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Welsh
Bahasa
Tagalog
tistics. In other cases, what seems to be at stake is a contrac- French
Finnish Icelandic
Ga
Chinese
Korean
Swedish
Greek
Guaraní
Georgian
the place where the person works, or at least a slot in a produc- Burmese
German Hebrew Tswana
tion process. This multiplicity of words clearly shows that jobs
English
Croatian Maori Basque
Kirundi Ukrainian
Zulu
Dutch
case can be different. If languages shape thinking, there are Quechua Turkish
Vietnamese
times when the ways in which people refer to jobs seem to be Romansh Albanian
Juba Arabic Roma Gaelic Tajiki
at odds. Gaps probably arise from the different characteristics Amharic
1 2 3 4 15 14 13 12
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DOI: 10.1596/978-0-8213-9575-2
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Photo credits:
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Images. Used with permission of Sebastião Salgado/Amazonas—Contact Press Images. Further permission required for reuse.
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Foreword xiii
Acknowledgments xv
Abbreviations and data notes xvii
v
vi CONTENTS
Appendixes 328
Glossary 329
Bibliographical note 332
Background papers and notes 334
Selected indicators 337
Index 381
viii
CONTENTS
Boxes
1 How does women’s labor force participation increase? 30 5.3 The concept of Decent Work and the Decent Work
1.1 The nature of work and leisure change as cities Agenda 158
develop 53 5.4 Economics and the social sciences deal with spillovers from
1.2 Jobs bring earnings opportunities to women, but also new jobs, under different names 160
difficulties 54 5.5 Several data sources can be used to quantify the development
1.3 The temporary staffing industry is growing in developing payoffs from jobs 163
countries 57 5.6 International definitions of green jobs can be too narrow for
1.4 Responses to the crisis went beyond income support for the developing countries 170
unemployed 62 5.7 How skills are formed, and how they can be
1.5 Few countries produce statistics on informality 64 measured 175
1.6 Not all child work is child labor 66 5.8 Manpower planning has given way to dynamic skills
2.1 There many dimensions of living standards and many ways development 177
to measure them 77 6.1 Can agrarian Ethiopia compete in manufacturing? 194
2.2 Most poor people work 80 6.2 Conflict can increase labor force participation among
2.3 The value of job attributes can be quantified through hedonic women 194
pricing 83 6.3 Solving jobs challenges is urgent in South Sudan 195
2.4 Work can pose risks to health and safety 84 6.4 Development pessimism about Bangladesh was
2.5 The relationship between growth and employment is not understandable, but has been proven wrong 197
mechanical 88 6.5 The entrepreneurs of Bangladesh are local 198
2.6 Korea went from a growth to a jobs strategy, and Singapore 6.6 Landowner companies can build capacity while spreading
the oher way around 90 the wealth 203
3.1 What drives economic growth? 99
6.7 The debate on how to reduce informality is intense
3.2 Microenterprises account for most job creation and in
Mexico 212
destruction 106
6.8 In Ukraine, the impact of aging is compounded by migration
3.3 Most microenterprises are in rural areas and engage in and declining fertility 216
commerce 110
6.9 Once again, the debate rages over industrial policy 218
3.4 What explains the boom in the garment industry in
Bangladesh? 117 6.10 Caution is needed when interpreting results from
enterprise
surveys 219
4.1 What is social cohesion? 128
6.11 Special economic zones have a mixed record 221
4.2 Do jobs cause trust? Analysis of Eurobarometer and
Latinobarómetro Surveys 132 7.1 Why do multinationals locate where they do? 240
4.3 Displacement and unemployment can lead to the erosion of 7.2 E-links create job opportunities in developing countries,
trust and ties 133 but the scale is still modest 240
4.4 Jobs, motivation, and identity in Risaralda, 7.3 Globalization is often viewed as jobs migrating
Colombia 134 abroad 244
4.5 Voice can be extended to the self-employed: The case of 8.1 Employment protection legislation covers more than
SEWA 135 firing rules 260
4.6 Some jobs connect people across ethnic boundaries 136 8.2 Are bargaining councils the cause of unemployment in
4.7 Measuring inequality of opportunities in access to South Africa? 265
jobs 138 8.3 New forms of collective bargaining are emerging
4.8 Domestic workers: The journey to an ILO in
China 266
convention 141 8.4 Recicladores forced changes in Bogotá’s solid waste
4.9 From laws on the books to laws in action in Cambodia’s management policies 267
garment sector 142 8.5 E-links to jobs: New technologies open new frontiers 268
4.10 In post-conflict settings, well-designed programs reduce 8.6 The Mahatma Gandhi National Rural Employment
social tensions 143 Guarantee Act launched the biggest public works program
5.1 Children do perilous work in artisanal gold mines in in the world 271
Mali 155 8.7 Modern technology can reduce social protection costs,
5.2 Compliance with core labor standards is partial 157 leakage, and corruption 276
Contents ix
8.8 Kurzarbeit has become a new word in labor market 9.3 Improving business practices facilitates compliance with
policies 280 labor standards 307
9.1 How does women’s labor force participation 9.4 Knowledge gaps on jobs and development chart the research
increase? 300 agenda 312
9.2 There have been successes in tackling jobs challenges around 9.5 China’s hukou system has been partially liberalized 315
the world 302
Figures
1 A job does not always come with a wage 5 1.6 The skills mix changes with economic development 56
2 Among youth, unemployment is not always the issue 6 1.7 Jobs provide higher earnings and benefits as countries
3 In China, employment growth is led by the private grow 57
sector 8 1.8 Wages in developing countries are catching up 59
4 Jobs are transformational 8 1.9 Returns to education are higher in poorer countries 60
5 Jobs provide higher earnings and benefits as countries 1.10 In China, employment growth is led by the private
grow 9 sector 60
6 Jobs account for much of the decline in extreme 1.11 In developing countries, the crisis affected earnings more
poverty 10 than employment 61
7 Simultaneous job creation and destruction characterize all 1.12 A majority of countries have ratified the core labor
economies 11 standards 65
8 Larger firms pay higher wages 12 2.1 Working hours vary across ages 78
9 The employment share of microenterprises is greater in 2.2 Women spend more time in activities not directly generating
developing countries 13 income 79
10 People who are unemployed, or do not have motivating jobs, 2.3 Jobs are the most important source of household
participate less in society 14 income 80
11 Views on preferred jobs and most important jobs 2.4 Jobs take households out of poverty, especially in developing
differ 16 countries 81
12 Some jobs do more for development 17 2.5 Jobs account for much of the decline in extreme
poverty 82
13 The individual and social values of jobs can differ 17
2.6 Workers often care more about job security than about
14 Good jobs for development are not the same
income 85
everywhere 20
2.7 Life satisfaction is lower among farmers and the
15 Manufacturing jobs have migrated away from high-income
unemployed 86
countries 22
3.1 Economic growth does not occur at the expense of jobs in the
16 Three distinct layers of policies are needed 23
medium term 99
17 Finance and electricity are among the top constraints faced 3.2 Simultaneous job creation and destruction characterize all
by formal private enterprises 24 economies 100
18 Combining work and training increases the success rates of 3.3 Labor reallocation across sectors was a driver of productivity
programs 27 growth in East Asia 101
19 A decision tree can help set policy priorities 28 3.4 Efficiency gains at the firm level are the main driver of
20 Which countries succeeded at addressing their jobs challenges productivity growth 102
and how? 32 3.5 Efficiency gains and employment growth can go
1.1 A job does not always come with a wage 50 together 103
1.2 Among youth, unemployment is not always the issue 51 3.6 Smallholder farming is dominant outside Latin
1.3 Employment growth is needed to cope with population America 104
growth 52 3.7 The employment share of microenterprises is greater in
1.4 Moving from farms to cities does not always bring economic developing countries 105
growth 53 3.8 Crop yields have diverged vastly across regions 107
1.5 Labor productivity remains low in developing 3.9 The dispersion of productivity in manufacturing is greater in
countries 55 developing countries 108
x CONTENTS
3.10 Large firms tend to perform better and to pay better than 6.4 Migration matters for small island nations, even more so in
small ones 109 the Pacific 205
3.11 Young firms are more likely than old ones to engage in 6.5 Youth unemployment rates are extremely high in some
innovative activities 109 countries 207
3.12 Surviving firms were born larger and grew less in Ghana than 6.6 Having higher education does not bring better employment
in Portugal 111 chances in Tunisia 208
3.13 The majority of firms grew little in India and Mexico 112 6.7 Labor regulation may not be the biggest obstacle to
3.14 Some among the self-employed have the potential to become formalization 211
successful entrepreneurs 115 6.8 The labor force will shrink if age-specific participation rates
3.15 Management scores vary widely across small enterprises in remain constant 214
Sub-Saharan Africa 116 6.9 Labor productivity has to increase to avoid declines in living
4.1 Trust and civic engagement go together with peaceful standards 215
collective decision making 129 6.10 The assessment of constraints to business varies across
4.2 People who are unemployed trust and participate enterprises 220
less 130 7.1 Manufacturing jobs have migrated away from high-income
4.3 People with motivating jobs trust and participate countries 238
more 131 7.2 The global number of manufacturing jobs has not varied
4.4 Having a job means more community participation in much 239
Indonesia 132 7.3 Policies for jobs may or may not harm other
4.5 Inequality of job opportunities varies across countries 247
countries 139 8.1 The mix of labor policies and institutions varies across
5.1 Views on preferred jobs and most important jobs countries 259
differ 159 8.2 The coverage of collective bargaining is low in developing
5.2 Some jobs do more for development 160 countries 264
5.3 The individual and social values of jobs can differ 162 8.3 Combining work and training increases the success rates of
programs 269
5.4 Some earnings gaps decrease with the level of development;
some do not 165 8.4 In Romania, public works programs have the lowest
placement rate and highest placement costs 272
5.5 A higher women’s share of household income raises food
expenditures in the Republic of Congo 166 8.5 Labor taxes and social contributions vary across different
countries facing different job challenges 275
5.6 Who gets the jobs matters for poverty reduction in Bulgaria
and Latvia 166 8.6 Workers are willing to give up earnings for access to health
insurance and pensions 275
5.7 Agglomeration effects vary across industrial sectors in
Taiwan, China 167 8.7 Decoupling between job creation and job destruction was
massive in the United States during recessions 278
5.8 Knowledge spillovers from foreign direct investment increase
domestic productivity 168 9.1 Three distinct layers of policies are needed 293
5.9 High emissions per worker can go hand in hand with low 9.2 Finance and electricity are among the top constraints faced
emissions per unit of output 169 by formal private enterprises 295
5.10 Proximity of garment factories stimulates schooling among 9.3 The rule of law is associated with development 297
young girls in Bangladesh 171 9.4 A decision tree can help set policy priorities 299
5.11 Not all jobs provide social identity, networks, or a sense of 9.5 Chile reduced its dependence on mineral exports 304
fairness 172 9.6 Unemployment rates for youth have fallen in
5.12 Gender and father’s education account for a large share of Slovenia 305
inequality of opportunity in access to jobs 173 9.7 Offers to liberalize services are generally modest 309
5.13 Relative to other obstacles, skills have become more severe 9.8 Is there a “missing middle” in the distribution of
constraint to business 175 manufacturing firms in India? 314
6.1 In the absence of a Green Revolution, poverty remains high 9.9 Export processing zones were a driver of foreign direct
in agrarian economies 192 investment in Sri Lanka 316
6.2 Instability and poor infrastructure are severe constraints on 9.10 Restrictions to hukou conversion increase with city size and
business in conflict-affected countries 196 income 317
6.3 Small island nations are located far away from economic
centers 204
Contents xi
Maps Tables
1 Only in some countries are migrants a substantial share of 3.1 Few small firms grew in Mexico 113
the population 21 6.1 Projects in extractive industries are capital intensive and
3.1 Manufacturing activities are sprawling out of the main urban create few jobs 200
centers in the Republic of Korea 102 6.2 Cities in resource-rich developing countries are among the
7.1 Only in some countries are migrants a substantial share of most expensive in the world 201
the population 233 8.1 There is a wave of new empirical evidence on the impacts
7.2 Many migrants are highly skilled 235 of
EPL 261
8.1 Coverage of social insurance remains low in many 8.2 The impacts of minimum wages are a favorite research topic
countries 274 in labor economics 262
Foreword
Today, jobs are a critical concern across the globe—for policy makers, the business community,
and the billions of men and women striving to provide for their families.
