathology and economics and the appropriate-

ness o a wholesale adoption o an analytical method designed or pathology on the economics.

Physical health may be seen as a normal state. Deviation rom this state in the orm o illness is

due to one or several causes. Once these causes have been identied and removed it may be

expected that health will be restored. By contrast, sustained and inclusive job-rich economic

development can hardly be characterised as a natural state. Indeed, history has proven it to be

the exception rather than the rule. The reasoning that the absence o high and inclusive growthis due to one or at most a ew binding constraints (causes o ill health) and that such growth

will be more or less automatically obtained i these constraints are removed thereore begs some

questioning. It may be argued that sustained high rates o inclusive job-rich growth are the result

o a ortuitous combination o a wide variety o actors, the nature and combination o which will

have to vary over time and place. A diagnosis that identies constraints and obstacles will oten

need to be complemented with analyses which ocus on identiying and developing actual and

24 For a detailed presentation o the concept as applied to growth, see Ricardo Hausmann, Dani Rodrik and Andrs

Velasco, Growth Diagnostics, John F. Kennedy School o Government, Harvard University (Cambridge, Mass., 2005). For

a more general discussion, see or instance Ricardo Hausmann, Dani Rodrik and Andrs Velasco,Getting the Diagnosis

Right, Finance and DevelopmentVol. 43, No. 1 (Washington D.C.: IMF, 2006).25 A binding constraint (on productive employment) is dened as the constraint that, i relaxed, will boost productive

employment in a given situation.


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potential comparative advantages and strengths, combined with which it should lay the basis or

well-inormed policies or guided structural change and development.

While the growth diagnostic approach provides a ramework or the structured analysis o con-

straints on growth and causal chains, it is in its traditional orm limited to a sorting out o uni-directional causal chains. The decision tree concept is based on an assumption o primary causes,

which in their turn branch down into secondary, tertiary and root causes. Reality is typically more

complex. There are likely to be inter-relationships between branches and not only uni-direction-

ally along branches. The interaction o dierent actors may create vicious circles that prevent the

economy rom generating productive employment and the working poor and unemployed rom

accessing productive employment. An in-depth analysis may thereore require an exploration o

these dynamics, resulting rom horizontal as well as vertical inter-relationships.

Some o the strengths o the approach are at the same time potential weaknesses. Both the bind-

ing constraint concept and the use o a decision tree lend themselves to abuse as well as good

use. The identication o one or a ew binding constraints may indeed be a powerul tool whencorrectly done but, i abused, may be an equally powerul tool or leading policy-makers astray.

While it may be possible to scientically establish clear-cut links between symptoms and causes

and cause and eect in the eld o pathology, such linkages tend to be much more ambiguous

in the eld o economic development. A judicious analysis thereore requires a combination o

sound theoretical knowledge with in-depth context-specic, local knowledge. A strong emphasis

on a participatory analysis is essential or addressing this weakness.

Another important weakness is that the original approach has a strong ocus on the short term; on

identiying present constraints. Hence, there is a risk o losing sight o the sustainability aspects

o growth.

The approach will thereore in most instances need to be combined with an understanding o thedynamic processes and interrelationships that can create vicious as well as virtuous circles. The

First Phase o the analysis is designed to help provide such an understanding.

3.3. fromgrowthDiagnosticstoamethoDologyforemploymentDiagnostics

The arguments or the use o a diagnostic approach aimed at identiying constraints and chal-

lenges, but also opportunities, or inclusive job-rich growth are quite persuasive. Foremost among

these is no doubt the importance o an analytical ramework that is designed to acilitate priori-

tisation and sequencing o policies, reorms and other interventions. Identiying and addressing

constraints and weaknesses are also preconditions or the success o any subsequent policiesaimed at exploiting strengths and comparative advantages.

