the world bank employment and development: role, limits and opportunities of international...

The World Bank

Employment and Development:Role, limits and opportunities of

international cooperation

Robert HolzmannDirector, Social Protection & Labor

Expert Group Meeting on Full Employment and Decent Work

New York, 02-04 October 2007

Enhancing Job Opportunities in ECA 2

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Background and MotivationMajor economic and social transformations in recent decades often led countries to move to a higher growth path ……but in many cases these transformations have not led to major improvements in labor market outcomes A growth process without strong job creation has limited impact on poverty reduction and exclusion …… as employment is key transmission mechanism between growth and poverty reductionLabor is often main or only asset of poor…yet our understanding of this market in developing countries remains limited and employment has not featured high in the development thinking recently


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Addressing the Issues: Road Map

I. The role and limits of international policy coordination for employment creation

II. A multi-sectoral agenda for good job creation: MILES

III. An operationally relevant international research strategy: Labor market, job creation and economic growth


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Role, limits and opportunities of international policy coordination for employment creation

Gains from policy coordination: Nash equilibrium, and beyond

Making international markets work, and fair

The role of benchmarking (and firm creation): The Doing Business survey 2007

Interacting between international and bi-lateral organizations


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E1

E2

E2 =R2(E1)

E1 =R1(E2)

NE W1

W2

MC

Chart 1: The optimistic scenario about gains of international macro-economic coordination

Area of potential cooperation gains


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E1

E2

E2 =R2(E1)

E1 =R1(E2)

NEW1

W2

MC

Chart 2: A more realistic scenario on gains of international macro-cooperation

NE – Nash: Full-information non-coop equilibriumXX – Non-information non-coop dis-equilibrium

XX


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Obstacles to macro-economic policy coordination

Uncertainty about– Parameters of economic model

– The economic model

– Potential gains

– Distribution of gains

Low estimated gains– Past estimate of welfare gains of macroeconomic

coordination (fiscal and monetary policy) are typically in the range of 1-2 percent of GDP


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Making international markets work, and fair

The importance of free trade in goods and services for employment … and the role of labor market policies to profit from

The importance of integration into international capital markets for employment … and the role of domestic policies to profit from it

The importance of migration to help balance job opportunities and welfare … and the role of domestic policies to profit from it


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Complementary policies matter …


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The role of firm creation and benchmarking: Doing Business survey

The incentives and opportunities to create firms (and let them go out of business) are crucial for (net) employment creationUnderstanding the key elements that drive firm creation and comparing the indicators for doing business create reform incentivesDoing Business survey 2007 – a key benchmarking exercise for levels and changes in incentives and opportunities


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Economy

Ease of Doing

Business Rank

Starting a Business

Dealing with

Licenses

Employing Workers

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across

Borders

Enforcing Contracts

Closing a Business

Singapore 1 9 5 1 13 7 2 2 1 4 2 New Zealand

2 3 2 13 1 3 1 9 16 13 16

United States

3 4 24 1 10 7 5 76 15 8 18

Hong Kong, China

4 13 60 23 58 2 3 3 3 1 15

Denmark 5 18 6 10 39 13 19 13 2 30 7 United Kingdom

6 6 54 21 19 1 9 12 27 24 10

Canada 7 2 26 19 28 7 5 25 39 43 4 Ireland 8 5 20 37 79 7 5 6 20 39 6 Australia 9 1 52 8 27 3 51 41 34 11 14 Iceland 10 14 23 42 8 13 64 27 11 4 12 Norway 11 28 55 94 6 36 15 16 4 9 3 Japan 12 44 32 17 48 13 12 105 18 21 1 Finland 13 16 39 127 17 26 51 83 5 7 5 Sweden 14 22 17 107 7 36 51 42 6 53 19 Thailand 15 36 12 49 20 36 33 89 50 26 44


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Interacting between international and bi-lateral organizations