As the world struggles to emerge from the global crisis, some 200 million people—includ-
ing 75 million under the age of 25—are unemployed. Many millions more, most of them
women, find themselves shut out of the labor force altogether. Looking forward, over the next
15 years an additional 600 million new jobs will be needed to absorb burgeoning working-age
populations, mainly in Asia and Sub-Saharan Africa.
Meanwhile, almost half of all workers in developing countries are engaged in small-scale
farming or self-employment, jobs that typically do not come with a steady paycheck and ben-
efits. The problem for most poor people in these countries is not the lack of a job or too few
hours of work; many hold more than one job and work long hours. Yet, too often, they are not
earning enough to secure a better future for themselves and their children, and at times they
are working in unsafe conditions and without the protection of their basic rights.
Jobs are instrumental to achieving economic and social development. Beyond their critical
importance for individual well-being, they lie at the heart of many broader societal objec-
tives, such as poverty reduction, economy-wide productivity growth, and social cohesion. The
development payoffs from jobs include acquiring skills, empowering women, and stabilizing
post-conflict societies. Jobs that contribute to these broader goals are valuable not only for
those who hold them but for society as a whole: they are good jobs for development.
The World Development Report 2013 takes the centrality of jobs in the development pro-
cess as its starting point and challenges and reframes how we think about work. Adopting a
cross-sectoral and multidisciplinary approach, the Report looks at why some jobs do more for
development than others. The Report finds that the jobs with the greatest development payoffs
are those that make cities function better, connect the economy to global markets, protect the
environment, foster trust and civic engagement, or reduce poverty. Critically, these jobs are not
only found in the formal sector; depending on the country context, informal jobs can also be
transformational.
Building on this framework, the Report tackles some of the most pressing questions policy
makers are asking right now: Should countries design their development strategies around
growth or focus on jobs? Are there situations where the focus should be on protecting jobs
as opposed to protecting workers? Which needs to come first in the development process—
creating jobs or building skills?
The private sector is the key engine of job creation, accounting for 90 percent of all jobs in
the developing world. But governments play a vital role by ensuring that the conditions are in
place for strong private sector–led growth and by alleviating the constraints that hinder the
private sector from creating good jobs for development.
The Report advances a three-stage approach to help governments meet these objectives.
First, policy fundamentals—including macroeconomic stability, an enabling business envi-
ronment, investments in human capital, and the rule of law—are essential for both growth and
job creation. Second, well-designed labor policies can help ensure that growth translates into
employment opportunities, but they need to be complemented by a broader approach to job
creation that looks beyond the labor market. Third, governments should strategically identify
xiii
xiv F O R E WO R D
which jobs would do the most for development given their specific country context, and re-
move or offset the obstacles that prevent the private sector from creating more of those jobs.
In today’s global economy, the world of work is rapidly evolving. Demographic shifts, tech-
nological progress, and the lasting effects of the international financial crisis are reshaping the
employment landscape in countries around the world. Countries that successfully adapt to
these changes and meet their jobs challenges can achieve dramatic gains in living standards,
productivity growth, and more cohesive societies. Those that do not will miss out on the trans-
formational effects of economic and social development.
The World Development Report 2013 is an important contribution to our collective under-
standing of the role of jobs in development. Its insights will provide valuable guidance for the
World Bank Group as we collaborate with partners and clients to advance their jobs agendas.
Working together, we can foster job creation and maximize the development impact of jobs.
This Report was prepared by a team led by Martín Rama, together with Kathleen Beegle and
Jesko Hentschel. The other members of the core team were Gordon Betcherman, Samuel
Freije-Rodriquez, Yue Li, Claudio E. Montenegro, Keijiro Otsuka, and Dena Ringold. Research
analysts Thomas Bowen, Virgilio Galdo, Jimena Luna, Cathrine Machingauta, Daniel Pala-
zov, Anca Bogdana Rusu, Junko Sekine, and Alexander Skinner completed the team. Addi-
tional research support was provided by Mehtabul Azam, Nadia Selim, and Faiyaz Talukdar.
The team benefited from continuous engagement with Mary Hallward-Driemeier, Roland
Michelitsch, and Patti Petesch.
The Report was cosponsored by the Development Economics Vice Presidency (DEC) and
the Human Development Network (HDN). Overall guidance for the preparation of the Report
was provided by Justin Lin, former Senior Vice President and Chief Economist, Development
Economics; Martin Ravallion, acting Senior Vice President and Chief Economist, Develop-
ment Economics; and Tamar Manuelyan-Atinc, Vice President and Head of the Human
Development Network. Asli Demirgüç-Kunt, Director for Development Policy, oversaw the
preparation process, together with Arup Banerji, Director for Social Protection and Labor.
Former World Bank President Robert B. Zoellick, President Jim Yong Kim, and Manag-
ing Directors Caroline Anstey and Mahmoud Mohieldin provided invaluable insights during
the preparation process. Executive Directors and their offices also engaged constructively
through various meetings and workshops.
An advisory panel, comprising George Akerlof, Ernest Aryeetey, Ragui Assaad, Ela Bhatt,
Cai Fang, John Haltiwanger, Ravi Kanbur, Gordana Matković, and Ricardo Paes de Barros,
contributed rich analytical inputs and feedback throughout the process.
Seven country case studies informed the preparation of the Report. The case study for
Bangladesh was led by Binayak Sen and Mahabub Hossain, with Yasuyuki Sawada. Nelly Agu-
ilera, Angel Calderón Madrid, Mercedes González de la Rocha, Gabriel Martínez, Eduardo
Rodriguez-Oreggia, and Héctor Villarreal participated in Mexico’s case study. The study
for Mozambique was led by Finn Tarp, with Channing Arndt, Antonio Cruz, Sam Jones,
and Fausto Mafambisse. For Papua New Guinea, Colin Filer and Marjorie Andrew coordi-
nated the research. The South Sudan study was led by Lual Deng, together with Nada Eissa.
AbdelRahmen El Lahga coordinated the Tunisian work, with the participation of Ines
Bouassida, Mohamed Ali Marouani, Ben Ayed Mouelhi Rim, Abdelwahab Ben Hafaiedh,
and Fathi Elachhab. Finally, Olga Kupets, Svitlana Babenko, and Volodymyr Vakhitov con-
ducted the study for Ukraine.
The team would like to acknowledge the generous support for the preparation of the
Report by the Government of Norway through its Ministry of Foreign Affairs, the multi-
donor Knowledge for Change Program (KCP II), the Nordic Trust Fund, the G overnment of
Denmark through its Royal Ministry of Foreign Affairs, the Swiss State Secretariat for Eco-
nomic Affairs (SECO), the Canadian International Development Agency (CIDA), the Gov-
ernment of Sweden through its Ministry for Foreign Affairs, and the Government of Japan
xv
xvi AC K N OW L E D G M E N T S
through its Policy and Human Resource Development program. The German Ministry for
Economic Cooperation and Development Cooperation (BMZ) through the German Agency
for International Cooperation (GIZ) organized a development forum that brought together
leading researchers from around the world in Berlin.
Generous support was also received for the country case studies by the Australian Agency
for International Development (AusAID), Canada’s International Development Research
Centre (IDRC), the Government of Denmark through its Royal Ministry of Foreign Affairs,
the Japan International Cooperation Agency (JICA) through the JICA Institute, and
the United Nations University World Institute for Development Economics Research
(UNU-WIDER). The United Kingdom’s Overseas Development Institute (ODI) assisted the
team through the organization of seminars and workshops.
A special recognition goes to the International Labour Organization (ILO) for its contin-
ued engagement with the team. José Manuel Salazar-Xiriñachs and Duncan Campbell coor-
dinated this process, with the participation of numerous colleagues from the ILO. Interagency
consultations were held with the International Monetary Fund (IMF), the Organisation for
Economic Co-operation and Development (OECD), and the United Nations Economic and
Social Council (ECOSOC). The team also benefited from an ongoing dialogue with the Inter-
national Trade Union Confederation (ITUC).
Country consultations were conducted in Bangladesh, Canada, China, Denmark, Finland,
France, Germany, India, Japan, the Republic of Korea, Mexico, Mozambique, Norway, Papua
New Guinea, Singapore, Sweden, Switzerland, Tunisia, Turkey, Ukraine, and the United King-
dom. All consultations involved senior government officials. Most included academics, business
representatives, trade union leaders, and members of civil society. In addition, bilateral meet-
ings were held with senior government officials from Australia, the Netherlands, South Africa,
and Spain.
Consultations with researchers and academics were arranged with the help of the African
Economic Research Consortium (AERC) in Kenya, the Economic Research Forum (ERF)
in the Arab Republic of Egypt, and the Latin American and Caribbean Economic Associa-
tion (LACEA) in Chile. The Institute for the Study of Labor (IZA) organized special work-
shops with its research network in Germany and Turkey, coordinated by Klaus Zimmerman.
Forskningsstiftelsen Fafo in Norway undertook a household survey in four countries, which
this Report draws on.
The production of the Report and the logistics supporting it were assured by Brónagh
Murphy, Mihaela Stangu, Jason Victor, and Cécile Wodon, with a contribution by Quyên
Thúy Ðinh. Ivar Cederholm coordinated resource mobilization. Irina Sergeeva and Sonia Joseph
were in charge of resource management. Martha Gottron, Bruce Ross-Larson, Gerry Quinn,
and Robert Zimmermann participated in the editing of the Report. The Development Data
Group, coordinated by Johan Mistiaen, contributed to the preparation of its statistical annex.
The Office of the Publisher coordinated the design, typesetting, printing, and dissemina-
tion of both the hard and soft versions of the Report. Special thanks go to Mary Fisk, Stephen
McGroarty, Santiago Pombo-Bejarano, Nancy Lammers, Stephen Pazdan, Denise Bergeron,
Andres Meneses, Theresa Cooke, Shana Wagger, Jose De Buerba, and Mario Trubiano, as well
as to the Translations and Interpretation Unit’s Cecile Jannotin and Bouchra Belfqih.
The team also thanks Vivian Hon, as well as Claudia Sepúlveda, for their coordinating role;
Merrell Tuck-Primdahl for her guidance on communication; Vamsee Krishna Kanchi and
Swati P. Mishra for their support with the website; Gerry Herman for his help with the prepa-
ration of the movie series associated with the Report; and Gytis Kanchas, Nacer Mohamed
Megherbi, and Jean-Pierre S. Djomalieu for information technology support.
Many others inside and outside the World Bank contributed with comments and inputs.
Their names are listed in the Bibliographical Note.