Relaxing the binding constraint concept. The faws in the analogy between pathology and eco-

nomic growth analysis provide compelling reasons or modication o the binding constraint con-

cept. Firstly, its use should be characterised by a great deal o pragmatism and be inormed by a

clear understanding o its limitations. Its strength lies in identiying prerequisites or inclusive and

productive employment, but not necessarily in coming up with a ully-fedged recipe. Secondly, the

ocus should be on identiying bundles o constraints that can realistically be addressed within a

specic period o time, rather than on identiying thebinding constraint. There may be important

inter-linkages between dierent constraints making it necessary to address several constraints jointly.

Extending the analysis to include more than one binding constraint also reduces the risk o missingimportant actors. Thirdly, some policies and reorms yield results with long time lags. Hence, uture

constraints may need to be addressed today, even though they are not binding at present.


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Recasting the decision tree to make low opportunities or returns to investment in labour/

human resources the point o departure.

As discussed above, in an employment diagnostic analysis the ocus is on enhancing growth and

enhancing the weight o the use o and returns to labour in economic activities and in the growthprocess in an inclusive manner. Hence, the structure o the decision tree needs to be recast to

make constraints on enhancing opportunities or and returns to investments in labour (rather than

nancial capital) the main point o departure.

A pragmatic approach and judicious application. The actors inhibiting the expansion o inclu-

sive job-rich growth are even more diverse and context-specic than those inhibiting growth, and

a decision tree capturing all o these actors thus more complex than that developed or growth

diagnostics. The faws in the analogy between pathology and economic analysis also imply that

such a decision tree tool has to be used judiciously. Its main use is as an instrument or structuring

analysis, but without imposing limits on it. The pitall o arriving at a stereotypical and mechanical

application o an insuciently developed and comprehensive decision tree must also be avoided.To paraphrase Dani Rodrik, a decision tree or employment diagnostics will, even under the best

o circumstances, only provide support or a more systematic and structured application o an

inquisitive, detectives mind-set and or judicious analysis based on a thorough understanding o

the specic situation and on proound knowledge o a more generic nature. For these reasons, it

is better to think in terms o an analytical reerence tree rather than a decision tree and to view

this as one o several analytical tools.

A stepwise analysis. The main strength o the diagnostic methodology is that it permits the inclusion

o a broad array o complex actors into the initial analysis, and oers a method or a systematic nar-

rowing down to a ocus on root causes o constraints on productive employment, through a process

o elimination o less important actors and a disentanglement o causal chains. The shit in ocusrom growth to inclusive and sustainable job-rich growth implies the need to bring a considerably

broader range o actors into the analysis. The importance o the role o the diagnostic methodology,

as a unnel or narrowing down the ocus to a limited number o core actors, is thus heightened. In

order to achieve this and to take account o inter-linkages between the dierent types o actors a

stepwise analysis is needed. A stepwise approach in the analysis is also conducive to dialogue and

to the active involvement o national stakeholders in dierent stages o the work.

Depending on the context and the needs, an employment diagnostic analysis may be undertaken

as a stand-alone exercise. However, it may also be undertaken as a rst component in a more

comprehensive analytical endeavour, which would subsequently involve more in-depth analysis

o the dynamic interaction between dierent actors resulting in vicious or virtuous develop-ment processes and/or analysis o strengths, opportunities and comparative advantages aimed at

inorming industrial or other development policy.

4. impLementingan empLoyment diagnostic anaLysis

The objective o employment diagnostic analysis is to inorm, through a structured knowledge

building process, policies and interventions with a view to enhancing productive employment

through inclusive and job-rich growth. This objective can only be achieved i there is an ac-

tive involvement throughout the knowledge building process o those who will have the mainresponsibility or translating this knowledge into policies and or implementing these policies and

interventions. To this end, it is oten useul to establish a steering committee consisting o key


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national counterparts and experts and to explicitly build in opportunities or consultation in the

implementation plan. Other aspects too, such as the need to ensure the high quality and situation

specic relevance o the analytical work, underscore the need or a participatory process. The

scope or hands-on involvement o the ILO constituents in the actual employment diagnosticanalysis should also be actively sought and exploited. A model or achieving this has been devel-

oped and successully tested and is presented below.