ILO: Policy Coherence InitiativeILO (WB): Doing Better work projectsUN-ILO-WB: Youth Employment NetworkILO-WB-UNICEF: Understanding Children’ WorkWB-ILO-GTZ: LM TF for AfricaEtc etc


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II. Multi‑ sectoral policy frame-work for good job creation - MILES

MM

II

LL

EE

SS

AcroeconomicsAcroeconomics

nvestment climatenvestment climate

abor market institutionsabor market institutions

ducation and skillsducation and skills

ocial protectionocial protectionLabor supply

Job creation


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Rationale for MILES approachUnemployment/underemployment and low pay are not just a labor market problem– Focusing just on supply side measures (institutions, reservation

wages, and matching) may be necessary, but seldom sufficient conditions for employment generation

– Within the demand side, essential factors in determining employment growth include analysis of:

• firm restructuring• firm dynamics • firm incentives

There are almost no ‘one size fits all’ recipes for employment creation

• the binding constraints, and thus the priorities, vary from country to country

This requires a multi-sectoral approach, with emphasis on costs and risks to job creation, and to participation in the formal sector


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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 and enhancing 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 mandating minimum 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 groups

Many employers consider skill shortages as a main constraint to the operation of their business and growth potential

MILES 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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Operationalization of MILES approach – 3 key elements

i. The use of existing diagnostics tools to assess constraints to growth and job creation

ii. The identification of policy priorities and required reforms

iii. The promotion of a policy dialogue with policy makers and different stakeholders to identify a feasible strategy to foster more and better jobs.


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The use of existing diagnostics tools to assess constraints

Growth diagnostics – New approach to economic reform, focusing on binding constraints

and limited political capital – 12 pilot countries (Armenia, the Baltic countries, Bangladesh, Bolivia,

Brazil, Cambodia, Egypt, India, Madagascar, Morocco, Tanzania and Thailand)

Doing Business (annually, latest 2008)– Detailed set of indicators of the regulatory and institutional setting is

available for over 140 countries– Help identify constraints for growth and job creation (Chapter 7 in

WDR 2005)

Investment Climate Assessments (regularly)– Survey of 30-40 thousand firms around the world to assess constrains

on the performances of different types of firms and, in particular, obstacles to job creation


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Implementation in client countries while promoting dialogue with all stakeholders

Review of the policy and institutional frameworks in countries, to identify the most binding constraints in key policy areas with have the most direct effect on employment– Full list of requested reforms is unknowable or impractical

– Across-the board reforms have proven difficult Establish minimum policy consistency across sectors – E.g. labor market plus benefit reform (“flexicurity”)

Implementation of reforms to overcome the binding constraints and to create critical policy consistency – Requires bringing key stakeholders and close cooperation across

different ministries (MoF, MoL, MoE, etc), institutions, and social partners


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ImplementationDrawing on flagship publication on job creation for ECA and LAC regionCapturing lessons from MILERS pilots in a number of countries, including Armenia, the Baltic countries, Bangladesh, Bolivia, Brazil, Cambodia, Egypt, India, Madagascar, Morocco, Serbia, Tanzania, Thailand, Tunisia, and Turkey. Reviewing alternative identification of priorities (triangalization approach) Implementation of research strategy to fill existing and emerging knowledge gaps


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III. An operationally relevant research strategy on “Labor Market, Job Creation and Economic Growth”

Stock taking conference on labor market issues in Nov. 2004 at World Bank– Job creation – under-focused dimension of development agenda– Importance of LM institutions differs substantially across countries– LM discussion is lacking a shared conceptual framework

LM Research strategy that identifies research priorities for developing countries, with main consultation with interna-tional organizations, academic community and bi-lateralsImplementation strategy, with leveraging on international research community and creation of new program in IZA/WB on “Employment and Development”


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

Diagnostic tools to assess labor market conditions in countries at different stages of development

Allowing for the comparison of labor market outcomes across countries

Improving 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 globalization

Identifying 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)

the world bank employment and development: role, limits and opportunities of international...

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