Abbreviations and data notes
Abbreviations
ADB Asian Development Bank
ALMP active labor market program
ARB Asociación de Recicladores de Bogotá (Bogotá Association of
Recyclers)
BPO business process outsourcing
CAFTA Central America Free Trade Agreement
CASEN La Encuesta de Caracterizacíon Socioeconomica Nacional
(Chile National Socioeconomic Characterization)
CIRAD Centre de coopération internationale en recherche agronomique
pour le développement (Center for International Cooperation
in Agronomic Research for Development)
CFA Committee on Freedom of Association
COSATU Confederation of South African Trade Unions
CSR corporate social responsibility
ECLAC Economic Commission for Latin America and the Caribbean
ECOSOC United Nations Economic and Social Council
EMBRAPA Empresa Brasileira de Pesquisa Agropecuária
(Brazilian Enterprise for Agricultural Research)
EPL employment protection legislation
EPZ export processing zone
EU European Union
FAO Food and Agriculture Organization of the United Nations
FAFO Forskningsstiftelsen Fafo (Fafo Research Foundation)
FDI foreign direct investment
FACB freedom of association and collective bargaining
GATT General Agreement on Tariffs and Trade
GATS General Agreement on Trade in Services
GDP gross domestic product
GNP gross national product
HOI Human Opportunity Index
I2D2 International Income Distribution Database
IC Industrial Council
ICLS International Conference of Labour Statisticians
ICTWSS Institutional Characteristics of Trade Unions,
Wage Setting, State Intervention and Social Pacts
IDA Industrial Disputes Act (India)
IDRC International Development Research Center
IEA International Energy Agency
IFC International Finance Corporation
xvii
xviii A bbreviations and Data N otes
Data Notes
The use of the word countries to refer to economies implies no judgment by the World Bank
about the legal or other status of territory. The term developing countries includes low- and
middle-income economies and thus may include economies in transition from central plan-
ning, as a matter of convenience. Dollar figures are current U.S. dollars, unless otherwise
specified. Billion means 1,000 million; trillion means 1,000 billion.
overview
ter livelihoods. Economies grow as people get • Are greater investments in education and
training a prerequisite for employability, or
better at what they do, as they move from farms
can skills be built through jobs?
to firms, and as more productive jobs are cre-
ated and less productive ones disappear. Soci- • Should efforts to improve the investment cli-
eties flourish as jobs bring together people mate target the areas, activities, or firms with
from different ethnic and social backgrounds greater potential for job creation?
and nurture a sense of opportunity. Jobs are
thus transformational—they can transform • What is the risk that policies to foster job
creation in one country will come at the ex-
what we earn, what we do, and even who we
pense of jobs in other countries?
are.
No surprise, then, that jobs are atop the • When confronted with large shocks and ma-
development agenda everywhere—for every- jor restructuring, is it advisable to protect jobs
one from policy makers to the populace, from and not just people?
business leaders to union representatives, from
activists to academics. Looking to seize oppor- • How can the reallocation of workers be ac-
celerated from areas and activities with low
tunities for job creation presented by massive
productivity to those with greater potential?
demographic shifts, technological innovations,
global migrations of people and tasks, and deep Individuals value jobs for the earnings and
changes in the nature of work, policy makers ask benefits they provide, as well as for their contri-
difficult questions: butions to self-esteem and happiness. But some
jobs have broader impacts on society. Jobs for
• Should countries build their development
women can change the way households spend
strategies around growth or should they
money and invest in the education and health
rather focus on jobs?
of children. Jobs in cities support greater spe-
• Can entrepreneurship be fostered, especially cialization and the exchange of ideas, making
among the many microenterprises in devel- other jobs more productive. Jobs connected
oping countries, or are entrepreneurs born? to global markets bring home new technologi-
Moving jobs center stage 3
cal and managerial knowledge. And in turbulent tries grow richer, the policy environment
environments, jobs for young men can provide must be conducive to growth. That requires
alternatives to violence and help restore peace. attending to macroeconomic stability, an en-
Through their broader influence on living abling business environment, human capital
standards, productivity, and social cohesion, accumulation, and the rule of law.
these jobs have an even greater value to society
than they do for the individual. But some jobs • Labor policies. Because growth alone may not
be enough, labor policies need to facilitate
can have negative spillovers. Jobs supported
job creation and enhance the development
through transfers or privilege represent a bur-
payoffs from jobs. Policies can address labor
den to others or undermine their opportunities
market distortions while not being a drag on
to find remunerative employment. Jobs damag-
efficiency. But they should avoid distortion-
ing the environment take a toll on everybody.
ary interventions that constrain employ-
Thus it is that some jobs do more for develop-
ment in cities and global value chains—and
ment, while others may do little, even if they are
provide voice and protection for the most
appealing to individuals.
vulnerable.
Which jobs have the greatest develop-
ment payoffs depends on the circumstances. • Priorities.Because some jobs do more for
Countries differ in their level of development, development than others, it is necessary to
demography, endowments, and institutions. identify the types of jobs with the greatest
Agrarian societies face the challenge of making development payoffs given a country’s con-
agricultural jobs more productive and creat- text, and to remove—or at least offset—the
ing job opportunities outside farms. Resource- market imperfections and institutional fail-
rich countries need to diversify their exports, ures that result in too few of those jobs being
so that jobs are connected to global markets created.
rather than supported through government
The centrality of jobs for development
transfers. Formalizing countries need to de-
should not be interpreted as the centrality of
sign their social protection systems in ways
labor policies and institutions. Nearly half
that extend their coverage without penalizing
the people at work in developing countries
employment.
are farmers or self-employed and so are out-
A vast majority of jobs are created by the
side the labor market. And even in the case of
private sector. Governments, though, can sup-
wage employment, labor policies and institu-
port—or hinder—the private sector in creat-
tions may or may not be the main obstacle to
ing jobs. The idea that development happens
job creation. Often, the most relevant obstacles
through jobs sheds new light on the strategies,
lie outside of the labor market. The catalysts
policies, and programs governments can pur-
for job creation may be policies that make cit-
sue. Strategies should identify which types of
ies work better, help farmers access and apply
jobs would have the highest development pay-
appropriate agricultural techniques, or allow
offs, given a country’s circumstances. Policies
firms to develop new exports. Jobs are the cor-
should remove the obstacles that prevent the
nerstone of development, and development
private sector from creating jobs. Programs for
policies are needed for jobs.
generating employment may also be warranted,
for instance, in conflict-affected countries. But
the costs and benefits of these policies and pro-
Jobs wanted
grams have to be assessed, taking into account
the potential spillovers from jobs, both positive
To many, a “job” brings to mind a worker with
and negative.
an employer and a regular paycheck. Yet, the
At a more practical level, this jobs lens on
majority of workers in the poorest countries
development leads to a three-layered policy
are outside the scope of an employer-employee
approach:
relationship. Worldwide, more than 3 billion
• Fundamentals. Because jobs provide higher people are working, but their jobs vary greatly.
earnings and broader social benefits as coun- Some 1.65 billion are employed and receive reg-
4 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
39%
of the manufacturing jobs
are in microenterprises
in Chile
97% of the manufacturing jobs
are in microenterprises
in Ethiopia
2x
employment growth
in a firm in Mexico over 35 years 10x
employment growth in a firm
in the United States over 35 years
90 million people
working abroad 621 million youth
neither working nor studying
22x
the productivity gap between
manufacturing firms in the 90th and
10th percentiles in India
9x the productivity gap between
manufacturing firms in the 90th and
10th percentiles in the United States
3% international migrants
as a share of the world population 60%
foreign-born population in Kuwait,
Qatar, and the United Arab Emirates
Moving jobs center stage 5
ular wages or salaries. Another 1.5 billion work rights as the boundaries of what is unacceptable.
in farming and small household enterprises, or Among them are the United Nations Universal
in casual or seasonal day labor. Meanwhile, 200 Declaration of Human Rights (1948) and the
million people, a disproportionate share of them International Labour Organization Declaration
youth, are unemployed and actively looking for on Fundamental Principles and Rights at Work
work. Almost 2 billion working-age adults, the (1998), which further specifies core labor stan-
majority of them women, are neither working dards. Combining these different perspectives,
nor looking for work, but an unknown number jobs are activities that generate income, mone-
of them are eager to have a job. Clarifying what tary or in kind, without violating human rights.
is meant by a job is thus a useful starting point.
The meaning of the words used to de-
Different places, different jobs
scribe what people do to earn a living varies
across countries and cultures. Some words re- The world of work is particularly diverse in de-
fer to workers in offices or factories. Others are veloping countries. This variety refers not only
broader, encompassing farmers, self-employed to the number of hours worked and the number
vendors in cities, and caregivers of children and of jobs available, the usual yardsticks in indus-
the elderly. The distinction is not merely seman- trial countries, but also to the characteristics of
tic. The varied meanings hint at the different jobs. Two main aspects stand out. One is the
aspects of jobs that people value. And views on prevalence of self-employment and farming.2
what a job is almost inevitably influence views The other is the coexistence of traditional and
on what policies for jobs should look like. modern modes of production, from subsistence
For statisticians, a job is “a set of tasks and agriculture and low-skilled work to technology-
duties performed, or meant to be performed, driven manufacturing and services and highly
by one person, including for an employer or skilled knowledge work.
in self-employment.”1 Jobs are performed by While nearly half of the jobs in the developing
the employed. These are defined as people who world are outside the labor market, the shares of
produce goods and services for the market or wage work, farming, and self-employment differ
for their own use. But the statistical definition greatly across countries.3 Nonwage work repre-
is mute about what should not be considered sents more than 80 percent of women’s em-
a job. International norms view basic human ployment in Sub-Saharan Africa—but less than
A
F I G U R E 1 job does not always come with a wage
men women
100
wage employment
share of total employment, %
80
self-employment
60
nonwage
40 employment
20 farming
0
Europe and Latin America South Middle East East Asia Sub-Saharan
Central Asia and the Asia and and Pacific Africa
Caribbean North Africa
primary and traditional manufacturing indus- Between 1995 and 2005, the private sector ac-
tries toward services and knowledge-intensive counted for 90 percent of jobs created in Bra-
activities.11 At the same time, technological zil, and for 95 percent in the Philippines and
improvements and outsourcing to developing Turkey.21 The most remarkable example of the
countries are leading to a decline in medium- expansion of employment through private sec-
skilled jobs.12 Production tasks have been splin- tor growth is China. In 1981, private sector em-
tered so that they can be performed in different ployment accounted for 2.3 million workers,
locations.13 Transnational companies have built while state-owned enterprises (SOEs) had 80
integrated value chains to tap into national skill million workers.22 Twenty years later, the private
pools around the world.14 Outsourcing is oc- sector accounted for 74.7 million workers, sur-
curring in services as well as in manufacturing. passing, for the first time, the 74.6 million work-
The share of developing countries in exports of ers in SOEs (figure 3).
world services nearly doubled to 21 percent be- In contrast to the global average, in some
tween 1990 and 2008.15 countries in the Middle East and North Africa,
Technology is changing the way workers and the state is a leading employer, a pattern that can
firms connect, through their access to much be linked to the political economy of the post-
larger, even global, employment marketplaces. independence period, and in some cases to the
Some of the new marketplaces operate through abundance of oil revenues.23 For a long period,
the internet; others use mobile phone technol- public sector jobs were offered to young college
ogy.16 Part-time and temporary wage employ- graduates. But as the fiscal space for continued
ment are now major features of industrial and expansion in public sector employment shrank,
developing countries. In South Africa, tempo- “queuing” for public sector jobs became more
rary agency workers make up about 7 percent of prevalent, leading to informality, a devaluation
the labor force; the temporary staffing industry of educational credentials, and forms of social
provides employment to an average of 410,000 exclusion.24 A fairly well-educated and young
workers a day. In India, the number of tempo- labor force remains unemployed, or underem-
rary workers that employment agencies recruit ployed, and labor productivity stagnates.25
grew more than 10 percent in 2009 and 18 per- Overall, countries have been successful at
cent in 2010.17 creating jobs. More people have jobs now than
This changing landscape of global produc- ever before, and those jobs provide generally
tion has also brought about shifts in skill en- higher earnings. Indeed, amid rapid social and
dowments and in the world distribution of top economic change, poverty has declined in de-
talent. China and India rank high in perceived veloping countries. The share of the popula-
attractiveness as outsourcing hubs because of tion of the developing world living on less than
their exceptionally high ratings in the avail- US$1.25 a day (in purchasing power parity) fell
ability of skills.18 India has close to 20 million from 52 percent in 1981 to 22 percent in 2008,
students in higher education, nearly as many as or from 1.94 billion people to 1.29 billion.26
the United States; both countries are outpaced This reduction is the result of multiple factors,
by China, with 30 million postsecondary stu- but the creation of millions of new, more pro-
dents.19 The United States still accounts for a ductive jobs, mostly in Asia but also in other
large share of top scores in international student parts of the developing world, has been the
assessments, but the Republic of Korea has the main driving force.27
same share as Germany, and both are closely fol- Jobs are vulnerable to economic downturns,
lowed by the Russian Federation. The number though, much more so in the private sector than
of high-performing students in Shanghai alone the public sector. Short-term crises may wipe
is one-fifth that of Germany and about twice out years of progress. They may start in a single
that of Argentina.20 country but now, through globalization, spread
over entire regions or to the world. The recent
financial crisis created 22 million new unem-
The role of the private sector
ployed in a single year. Growth in total employ-
In such rapidly changing times, the private sec- ment, hovering around 1.8 percent a year before
tor is the main engine of job creation and the 2008, fell to less than 0.5 percent in 2009, and
source of almost 9 of every 10 jobs in the world. by 2011 had not yet reached its pre-crisis level.28
8 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
In
F I G U R E 3 China, employment growth is led by the private sector
110
100
90
number of workers, millions
80
70
60
50
40
30
20
10
0
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
state-owned enterprises private firms (8 workers or more)
individual firms (fewer than 8 workers) foreign-owned companies
Policy responses to prevent and mitigate the im- Demography, urbanization, globalization,
pact of crises involve different combinations of technology, and macroeconomic crises bring
instruments, with potentially diverse implica- about formidable jobs challenges. Countries
tions for jobs.29 that fail to address them may fall into vicious
circles of slow growth in labor earnings and
job-related dissatisfaction affecting a sizable
Jobs
F I G U R E 4 are transformational portion of the labor force.30 Youth unemploy-
ment and idleness may be high, and women
may have fewer job opportunities, leaving po-
tential economic and social gains untapped.31
A repeating pattern of small gains in living
DEVELOPMENT standards, slow productivity growth, and erod-
ing social cohesion can set in. In contrast,
countries that address these jobs challenges can
develop virtuous circles. The results—pros-
perous populations, a growing middle class,
LIVING PRODUCTIVITY SOCIAL
COHESION increased productivity, and improved oppor-
STANDARDS
tunities for women and youth—may then be
self-reinforcing.