Within the parameters o the imperative o a participatory process, there is scope or a great deal

o fexibility in the mode o implementation. In all instances the starting point will need to be a

broad-based and explicit demand rom the ILO constituents in the country in question. Two pos-

sible modes o implementation, which have both been tested, are presented below.

4.1. implementationmoDel a

1. In-country meetings with constituents and national counterparts to agree on the objective,scope and mode o implementation o the proposed employment diagnostic and targeting

work. At this point it should also be claried what national policy processes - national develop-

ment strategies/PRS, Decent Work Country Programmes, national employment strategies etc.

the work is expected to eed into as well as the implications or the time-rame o the work

2. Establishment o a core analytical team, preerably including national researcher(s), a steering

committee and principles or coordination and communication

3. Implementation o the First Phase o the Employment Diagnostic Analysis: Development and

Employment Dynamics and a rst round (Tour dhorizon) o the Second Phase: A Structured

Diagnostics including the assembly o data on the main indicators

4. Development o estimates o decits in productive employment (disaggregated by working poorand unemployed and by sex) and o projections on the need or productive employment cre-

ation in the years to come, to meet established targets or poverty and unemployment reduction

5. Preparation o background material and presentations or an EDA workshop based on the

methodological guide and the results o the analytical work undertaken under (3) above

6. Holding o a 2 to 3 days EDA workshop with the ILO constituents and counterparts at the

heart o which will be a guided implementation by the participants themselves o a structured,

stepwise employment diagnostic analysis as outlined in Chapter Three o the present guide.

While the ocus o the workshop will be joint knowledge-building on the country specic con-

straints, challenges and opportunities or enhancing inclusive job-rich growth, it can also serve

the purpose o capacity building among our constituents in the eld o employment analysis

and, not least, social dialogue. At the end o the workshop the participants should have arrived

at a common understanding o key employment challenges, based on the joint analysis, and

ideally also on the type o policies needed to address these challenges

7. Discussion and agreement on ollow up-activities, including any urther in-depth analytical work

8. Assistance with policy ormulation

4.2. implementationmoDel b

1. In-country meetings to agree with constituents and national counterparts on the objective,scope and mode o implementation o the proposed employment diagnostic and targeting

work. At this point it should also be claried what national policy processes - national develop-


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ment strategies/PRS, Decent Work Country Programmes, national employment strategies etc.

the work is expected to eed into as well as the implications or the time-rame o the work

2. Establishment o a core analytical team, preerably including national researcher(s), steering

committee and principles or coordination and communication

3. Implementation o the First Phase o the Employment Diagnostic Analysis: Development and

Employment Dynamics

4. Development o estimates o decits in productive employment (disaggregated by working poor

and unemployed and by sex) and o projections on the need or productive employment cre-

ation in the years to come to meet established targets or poverty and unemployment reduction

5. Drating o inception report based on (3) and (4), above

6. In country presentation o inception report and discussion o main ndings and conclusions o

work done under point 3-4, above. Discussion and agreement on the ollow-up work

7. Implementation o the main diagnostic analysis and nalisation o work on employment ore-

casting / targeting

8. Presentation and discussion o ndings and policy conclusions o the main and nal diagnostic

and targeting work. Discussion and agreement on ollow up-activities

9. Assistance with policy ormulation


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CHAPTER TWO:The First Phase o the analysis:Understanding the dynamics o employment, the labour

market and the economy

First phase o the diagnostic analysis methodology includes a broad mapping o the economy and

the labour market, an assessment o its strengths and weaknesses, and a gradual distilling o the

main actors aecting the inclusiveness and job-intensity o growth. Its aim is to arrive at a goodunderstanding o what has happened in terms o the development o the labour market, employ-

ment and economy. It also serves the purpose o providing a projection o the need or productive

employment creation in the years to come.