jobs can boost living standards, raise productiv- not refer to identical workers. But growth also
ity, and foster social cohesion (figure 4). improves the living standards of workers whose
skills have not changed.
More than two decades of research on pov-
Jobs are what we earn
erty dynamics, spanning countries as different
Jobs are the most important determinant of as Canada, Ecuador, Germany, and South Africa,
living standards. For most people, work is the show that labor-related events trigger exits from
main source of income, especially in the poorest poverty.33 These events range from the head of
countries. Many families escape or fall into pov- a household changing jobs to family members
erty because family members get or lose a job. starting to work and to working family mem-
Opportunities for gainful work, including in bers earning more. Conversely, a lack of job op-
farming and self-employment, offer households portunities reduces the ability of households
the means to increase consumption and reduce to improve their well-being.34 In a large set of
its variability. Higher yields in agriculture, ac- qualitative studies in low-income countries, get-
cess to small off-farm activities, the migration ting jobs and starting businesses were two of the
of family members to cities, and transitions to main reasons for people to rise out of poverty.35
wage employment are milestones on the path to Quantitative analysis confirms that changes
prosperity.32 And as earnings increase, individ- in labor earnings are the largest contributor to
ual choices expand—household members can poverty reduction (figure 6). In 10 of 18 Latin
choose to stay out of the labor force or to work American countries, changes in labor income
fewer hours and dedicate more time to educa- explain more than half the reduction in poverty,
tion, to retirement, or to family. and in another 5 countries, more than a third. In
Earnings from work increase with economic Bangladesh, Peru, and Thailand, changes in edu-
development, and the benefits associated with cation, work experience, and region of residence
jobs improve as well. The relationship is not mattered, but the returns to these characteristics
mechanical, but growth is clearly good for jobs (including labor earnings) mattered most. Just
(figure 5). Admittedly, as economies become having work was not enough, given that most
more developed, the average skills of jobhold- people work in less developed economies. What
ers increase, implying that observations across made a difference for escaping poverty was in-
countries are not strictly comparable, as they do creasing the earnings from work.36
Jobs
F I G U R E 5 provide higher earnings and benefits as countries grow
80
2005 PPP US$
10,000
60
40
1,000
20
100 0
300 3,000 30,000 300 3,000 30,000
GDP per capita, 2005 PPP US$ GDP per capita, 2005 PPP US$
Jobs
F I G U R E 6 account for much of the decline in extreme poverty
200
percentage of total change in extreme poverty
150
100
50
–50
–100
ia
or
ico
ile
va
ica
ay
nd
il
as
sh
ru
pa
do
az
in
an
bi
m
an
ad
ur
de
gu
Pe
do
Ch
la
aR
ex
nt
Ne
na
Br
ua
Gh
m
nd
ai
lv
la
ra
ol
lo
ge
M
Pa
st
Ec
Th
Ro
Sa
ng
M
Pa
Ho
Co
Co
Ar
El
Ba
family composition labor income nonlabor income consumption-to-income ratio
Sources: Azevedo and others 2012; Inchauste and others 2012; both for the World Development Report 2013.
Note: Family composition indicates the change in the share of adults (ages 18 and older) within the household. Labor income refers to the change in employment and earnings for
each adult. Nonlabor income refers to changes in other sources of income such as transfers, pensions, and imputed housing rents. If a bar is located below the horizontal axis, it
means that that source would have increased, instead of decreased, poverty. The changes are computed for Argentina (2000–10); Bangladesh (2000–10); Brazil (2001–09); Chile
(2000–09); Colombia (2002–10); Costa Rica (2000–08); Ecuador (2003–10); El Salvador (2000-09); Ghana (1998–2005); Honduras (1999–2009); Mexico (2000–10); Moldova (2001–10);
Panama (2001–09); Paraguay (1999–2010); Peru (2002–10); Nepal (1996–2003); Romania (2001–09); and Thailand (2000–09). The changes for Bangladesh, Ghana, Moldova, Nepal,
Peru, Romania, and Thailand are computed using consumption-based measures of poverty, while the changes for the other countries are based on income measures.
Beyond their fundamental and immediate are created and less productive jobs disappear.
contribution to earnings, jobs also affect other These gains may ultimately be driven by new
dimensions of well-being, including mental and goods, new methods of production and trans-
physical health. Not having a job undermines portation, and new markets, but they material-
life satisfaction, especially in countries where ize through a constant restructuring and real-
wage employment is the norm and where the location of resources, including labor.38 Net job
lack of opportunities translates into open un- creation figures hide much larger processes of
employment rather than underemployment. gross job creation and gross job destruction. On
Among those employed, the material, nonmate- average across developing countries, between
rial, and even subjective characteristics of jobs 7 and 20 percent of jobs in manufacturing are
can all have an impact on well-being.37 Other created within a year, but a similar proportion
features such as workplace safety, job security, disappear (figure 7).39
learning and advancement opportunities, and Because economies grow as high-productivity
health and social protection benefits are valued jobs are created and low-productivity jobs dis-
by workers. But relatively few jobs offer these appear, the relationship between productivity
advantages in developing countries. gains and job creation is not mechanical. In the
medium term, employment trends align closely
with trends in the size of the labor force, so
Jobs are what we do
growth is truly jobless in very few cases. In the
Economic growth happens as jobs become more short term, however, innovations can be associ-
productive, but also as more productive jobs ated with either increases or decreases in em-
Moving jobs center stage 11
The
F I G U R E 9 employment share of microenterprises is greater in developing countries
Ethiopia
Egypt, Arab Rep.
India
Bolivia
Colombia
Ghana
Mexico
Venezuela, RB
Argentina
Poland
Turkey
Hungary
South Africa
Uruguay
Czech Republic
Slovenia
Chile
Romania
Vietnam
industrial countries (average)
0 20 40 60 80 100
share of employment, %
manufacturing sector services sector
dor, for instance, they did so “because they were whose fathers did not have formal sector jobs
searching for the support, trust, and cohesion— were significantly less likely to have such jobs
social capital—that they maintained their fami- themselves.58
lies did not provide, as well as because of the lack The distribution of jobs within society—and
of opportunities in the local context.”55 perceptions about who has access to opportu-
The workplace can be a place to encounter nities and why—can shape expectations for the
new ideas and interact with people of different future and perceptions of fairness. Children’s
genders or ethnicities. Bosnians interviewed aspirations may be influenced by whether their
in the late 1990s commented that “the area in parents have jobs and the types of jobs they
which there is the greatest support for ethnic co- have. The Arab Spring was not merely about
operation is in the workplace.”56 Business people employment. But disappointment, especially
in Trinidad and Tobago reported that they in- among youth, about the lack of job opportuni-
teracted with people of a wider range of ethnic- ties and frustration with the allocation of jobs
ities at work than they did in their social lives.57 based on connections rather than merit echoed
Networks can also exclude. In Morocco, people across countries.
14 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
F I G U R E 10 People who are unemployed, or do not have motivating jobs, participate less in society
marginal probability
◆
marginal probability
–0.1 ◆
◆ 0
–0.2
◆
–0.3
–0.01 ◆
–0.4
◆
–0.5
–0.02
–0.6
high upper lower low high upper lower low
income middle middle income income middle middle income
income income income income
Source: Wietzke and McLeod 2012 for the World Development Report 2013.
Note: The vertical axis shows the probability of the respondent being an active member of one or more of nine types of associations, controlling for the income, education,
and demographic characteristics of respondents. In panel a, the probability is linked to being unemployed, and panel b to having a job characterized as cognitive, creative, or
independent. The vertical lines indicate the 95 percent confidence interval of the estimated probability.
Jobs influence how people view themselves, The nature of jobs matters as well. Jobs that
how they interact with others, and how they empower, build agency, and respect rights are
perceive their stake in society.59 Jobs also can associated with greater trust and willingness to
have collective consequences. They can shape participate in civil society. Jobs that create eco-
how societies handle collective decision making, nomic and social ties may build incentives to
manage tensions between diverse groups, and work across boundaries and resolve conflict.
avoid and resolve conflicts. The relationship is And if people believe that job opportunities are
not immediate or direct, however. Jobs are only available to them either now or in the future,
one factor contributing to the capacity of socie- their trust in others and their confidence in in-
ties to manage collective decision making peace- stitutions may increase. Ultimately, jobs can in-
fully. And social cohesion can in turn influence fluence social cohesion through their effects on
jobs by shaping the context in which entrepre- social identity, networks, and fairness.
neurs make business decisions.
Trust beyond one’s own group and civic en-
gagement are two indicators of social cohesion. Valuing jobs
Unemployment and job loss are associated with
lower levels of both trust and civic engagement Not all forms of work are acceptable. Activities
(figure 10). While causality is difficult to es- that exploit workers, expose them to dangerous
tablish, there is more than just a correlation at environments, or threaten their physical and
stake. Indonesian men and women who were mental well-being are bad for individuals and
working in 2000 but not in 2007 were less likely societies alike. Child prostitution and forced la-
to be participating in community activities than bor contravene principles of human dignity and
those still at work. And those who were working undermine individual and collective well-being.
in 2007 but not in 2000 were significantly more Today, an estimated 21 million people globally
likely to be involved in the community than are victims of bonded labor, slavery, forced pros-
those who were still out of work.60 titution, and other forms of involuntary work.61
Moving jobs center stage 15
In 2008, 115 million children between the ages household income contributed by women of-
of 5 and 17 were involved in hazardous work.62 ten results in improvements in children’s edu-
International norms of human rights and labor cational attainment and health. In Bangladesh,
standards reject forced labor, harmful forms of where the garment industry employs women
child labor, discrimination, and the suppression in large numbers, the opening of a garment
of voice among workers. factory within commuting distance of a vil-
Beyond rights, the most obvious outcome lage is seen as a signal of opportunity and leads
of a job is the earnings it provides to its holder. to increased schooling for girls.64 Among dis
These earnings can be in cash or in kind and advantaged castes in Southern Indian villages,
may include a range of associated benefits. an increase of US$90 in a woman’s annual in-
Other characteristics, such as stability, voice, come is estimated to increase schooling among
and fulfillment at work, also affect subjective her children by 1.6 years.65
well-being. Several of these dimensions of jobs Similarly, a job created or sustained through
have been combined into the concept of De- foreign direct investment (FDI) matters for
cent Work, introduced by the International La- other jobs, and thus for other people. With the
bour Organization (ILO) in 1999.63 Defined as investment come knowledge and know-how.
“opportunities for women and men to obtain These raise productivity not only in the foreign
decent and productive work in conditions of subsidiary but also among local firms interact-
freedom, equity, security and human dignity,” ing with the subsidiary or operating in its vicin-
this concept has been used by many govern- ity. Such knowledge spillovers are sizable in low-
ments to articulate their policy agendas on and middle-income countries.66 Conversely, a
jobs. The concept of Decent Work has also been job in a protected industry that needs to be sup-
embraced by the United Nations and several ported through transfers (either by taxpayers
international organizations and endorsed by or by consumers) generates a negative spillover,
numerous global forums. even more so when the need for protection is
As jobs provide earnings, generate output, associated with the use of outdated technology
and influence identity, they shape the well- that results in high environmental costs.
being of those who hold them—and they also Jobs can also affect other people by shaping
affect the well-being of others. To understand social values and norms, influencing how groups
how much jobs contribute to development, it is coexist and manage tensions. In Bosnia and
necessary to assess these effects—the spillovers Herzegovina and the former Yugoslav Republic
from jobs. Jobs that generate positive spillovers of Macedonia, surveys found that the number of
have a greater value to society than they have people willing to work together or do business
to the individual who holds the job, while the with someone of a different ethnicity was greater
opposite is true when spillovers are negative. In- than the number of people in favor of intereth-
tuitively, many people have notions about such nic cooperation in schools or neighborhoods.67
broader payoffs. When asked about their most And in the Dominican Republic, a program tar-
preferred jobs, respondents in China, Colombia, geted to youth at risk shows that jobs can change
Egypt, and Sierra Leone give different answers behaviors with positive implications for society.
from those they offer when asked to identify Participation in the Programa Juventud y Em-
the most important jobs to society (figure 11). pleo (Youth and Employment Program), which
Working as a civil servant or as a shop owner is provides a combination of vocational and life
generally preferred by individuals, while teach- skills training, reduced involvement in gangs,
ers and doctors are quite often mentioned as the violence, and other risky behaviors.68
most important jobs for society. For the same level of earnings and benefits,
Who gets a job makes a difference too, and the larger the positive spillovers from a job, the
not just for individuals. In a society that values more transformational the job can be, and the
poverty reduction, jobs that take households greater its value to society. In everyday parlance,
out of hardship generate a positive spillover, good jobs are those that provide greater well-
because they improve the well-being of those being to the people who hold them. But good
who care. Female employment also matters be- jobs for development are those with the highest
yond the individual. An increase in the share of value for society. Understanding these wider
16 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
social value
30 T C 30
F
T
20 20 F
D
10 10
C
S S
0 0
0 10 20 30 40 50 0 10 20 30 40 50
individual value individual value
social value
30 30
20 T 20 F
F T
C
10 10 CS
S
0 0
0 10 20 30 40 50 0 10 20 30 40 50
C D F S T
civil doctor farmer shop teacher
servant owner
Sources: Bjørkhaug and others 2012; Hatløy and others 2012; Kebede and others 2012; and Zhang and others 2012; all for the World Development Report 2013.
Note: The figure shows the share of respondents who would want the job for themselves (individual value) and those who think the job is good for society (social value).
payoffs to jobs has shaped recent development tribute to common goals, such as poverty reduc-
thinking.69 tion, environmental protection, or fairness.
Spillovers from jobs can be identified across Because a job can affect the well-being of
all three transformations (figure 12). Some di- others as well as that of the jobholder, two jobs
rectly affect the earnings of others, as when a job that may appear identical from an individual
is supported through government transfers, or perspective could be different from a social per-
restrictive regulations that reduce employment spective (figure 13). The individual perspective
opportunities for others. Other spillovers take provides a useful starting point, because it often
place through interactions: in households in the coincides with the social perspective. A high-
case of gender equality, at the workplace when paying job in Bangalore’s information technol-
knowledge and ideas are shared, or in society ogy sector is probably good for the worker; it is
more broadly in the case of networks. Spillovers also good for India because it contributes to the
also occur when jobs and their allocation con- country’s long-term growth. In other cases, the
Moving jobs center stage 17
The
F I G U R E 13 individual and social values of jobs can differ
individual burden
value shifted
individual
environmental value
cost
But the nature of good jobs for development jobs that do no environmental damage have
in a particular context is not simply a function particularly positive development impacts.
of income per capita. It may be influenced by
conflict that is ongoing or still reverberating. • Formalizing countries. Large and growing ur-
ban populations generally lead to more de-
A country’s geography or its natural endow-
veloped economies, where a fairly substantial
ments can also be determining factors. Small is-
proportion of firms and workers are covered
land nations have unique jobs challenges, as do
by formal institutions and social programs.
resource-rich economies. Or demography may
But further increasing formality to levels typi-
be the key characteristic—witness the imposing
cal of industrial countries involves tradeoffs
but very different challenges in countries facing
between living standards, productivity, and
high youth unemployment and those with ag-
social cohesion. There is a premium on jobs
ing populations.
that can be formalized without making labor
too costly and on jobs that reduce the divide
A typology of jobs challenges between those who benefit from formal insti-
tutions and those who do not.
A country’s level of development, institutional
strength, endowments, and demography de- In some countries, the jobs challenge is
fine where the development payoff from jobs shaped by demography and special circum-
is greatest. The jobs agenda in one country will stances affecting particular groups.
thus be different from that in another country,
depending on their dominant features. The
• In countries with high youth unemployment
young people do not see opportunities for
challenges facing countries as they move along
the future. Many of these countries have large
the development path are illustrated by the
youth bulges, which can put downward pres-
agrarian, urbanizing, and formalizing cases:
sure on employment and earnings. Many also
• Agrarian countries. Most people are still en- have education and training systems that are
gaged in agriculture and live in rural areas. not developing the kinds of skills needed by
Jobs that improve living standards have a the private sector. On closer inspection, the
substantial development payoff because of problem is often more on the demand side
high poverty rates. Cities need to be more than the supply side, with limited compe
functional to reap the benefits from agglom- tition reducing employment opportunities,
eration and global integration, so jobs that especially in more skill-intensive sectors. In
set the foundation for cities to eventually be- these settings, removing privilege in business
come economically dynamic are good jobs entry and access to jobs is likely to have large
for development. Even in the most optimistic development payoffs.
scenario, however, it may take decades before • Aging societies also face generational issues,
urbanization is complete, so increasing pro- but these stem from a shrinking working-age
ductivity in agriculture is a priority. population and the high cost of providing
and caring for a growing number of elderly
• Urbanizing countries. Productivity growth in people. The impact of the declining working-
agriculture has risen enough to free up large
age population can be mitigated through pol-
numbers of people to work in cities. Job
icies for active aging, ensuring that the most
opportunities for women, typically in light
productive members of society, including
manufacturing, can have positive impacts
the highly skilled elderly, can work. Contain-
on the household allocation of resources.
ing the increase in pension, health care, and
Jobs that deepen the global integration of
long-term care costs can be achieved through
urbanizing countries, especially in higher-
reforms in program design, but these reforms
value-added export sectors, are also good
can be a source of social strain.
for development. As countries urbanize,
congestion, pollution, and other costs of Natural endowments, including geography,
high density become increasingly serious, so and institutions can create unique jobs challenges.
Moving jobs center stage 19
• Resource-rich countries may have substantial that would make the greatest contribution to
foreign exchange earnings, but this wealth development in each case. This focus allows
may not translate into employment creation for a richer analysis of the potential tradeoffs
beyond the exploitation of natural resources. between living standards, productivity, and
Indeed, the abundance of foreign exchange social cohesion in a specific context. It pro-
can hamper the competitiveness of other ex- vides clues about the obstacles to job creation
port activities. Some resource-rich countries and, ultimately, the priorities for policy makers
distribute part of their wealth through trans- (figure 14).
fers or subsidized public sector jobs, while
relying on migrants to do menial work. This Migration of people—and of jobs
approach can maintain living standards but at
the expense of productivity growth and social The movement of people and jobs implies that
cohesion. In those countries, jobs that sup- jobs challenges, while being country specific,
port the diversification of exports can have also have a global scope. These processes have
large development payoffs. implications for living standards and productiv-
ity at both the sending and the receiving ends,
• Small island nations, because of their size and and they can transform families and entire com-
remoteness, cannot reap the benefits from munities, for better or for worse. Tradeoffs are
agglomeration and global integration except inevitable, and coping with them only through
through tourism. So the productivity spill- the policies of receiving countries alone may
overs from jobs are limited, as are employ- prove unsatisfactory.
ment opportunities outside basic services and At the turn of the 21st century, there were
government. Outmigration offers an alter- more than 200 million international migrants
native for improving living standards, while worldwide, nearly 90 million of them work-
return migration and diaspora communities ers. Many migrants are temporary or seasonal
can stimulate the diffusion of new business workers who eventually return home. Some
ideas among locals. countries are mainly recipients, while others are
• In conflict-affected countries, the most imme- sources, and yet others neither host nor send
diate challenge is to support social cohesion. significant numbers of migrants (map 1). Some
Employment for ex-combatants or young are large recipients either in absolute numbers
men vulnerable to participation in violence (for instance, the United States) or in relative
takes on particular importance. With fragile terms (Jordan and Singapore). Migrants from
institutions and volatile politics, attracting Bangladesh, Mexico, and India represent a large
private investment and connecting to global share of total migrants worldwide; Fiji, Jamaica,
value chains may be out of reach for quite and Tonga have a large share of their population
some time. Yet construction can boom even overseas. Figures for some of the smaller coun-
in poor business environments, and it is la- tries are striking. For instance, about a fifth of
bor intensive. Investments in infrastructure all Salvadorians live abroad, while more than 60
can not only support social cohesion through percent of the populations of Kuwait, Qatar, and
their direct employment impact, they can also the United Arab Emirates are foreign-born.71
be a step in preparing for future private sector International migration increases the in-
job creation. comes of migrants and their families through
earnings and remittances. The majority of the
These criteria are not mutually exclusive. studies find either no effect or a very small nega-
Chad and the Democratic Republic of Congo tive effect on the labor earnings of locals in re-
are both resource rich and conflict affected; ceiving countries. Migrants also contribute to
Jordan and Armenia are formalizing and also global output if their productivity abroad is
have high youth unemployment. Still, look- higher than it would be at home, which is usually
ing through the jobs lens and focusing on the the case. They may even contribute to output in
key features of the different country types can the sending country, as networks of migrants
help identify more clearly the kinds of jobs and returnees channel investments, innovation,
20 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
figure 14 Good jobs for development are not the same everywhere
Jobs challenge What are good jobs for development?
and expertise. Social effects are more mixed. computer and information services, legal and
On the positive side, migration connects people technical support, and other business services.
from different cultures in ways bound to widen India was the pioneer, but other countries—
their horizons. On the negative side, the separa- Brazil, Chile, China, and Malaysia, to name a
tion from family and friends can be a source of few—have also seized the opportunity.72
distress and isolation. Migration may also bring The obvious winners of job migration are the
racial prejudice and heighten social tensions in workers and entrepreneurs in countries to which
host countries, especially when migrants are se- industries and splintered service jobs have mi-
cluded in segregated occupations or neighbor- grated. This migration, along with the transfer
hoods, preventing their integration in society. of new technologies and advanced management
Jobs are on the move as well. The past four methods, contributes to productivity growth
decades have been marked by the outsourcing of and higher living standards. The hidden win-
manufacturing tasks from industrial countries ners of job migration are consumers worldwide.
to the developing world, especially to East Asia The improved international division of labor in-
(figure 15). More recently, the same pattern is creases the availability of goods and services and
observable for service tasks. In fact, services are enhances the possibility of gaining from trade.
the fastest-growing component of global trade. The clear losers are those who have seen their
Developing countries are now exporting not jobs disappear because of the declining compet-
only traditional services, such as transportation itiveness of their industries and services. Among
and tourism, but also modern and skill-inten- the losers, many skilled workers find comparable
sive services, such as financial intermediation, jobs without a substantial loss in salary, but oth-
Moving jobs center stage 21
Percent
0–1.99
2.00–4.99
5.00–9.99
10.00–14.99
15.00–100
no data
Percent
0–1.99
2.00–4.99
5.00–9.99
10.00–14.99
15.00–100
no data
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
Sources: World Development Report 2013 team based on Özden and others 2011, and Artuc and others 2012, using census data around 2000.
ers do not. Low-skilled workers or those with service is critically important for development,
industry- or occupation-specific skills that are whether it is teachers building skills, agricul-
no longer in demand are those who suffer most. tural extension agents improving agricultural
productivity, or urban planners designing func-
tional cities. Temporary employment programs
Policies through the jobs lens for the demobilization of combatants are also
justified in some circumstances. But as a general
While it is not the role of governments to create rule it is the private sector that creates jobs. The
jobs, government functions are fundamental for role of government is to ensure that the condi-
sustained job creation. The quality of the civil tions are in place for strong private-sector-led
22 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
30
avoid a situation where growth coexists with
25 unacceptable forms of employment.