The rst step is an analysis o the country/regional setting and o contemporary patterns and

dynamics o employment and economic development. At this stage the objective is to achieve an

understanding o the country or region-specic conditions that are suciently comprehensive to

permit a rst broad identication o hypotheses about the development context and employment

situation. This analysis should provide an overview o: (1) demographic and other given actors;

(2) employment and labour orce characteristics; (3) qualitative aspects o the human resource

base; (4) nature o poverty and inequality, and (5) sector-specic economic and employmentgrowth, productivity dynamics. The rst part o the analysis ollows a structure represented by the

ollowing ormula:26

That is:

Gt = St xAt xEt xPt

In other words, changes in GDP per capita can be seen as the sum o changes in the ollowing: Age structure, St

Activity rate,At

Employment rate,Et27

Labour productivity,Pt

Section (6) builds on the knowledge obtained rom the earlier stages o the analysis and includes

estimates o the decit o productive employment and projections o the need or productive

employment in order to achieve targets or reduction o unemployment and poverty. By contrast-

ing the need or productive employment creation in the years to come with dynamics o the

26 The ormula builds on the one presented in The Role o Employment and Labor Income in Shared Growth: What toLook or and How, PREMPR, Jobs and Migration Group, (World Bank, 2007)

27 Note that this is not exactly how employment rate is dened, but it expresses the same inormation

GDPt= x x x

Populationt

WorkingAgePopulationt

Population

LabourForcet

WorkingAgePopulationt

Employmentt

LabourForcet

GDPt

Employmentt


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development o the economy and o employment in the past years, a broad idea o the magnitude

and nature o the challenge o meeting the need or productive employment creation in the years

to come can be obtained.

1. demographicstructureanditsdynamics

The rst part o the development and employment dynamics analysis reviews the main external

orces that serve as parameters or the subsequent analysis. The demographic structure and its

dynamicsis a useul starting point, as it has a strong bearing on both the necessity and the abil-

ity o the economy to generate productive employment. The entry point o the analysis is to get

acquainted with the actors that are given and cannot be easily infuenced or controlled by the

state in the short or medium term, such as the rates o population growth, ertility, age and sex

structure o the population and the age-based dependency ratio28 as well as in- and out-migration.

Data sources: Recent census data; current national demographic statistics. It should be kept in

mind that censuses tend to oer the most reliable source o demographic inormation.

1.1. population: ageanDsexcomposition

The ratio between children and the elderly on the one hand and the working age population

on the other hand determines the age-based dependency ratio, i.e. the number o people each

working age person has to support. The age based dependency ratio has a direct impact on per

capita income, poverty and the number o working poor (as dened by the ILO);29 it also exerts

an infuence on savings and investments not least in human resources. The dierence between the

age-based and actual dependency ratio gives an indication o the scope or improving the depen-

dency ratio by increasing labour orce participation. A distinction should be made between a high

dependency ratio due to a large number o youth in the population and a high dependency ratio

resulting rom a large number o elderly. The demographic structure can be succinctly illustrated

in a orm o a pyramid expressing the age and sex structure o the population. Changes in the

dependency ratio have a direct impact on per capita income and infuence the need or increasing

labour productivity and incomes in order to reduce working poverty. A high dependency ratio

implies that each breadwinner has to support a large number o people and thus needs a higher

income to escape rom poverty than would have been the case with a lower dependency ratio.

The rate o growth o the total population and o the working age population age groups has a

major impact on the need or productive employment and, hence, the subsequent analysis. Thecurrent age structure o the population is a main actor in determining the need or employment

generation new jobs over the next 15-20 year period, the other main actors being the need to

reduce unemployment and working poverty.

28 The age-based dependency ratio can be dened as the total population in the inactive age-groups (typically under

15 and over 65) divided by the total working-age population, typically 15-64. The actual dependency ratio depends also

on the labour orce participation rate o the working age population and can be calculated as (total population the

labour orce) / the labour orce.29 The

employment analysis

Documents