F igure 17 Finance and electricity are among the top constraints faced by formal private enterprises
Firm size Income level
Constraint Small Medium Large Low Lower middle Upper middle High All
Access to finance
Power shortage
Lack of skills
Informal competition
Tax rates
clusion. But regulatory oversight is needed to takes to comply with regulations or to receive
ensure transparency and competition in how permits.81 Business regulations also affect com-
funds are allocated.78 The financial crisis of 2008 petition and thus the pressure to innovate and
reopened heated debates on the appropriate increase productivity. Across countries, regula-
regulation of the financial sector and the need tions on business entry are inversely correlated
to balance prudence and stability with innova- with productivity and firm creation, with stron-
tion and inclusion. ger effects in sectors that have higher rates of
Access to affordable and quality infrastruc- entry.82 In Mexico, easing entry requirements
ture is a prerequisite for firms to operate. Power increased business registration and employ-
shortages are the number-two constraint to ment and drove down consumer prices, largely
firm growth and job creation mentioned by through creating new firms rather than formal-
entrepreneurs the world over—and number izing informal firms.83
one in low-income countries. Telecommunica- Human capital. Good outcomes in nutrition,
tions allow for a better flow of information with health, and education are development goals
suppliers and customers, and the internet and in themselves, because they directly improve
mobile technology facilitate the spread of new people’s lives. But they also equip people for
ideas. Roads provide greater access to markets, productive employment and job opportuni-
as do ports and airports.79 The way infrastruc- ties—and through this channel, human capi-
ture is regulated is important as well. Inad- tal drives economic and social advances. There
equate pricing policies and regulations amplify is robust evidence from throughout the world
the gap in needed infrastructure services. In that an additional year of schooling raises earn-
many countries, monopolies based on politi- ings substantially, and that this earnings pre-
cal connections have led to reduced quantities mium reflects the higher productivity of more
of infrastructure services at higher prices and educated workers.84 Together, nutrition, health,
lower quality.80 and education combine to form human skills
Business regulation also affects the oppor- and abilities that have been powerfully linked to
tunities for businesses to grow and create jobs. productivity growth and poverty reduction in
Regulations can increase the cost of doing busi- the medium to longer run.85 Also, better health
ness, in money or in time needed to comply. brings, directly, higher labor productivity. As
Steps taken to meet requirements or to pay fees such, human capital is a fundamental ingredi-
are a burden for businesses, as are delays or dis- ent for desirable job outcomes.
cretionary decisions, such as those for permits Human capital formation is cumulative.
or licenses. There is great variation across firms Of crucial importance are adequate health
in the same location with regard to the time it and nutrition during “the first 1,000 days,”
Moving jobs center stage 25
from conception to two years of age. Brain consistently find crime and corruption to be ob-
development in this time period affects physi- stacles to conducting business.95
cal health, learning abilities, and social be- An effective judicial system is a key institu-
havior throughout life.86 Ensuring adequate tion for enforcing property rights and reduc-
nutrition, health, and cognitive stimulation ing crime and corruption. An independent,
through a nurturing environment from the accountable, and fair judiciary can contribute
womb through the first years raises returns to to private sector growth and job creation by en-
later child investments significantly.87 While forcing the rules that govern transactions and
foundations are laid early on, human capital by helping ensure that the costs and benefits of
and skills continue to be formed throughout growth are fairly distributed. The justice system
childhood and young adulthood. School- can enforce contracts, reduce transaction costs
ing is fundamental for the further develop- for firms, and create a safe and more predictable
ment of cognitive and social skills until the business environment.96 And effective courts in-
end of the teenage life. Social skills remain crease the willingness of firms to invest.97
malleable through adolescence and the early An institutional environment that respects
adult years.88 Young adults can continue rights is an important ingredient of the rule of
into more specialized skill-building, includ- law and a foundation for good jobs for develop-
ing at tertiary levels, but success depends on ment. The ILO’s core labor standards provide a
whether the generic skills needed to learn floor in the areas of child labor, forced labor,
and adapt to different tasks and problem- discrimination, and freedom of association
solving environments have been acquired. and collective bargaining.98 Health and safety
These general skills are especially important in at work also call for attention by governments
more dynamic economic environments. and employers. Ensuring that standards are
Unfortunately, the evidence shows that many applied in practice requires providing access to
countries are falling short in building up the information to workers and employers. It also
human capital of their children and youth. The implies expanding legal coverage to workers in
quality of delivery systems has often failed to jobs that fall outside formal laws and regula-
keep pace with the expansion of access to basic tions. Associations of informal workers can
social services. In a large majority of develop- inform them about their rights, help them use
ing countries that took part in the Programme legal mechanisms, and offer them collective
for International Student Assessment (PISA) in voice.99
2009, at least one-fifth of 15-year-old students
were functionally illiterate (not reaching at least
Labor policies: Avoiding the two cliffs
level 2 in the PISA reading assessment).89
The rule of law. Across countries, the pres- A malfunctioning labor market may prevent
ence of institutions that protect property rights, economic growth from translating into more
uphold the rule of law, and rein in corruption is and better jobs. Traditional analyses focus on
associated with higher levels of development.90 labor supply, labor demand, and their matching
Property rights foster private sector growth by to explain why there may not be enough employ-
allowing firms to invest without the fear that ment, or not enough wage employment in the
their assets will be stolen or confiscated.91 The case of developing countries. By not addressing
ability to enforce contracts widens the circle labor market imperfections, or by creating them,
of potential suppliers and customers, as per- labor policies can indeed constrain job creation,
sonal connections become less important in even seriously. In many cases, however, the con-
establishing trust.92 The rule of law has direct straints to creating transformational jobs are not
implications for the growth of firms and jobs. connected to the labor code. The low productiv-
Entrepreneurs who believe their property rights ity of smallholder farming in agrarian econo-
are secure reinvest more of their profits than mies is probably more closely related to failures
those who do not.93 Conversely, rampant crime in agricultural research and extension. And the
and violence are likely to drive firms away and lack of competition in technologically advanced
discourage domestic and foreign investment.94 activities that could boost the demand for skilled
Across countries, investment climate surveys work in countries with high youth unemploy-
26 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
ment is more likely to stem from cronyism and youth, women, and the less skilled. In Colombia
political favoritism. and Indonesia, minimum wage increases had
There is no consensus on what the content only a modest overall effect but the employment
of labor policies should be. Views are polarized, impact was stronger for young workers.101 Reg-
reflecting differences in fundamental beliefs. To ulations more clearly affect job flows, creating
some, labor market regulations and collective “stickiness” in the labor market and slowing the
bargaining are sources of inefficiency that re- pace of labor reallocation.102 While this hinders
duce output and employment, while protecting economic efficiency, the evidence on produc-
insiders at the expense of everyone else. In this tivity is fairly inconclusive, though admittedly
view, unemployment insurance and active labor scarce.103
market programs create work disincentives and In developing countries, collective bargain-
are a waste of money. To others, these policies ing does not have a major impact outside the
provide necessary protection to workers against public sector and activities characterized by
the power of employers and the vagaries of the limited competition, where there are rents to
market. They can even contribute to economic share.104 Unions consistently raise wages for
efficiency by improving information, insuring workers. Studies place this premium in the 5 to
against risks, and creating conditions for long- 15 percent range in Mexico; around 5 percent
term investments by both workers and firms. in Korea; and at 10 to 20 percent in South Af-
Advocates of both views can find examples rica.105 The costs in terms of reduced jobs are
to support their positions. Those who see labor not so clear, however. In some countries, though
policies and institutions as part of the problem not all, the tradeoff seems to be lower employ-
point to the impressive long-term job creation ment, but even then the magnitudes are rela-
record of the United States, a country with lim- tively small. The limited evidence on union ef-
ited interventions in the labor market. They also fects on productivity is also mixed.106 The main
point to the protective job security rules that challenges are extending voice to those who are
have impeded young people from finding work not wage earners, so that the constraints facing
in many North African and Southern European their farms and microenterprises can be ad-
countries. By contrast, those who see labor poli- dressed, and organizing collective bargaining in
cies as part of the solution point to job-sharing a way that enhances productivity.
as decisive in Germany’s relative success in Active labor market programs, such as train-
weathering the financial crisis. ing, employment services, wage subsidies, and
A careful review of the actual effects of labor public works, have a mixed record.107 When they
policies in developing countries yields a mixed are not well grounded in the needs and realities
picture. Most studies find that impacts are mod- of the labor market or when administration is
est—certainly more modest than the intensity poor and not transparent, they are of little use
of the debate would suggest.100 Across firm sizes or even worse. When they are well designed and
and country levels of development, labor poli- implemented, they can help facilitate job match-
cies and regulations are generally not among the ing, mitigate the negative impacts of economic
top three constraints that formal private enter- downturns, and fill the gap when employers
prises face. Excessive or insufficient regulation or workers underinvest in training (figure 18).
of labor markets reduces productivity. But in Even when this is the case, though, effects tend
between these extremes is a plateau where ef- to be modest, so expectations about what active
fects enhancing and undermining efficiency can labor market policies can achieve need to be
be found side by side and most of the impact held in check.
is redistributive, generally to the advantage of Social insurance coverage is limited even in
middle-aged male workers (as opposed to own- the most formalized developing countries. Un-
ers of capital, women, and younger workers). employment insurance can help workers man-
In most countries that have been studied, age the risks of job loss, but it can also weaken
job security rules and minimum wages have a job search efforts. When unemployment insur-
small effect on aggregate employment. These ance, pensions, health care, and other benefits
rules offer benefits for those who are covered, are financed through the payroll, high contri-
while negative effects tend to be concentrated on bution rates can create hiring disincentives. In
Moving jobs center stage 27
success indicator
0.05
improve labor market information, manage
risk, and provide voice. But these advantages 0
can come at the expense of labor market dy-
namism, reduced incentives for job creation –0.05
and job search, and a gap in benefits between
–0.10
the covered and uncovered. The challenge is to
set labor policies on a plateau—a range where
–0.15
regulations and institutions can at least partially in-class workplace in-class training in-class and
address labor market imperfections without training only training only and workplace workplace
training training combined
reducing efficiency. Labor market rules that combined plus other services
are too weak or programs that are too modest
or nonexistent can leave problems of poor in-
Source: Fares and Puerto 2009.
formation, unequal power, and inadequate risk Note: The figure shows the correlation coefficient between type of training and reported success of a
management untreated. In contrast, rules that program, with success defined as improving employment or earnings and being cost-effective.
are too stringent and programs that are too am-
bitious can compound market imperfections
with institutional failures. the health insurance program for the poor in
The focus on good jobs for development of- Vietnam are encouraging in this respect.109 This
fers some insights to assess where the edges of cliff may be less visible than excessive labor mar-
the plateau, the cliffs, may lie. At one end of the ket rigidity, but it is no less real.
plateau are labor policies that slow job creation
in cities, or in global value chains, and make
Priorities: Realizing the development
countries miss out on jobs supporting agglom-
payoffs from jobs
eration effects and knowledge spillovers. Forgo-
ing the development payoffs from urbanization In addition to ensuring that the fundamen-
and global integration would be a consequence tals support growth and that labor policies are
of falling off the cliff. This is not necessarily an adequate, decision makers can help realize the
argument for minimum regulation. There is also development payoffs that come from jobs. Some
scope for arrangements strengthening spatial jobs do more than others for living standards,
coordination, and thus increasing efficiency, as productivity, and social cohesion. What those
suggested by China’s recent experience with col- jobs are depends on the country context—its
lective bargaining. level of development, demography, endow-
At the other end of the plateau, the absence ments, and institutions. In some circumstances,
of mechanisms for voice and protection for there will be no constraints to the emergence of
those who do not work for an employer, or do so good jobs for development, and no specific pol-
in the informal sector, is also a concern. Extend- icy will be needed. In others, governments can
ing voice for workers who are often among the support the private sector in creating more of
poorest may result in higher living standards. these jobs. Sometimes this can be achieved by re-
Limiting abuses by employment intermediar- moving constraints that impede the creation of
ies should enhance efficiency, and building in- jobs with high development payoffs. When this
clusive social protection systems can contribute is not possible, policies can be more proactive
to greater social cohesion. The experience of and bypass the constraints, provided that the
India’s Self Employed Women’s Association and gains to society from doing so outweigh the cost.
28 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
No
intervention
is needed.
Remove
the
Step 4 constraints.
Step 1
Are there enough YES Can the constraints YES Can the constraints YES
of these jobs? be identified? be offset? Design
NO NO NO engagement
strategy.
Step 2 Step 3 Step 5
A simple approach to setting policy priorities In the absence of gaps of this sort, it is difficult
follows five steps (figure 19): to justify government interventions beyond
establishing the fundamentals and adopting
• Step one: What are good jobs for development? adequate labor policies.
Assessing the development payoffs from
Data and analysis can be used to iden-
jobs in a particular country context is the first
tify misaligned incentives, indicated by a
step in identifying priorities. The nature of
gap between the individual and the social
those jobs varies with the characteristics of
value of jobs. Several research areas deal with
the country, including its phase of develop-
these gaps. For instance, the tools of pub-
ment, demography, endowments, and insti-
lic finance can measure the tax burden that
tutions. Jobs challenges are not the same in
applies to capital and labor and assess the cross-
agrarian economies, resource-rich countries,
subsidization between individuals or firms.
conflict-affected countries, or in countries
The methods of labor economics can uncover
with high youth unemployment. And the jobs
gaps between the actual earnings of specific
with the greatest development impact differ
groups of workers and their potential earnings,
as well, resulting in diverse jobs agendas.
or between the social and individual returns to
• Step two: Are there enough of these jobs? A schooling. Poverty analyses help in identifying
country may or may not face constraints in the kind of jobs that are more likely to provide
creating good jobs for development. For ex- opportunities to the poor, or the locations
ample, light manufacturing can offer employ- where job creation would have a greater im-
ment opportunities for women, with signifi- pact on reducing poverty. Productivity stud-
cant impacts on poverty. If a boom is under ies allow for quantifying the spillovers from
way, the development value of new manufac- employment in foreign-owned investment
turing jobs might materialize. But it might companies, or in cities. Environmental studies
not if, for example, inadequate urbanization shed light on the carbon footprint and pollu-
policies limit the establishment of new firms. tion created by various types of jobs. And val-
Moving jobs center stage 29
ues surveys can discover which types of jobs But there are cases when constraints can nei-
provide social networks and social identity. ther be removed nor offset. An engagement strat-
egy involving a deeper analysis of the options
• Step three: Can the constraints be identified? and buy-in by key stakeholders is needed then.
The gaps between the individual and social Policy making to remove or offset constraints
values of specific types of jobs indicate un- needs to be selective and supported by good
exploited spillovers from jobs. The gaps typi- public finance principles. The costs and benefits
cally arise from market imperfections and in- of policy options need to be assessed, but calcu-
stitutional failures that cause people to work lations are different when the overall develop-
in jobs that are suboptimal from a social point ment impact is the guiding objective. An em-
of view, lead firms to create jobs that are not ployment program to demobilize ex-combatants
as good for development as they should be, or in a c onflict-affected country could be assessed
connect people less through jobs than would in terms of whether the earnings gains of par-
be socially desirable. But identifying those ticipants justify the program costs, but a full
constraints is not always easy. For instance, accounting should also incorporate the poten-
a broad set of cultural, social, and economic tially positive effects from reintegration and
forces may result in insufficient employment peace building. In the Democratic Republic of
opportunities for women. Similarly, the ob- Congo, the cost of an integration program for
stacles to more jobs in cities could be in the ex-combatants was about US$800 per benefi-
land market, or in the institutional arrange- ciary.110 Such a program would likely be judged
ments to coordinate urban development, as cost inefficient by traditional standards.
or in the ability to raise revenue to finance Whether or not it is still worth implementing
infrastructure. depends on the value policy makers attach to so-
cial cohesion benefits. These benefits should be
• Step four: Can the constraints be removed? If stated for the policy decision to be transparent.
the institutional failures and market imper-
fections leading to misaligned incentives can
be identified, reforms should be considered. It Diverse jobs agendas, diverse policy
is a good economic principle to target reforms priorities
on the failures and imperfections at the root Some countries have successfully set policy to
of the problem. Where reforms are technically bring out the development payoffs from jobs, in
and politically feasible, policy makers can di- ways that provide a model to others.
rectly tackle the major constraints hindering As an agrarian country, in the 1990s Viet-
the creation of more good jobs for develop- nam concentrated on increasing productivity
ment by the private sector. in agriculture, freeing labor to work in rural
off-farm employment and eventually support-
• Step five: Can the constraints be offset? Reforms ing migration to cities. In 1993, more than 70
might not be feasible, technically or politically.
percent of employment was in agriculture, 58
Or perhaps the constraints for jobs are not
percent of the population lived in poverty, and
identifiable. An alternative then is to adopt famine was still a real concern.111 Two decades
offsetting policies that can restore the incen- later, Vietnam is the second-largest exporter
tives for job creation. For instance, if a dif- of rice and coffee; the largest exporter of black
fuse but entrenched set of norms and beliefs pepper and cashew nuts; and a top exporter of
makes it difficult for women to work, efforts tea, rubber, and seafood products. Poverty has
could aim at increasing their employability declined dramatically. Combined with a strong
through targeted investments in social and emphasis on agricultural extension, land reform
physical infrastructure (box 1). Similarly, if and deregulation led to rapidly growing agri-
politically charged regulations slow down the cultural productivity on very small farm plots.
reallocation of labor toward more productive These policies were part of a broader package
activities, urban infrastructure and logistics of reforms, or Doi Moi, that took Vietnam from
could enhance the attractiveness of jobs in central planning to a market economy with a
cities and jobs connected to world markets. socialist orientation.112 Policies also aimed at
30 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Some developing countries have experienced important increases returns to their earnings. These investments can be categorized into
in women’s labor participation over a relatively short period of time. three groups. They can address shortages in the availability of ser-
Nowhere has the change been faster than in Latin America. Since vices (such as lack of electricity or daycare facilities) that force women
the 1980s, more than 70 million women have entered the labor to allocate large amounts of time to home production. They can
force, raising the female labor participation rate from 36 percent to make it easier for women to accumulate productive assets, such
43 percent. In Colombia, the rate increased from 47 percent in 1984 as education, capital, and land, facilitating their entry into high-
to 65 percent in 2006. By contrast, in the Middle East and North productivity market activities. And they can remove norms or regula-
Africa, women’s labor force participation has only grown by 0.17 tions that imply biased or even discriminatory practices, preventing
percentage points per year over the last three decades. women from having equal employment opportunities.
Recent research attributes this rapid transformation to increases There are successful experiences with targeted investments
in labor force participation among married or cohabiting women and interventions of each of these three sorts. Public provision or
with children, rather than to demographics, education, or business subsidization of child care can reduce the costs women incur at
cycles. Changes in social attitudes contributed to the transforma- home when they engage in market work. Examples include pub-
tion, but this is a complex area with limited scope—and justifica- licly provided or subsidized day care such as Estancias Infantiles in
tion—for direct policy intervention. For instance, women’s partici- Mexico, Hogares Comunitarios in Colombia, and similar programs
pation rates are very low in the West Bank and Gaza, particularly in Argentina and Brazil. Improvements in infrastructure services—
among married women. But this cannot be mechanically attributed especially in water and electricity—can free up women’s time
to religion, as countries like Indonesia have high participation rates. spent on domestic and care work. Electrification in rural South
Other social norms and regulations prevent women from participat- Africa, for instance, has increased women’s labor force participa-
ing, despite their willingness and capacity to do so. tion by about 9 percent. Correcting biases in service delivery insti-
While the scope to influence social attitudes is limited, evidence tutions, such as the workings of government land distribution and
suggests that public policies and programs in other areas have an registration schemes, allows women to own and inherit assets.
important role to play. It also suggests that a combination of tar- Finally, the use of active labor market policies, the promotion of
geted investments and interventions in social and physical infra- networks, and the removal of discriminatory regulations are impor-
structure can modify women’s labor force participation and the tant to make work more rewarding for women.
Sources: World Development Report 2013 team based on Amador and others 2011, Chioda 2012, and World Bank 2011d.
creating employment opportunities outside ag- expressed satisfaction with their social integra-
riculture. The country opened to foreign inves- tion, and 85 percent of community members
tors, first in natural resource exploitation and felt there was trust between the two groups.115
light manufacturing, and then more broadly in While ex-combatants were only a small share of
the context of its accession to the World Trade Rwanda’s population of 10 million, their reinte-
Organization in 2007. Registered FDI increased gration had payoffs for social cohesion. Rwanda
fourfold in just two years, from 1992 to 1994; has built on this start by rejuvenating the private
over the past five years, FDI inflows exceeded 8 sector through reforms of institutions and busi-
percent of GDP.113 ness regulations.116 The coffee industry has cre-
Rwanda, a conflict-affected country, has re- ated thousands of new jobs.117
bounded after the ethnic conflict and destruction Chile, a resource-rich country, has managed
of the mid-1990s. By 2000, Rwanda’s economy its copper riches in a way compatible with job
had returned to precrisis levels as a result of the creation in nonresource sectors. Home to more
cessation of conflict as well as an aggressive pack- than a quarter of the world’s copper reserves,
age of reforms.114 Growth has continued, reach- Chile diversified its exports and its economy
ing an estimated 8.8 percent in 2011, and the while effectively managing resource-related
poverty rate fell by 12 percentage points between risks such as currency appreciation and infla-
2005 and 2010. In the wake of the conflict, the tion. Unemployment fell to single digits from
government supported the reintegration and de- around 20 percent in the early 1980s.118 A re-
mobilization of more than 54,000 former com- source stabilization fund (since 1987) together
batants. In 2012, 73 percent of ex-combatants with a transparent fiscal rule (since 1999) al-
Moving jobs center stage 31
lowed the country to save for difficult times and New Zealand in 2007 to provide employment
avoid a loss of competitiveness. Governance re- opportunities through migration, leading to
forms in all areas of public sector management higher remittances, improved knowledge of
promoted accountability and transparency. An agricultural techniques, computer literacy,
active export-oriented growth policy, including and English-language skills.125 Brazil provides
the welcoming of foreign investment, supported an example of a rapidly formalizing country.
productivity spillovers from jobs connected to Over the past decade, job creation in the for-
global markets. Competitive innovation funds mal sector has been three times as rapid as in
for nonmineral export sectors, especially in the informal sector. Just in the five years lead-
agribusiness, have broadened the export base.119 ing up to the crisis, the formal share of total
The public budget boosted education spending, employment increased by about 5 percentage
which almost doubled between 1990 and 2009, points.126 Non-contributory social protection
leading to an unprecedented expansion of sec- programs such as Bolsa Familia, a simplifica-
ondary and tertiary education.120 tion of tax rules for small business, increased
Slovenia has successfully tackled its very high incentives for firms to formalize their work-
youth unemployment rate, reducing the ratio of ers, and improved enforcement of tax and
youth to adult unemployment from three in labor regulations contributed to this success.
the 1990s to around two today.121 The success Poland, an aging society, has seen its employ-
in reducing youth unemployment cannot be ment ratio increase from 60 percent in 2006 to
attributed to spending on active labor market 65 percent in 2009. This was due to changes in
programs (about average for transition coun- the application of eligibility rules of disabil-
tries), liberalizing the labor market (rules re- ity pensions, and pension reforms adjusting
main more restrictive than the average in de- the level of benefits down as life expectancy
veloped countries), or low minimum wages increases. In 2012, a new wave of pension re-
(still on the high side).122 Potential distortions forms raised the retirement age to 67 for men
from these policies seem to be somewhat off- and women from the current 65 for men and
set, however, by a model of consensus-based 60 for women.127
decision making whereby trade unions and
employer organizations, with broad coverage,
Connected jobs agendas: Global
set wages that respond well to macroeconomic
partnerships for jobs
trends and sectoral productivity.123 Sustained
growth before the global crisis is ultimately Policies for jobs in one country can have spill-
responsible for much of Slovenia’s decline in overs to other countries, both positive and nega-
youth unemployment. Taking advantage of tive. An important issue is whether international
European integration, the economy success- coordination mechanisms could influence gov-
fully restructured its export sector. Very good ernment decisions to enhance the positive spill-
infrastructure and a fairly well-skilled work- overs and mitigate the negative. Several areas
force helped as well. lend themselves to more and better coordination.
Examples of successful policies can actu- Rights and standards. Cross-border mecha-
ally be found across the entire typology of jobs nisms exist to set standards and provide chan-
challenges (figure 20). As an urbanizing coun- nels for improving compliance with rights. ILO
try, Korea carefully designed and phased poli- conventions can influence domestic legislation
cies to accompany the transition of jobs from and be a channel for voice and coordination in-
agriculture to light manufacturing and then ternationally, as demonstrated by the process of
to industries with higher value added.124 Land adopting the conventions for home-based and
development programs were established first, domestic workers. The support for core labor
followed by a land-use regulation system, and standards in the 1998 Declaration on Funda-
then by comprehensive urban planning. Hous- mental Principles and Rights at Work suggests
ing and transportation policies held the dis- that countries respond to pressure from the in-
economies of urbanization in check. Tonga, a ternational community.128 Yet the pressure only
small island nation, is actively using the Recog- goes so far. The persistence of forced labor, chil-
nized Seasonal Employer program launched by dren working in hazardous conditions, discrimi-
32 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
F igure 2 0 Which countries succeeded at addressing their jobs challenges and how?
Jobs challenge Which countries and which policies?
Agrarian Vietnam
economies Land reform, agricultural extension, and market incentives
Conflict-affected Rwanda
countries Reintegration of former combatants and business reforms
Resource-rich Chile
countries Fiscal stability rules and export-oriented policies
Formalizing Brazil
countries Noncontributory programs, rules simplified and enforced
Aging Poland
societies Disability and pension reform, h
igher retirement age
nation, and lack of voice suggest that ratification nied by two projects, one to build capacity for
on its own is not sufficient. monitoring working conditions in garment fac-
Trade agreements are a potential instrument tories and one to support an arbitration council
for international coordination on rights. They to resolve collective labor disputes.129
can incorporate incentives for attention to voice Beyond the initiatives of governments
and working conditions by linking trade access through conventions and trade agreements, a
to the adoption and enforcement of labor laws growing emphasis is being placed on private
and standards. Whether linking rights to trade sector accountability and the broader corporate
actually leads to better outcomes for workers on social responsibility (CSR) agenda, whereby
either side of a trade agreement is less clear. La- companies voluntarily bring social and envi-
bor clauses can be used as a protectionist tool, ronmental concerns into their operations.130
undermining trade and employment opportu- Codes of conduct are most likely to be adopted
nities in developing countries. Moreover, in the by companies based in the European Union and
absence of capacity and institutions to moni- North America, which then make engagement
tor and enforce compliance, trade agreements with labor standards a condition of business
on their own can be weak instruments. For with suppliers. But there is limited evidence on
instance, Cambodia’s successful bilateral trade the extent to which codes of conduct translate
agreement with the United States was accompa- into improved enforcement of standards. Be-
Moving jobs center stage 33
cause of the complexity of global supply chains, can be more mixed. They are clearly positive
seasonal and temporary workers are outside the when cell phones connect people (and especially
reach of CSR frameworks. Workers outside of the poor) to product markets, to employment
global supply chains are not covered.131 To be ef- opportunities, or to government services. They
fective, CSR efforts should focus more on build- can be negative when the disappearance of retail
ing the capacity of local firms to comply and the trade leads to the decline of urban centers and
capacity of labor inspectorates to do their work. affects the livelihoods of older shopkeepers who
Trade and investment. International trade may not find alternative employment easily. An
in goods has been gradually liberalized over adequate sequencing of services liberalization
time, and the notion that freer trade is mutu- and domestic regulatory reform is needed to
ally beneficial for the transacting parties is manage these tradeoffs, and, in doing so, ad-
now widely shared. However, many developing dress the concerns of developing countries.136
countries still lack the competitiveness to har- International collaboration can fill the knowl-
ness the benefits from global integration. Direct edge gaps and facilitate implementation.137
assistance to reduce logistic costs and improve International agreements can also promote
the competitiveness of firms and farms is thus global public goods. One case in point is gen-
a priority. Aid for trade has increased substan- der equality. Trade is not gender neutral, imply-
tially and now accounts for about a third of ing that liberalization changes women’s access
total aid to developing countries. But there is to jobs. Traditionally men were more likely to
scope for making the assistance more effective, have “brawn jobs,” involving stronger physi-
by focusing on the export activities most suited cal requirements, while “brain jobs” involving
to address the specific jobs challenges that re- dexterity, attention, or communication—from
cipient countries face. Increasing the involve- stitching garments to processing data—present
ment by the private sector would also enhance more opportunities for women. Call centers in
the effectiveness of the assistance.132 Delhi and Mumbai employ more than 1 million
In contrast to trade in goods, progress in people, most of them women. Preferential ac-
services liberalization has been slow, at both cess for imports from sectors with more “brain
the multilateral and the regional levels. Offers jobs” can thus create employment opportunities
to the Doha Round currently being negotiated for women in countries where gender equality
promise greater security in access to markets is far from attained.138 But as countries move
but no additional liberalization compared to up the ladder of global value chains, gender
the policies in force.133 Services are character- opportunities can change. This was the case in
ized by well-known market imperfections— Malaysia, where the share of women working in
from network externalities in infrastructure to manufacturing declined in the mid-1980s.139
asymmetric information and moral hazard in Migration. In contrast to the movement of
finance—and are thus subject to more perva- goods and services across borders, few interna-
sive regulations. Liberalizing trade in services tional agreements pertain to migration in gen-
requires adequate domestic regulation. Setting eral and the migration of workers in particular.
up markets for electricity, or cushioning the so- Those in existence have limited coverage. ILO
cial impacts of large distributors on retail trade, conventions 97 and 143, in force since 1952 and
is challenging.134 Not surprisingly, liberalization 1978, refer to the prevention of discrimination
of services is much less advanced in developing or abusive conditions against migrants and call
countries than in industrial countries.135 for penalties and sanctions against those who
The productivity gains from liberalizing promote clandestine or illegal migration. But
services would be substantial. Many services they have been ratified by only 49 and 23 coun-
are inputs into the production process. Elec- tries, respectively. Liberalizing the provision of
tricity, finance, telecommunications, and trade services by natural persons, in line with Mode 4
have a direct impact on business costs, affecting of the General Agreement on Trade in Services
the competitiveness of downstream sectors. By (GATS), is not on the agenda of many countries,
boosting job creation and raising labor earn- industrial or developing. And the United Na-
ings, these productivity gains should also lead tions international convention on the rights of
to improved living standards. Social impacts migrant workers and their families, which en-
34 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
tered into force in 2003, has been ratified by only tionship between jobs and movements in and
22 countries—mostly sending countries. out of poverty; the dynamics of micro- and
While migration occurs across borders, leg- small enterprises in the informal sector; and the
islation is mostly driven by country-specific links between jobs and human behaviors and
laws. This is an area where a global perspec- norms. Research on the magnitude of spillovers
tive is warranted, but views on what needs to from jobs could identify good jobs for devel-
be done are diverse. One view focuses on the opment tailored to country contexts. Another
large earnings differentials between countries, important research area concerns the impact of
suggesting that global productivity and pov- jobs on the acquisition of cognitive and non-
erty reduction would accelerate enormously cognitive skills, and how this impact varies de-
with the free movement of labor.140 Another pending on the characteristics of the job and the
perspective focuses instead on national secu- person who holds it. Similarly, more evidence
rity and the protection of communities and on productivity spillovers from jobs across cit-
their cultures, implying the need for barriers ies with different characteristics would have a
to contain migration. Yet another highlights high value for development policy. Estimates of
the moral imperative of protecting the human the environmental impacts of different types of
rights of migrants, no matter their legal status, jobs are, today, scarce at best. In the area of la-
and giving shelter to those who suffer any form bor policies, more empirical work is needed on
of persecution.141 None of these views suffices, the boundaries of the plateau, depending on the
however, because any one of them alone cannot characteristics of the country. More research is
address the complex tradeoffs that migration also needed on how international trade, invest-
poses for policy design. ment across borders, and migration affect the
In many instances, both sending and re- composition of employment across countries.
ceiving countries can benefit from migration More solid knowledge on the sequencing of in-
through a collaborative approach. Most abuses ternational commitments and domestic policies
perpetrated by traffickers, firms, or workers related to services could address the reluctance
are associated with illegal migrant flows, so the of developing countries to make further prog-
formalization of these flows is a basic tool for ress in the direction of liberalization and reap
protecting the rights of migrant workers. This the gains from global integration.
formalization cannot be enforced without the Setting policy priorities for jobs needs to be
cooperation of institutions in both sending and based on reliable data. Given that a large share of
receiving countries. That is why bilateral agree- the people at work in developing countries are
ments are also needed, with provisions for quo- not wage employees, and that even fewer have a
tas by occupation, industry, region, and dura- formal sector job, the measurement of employ-
tion of stay.142 The agreements can distinguish ment is challenging. Determining which jobs
between temporary movements of workers have the greatest payoffs for poverty reduction
and steps to permanent migration, with condi- requires linking information on a household’s
tions and protocols to go from one to another. income or consumption with information on
They can include considerations about taxa- the employment of its members. Understand-
tion, social security, and even financing higher ing which economic units create more jobs, or
education—a special concern in the case of whether labor reallocation leads to substantial
“talent” migration. These agreements can design growth rather than just churning, requires in-
incentives so that stakeholders in both sending formation on the inputs and outputs of very
and receiving countries have an interest in en- diverse production units. Assessing how the
forcing the provisions.143 composition of employment affects trust and
willingness to participate in society requires in-
formation on individual values and behaviors.
Jobs are center stage, but where are The paucity of empirical analyses on the em-
the numbers? ployment impact of the global crisis in devel-
oping countries and the difficulty of compar-
A significant research and data agenda lies ing measures of informal employment across
ahead. Further analysis is needed on the rela- countries suggest that data quality and avail-
Moving jobs center stage 35
ability remain a constraint for policy making. standardized and include informal firms and
Much effort goes into measuring unemploy- microenterprises in establishment surveys. Such
ment rates, and measuring them often.144 But an approach would move jobs center stage.
open unemployment is not a very telling in-
dicator in countries where a large fraction of
the labor force is not salaried. The Millennium * * *
Development Goal on eradicating poverty lists
four indicators to monitor progress toward the Countries have a choice in responding to the jobs
employment target, defined as “achieving full challenges of demographics, structural shifts,
and productive employment and decent work technological progress, and periodic macroeco-
for all, including women and young people.” nomic crises. They can simply pursue growth,
But these indicators only partially capture ad- ensure that the labor market functions well, and
vances in the quantity and quality of jobs in the hope that jobs will follow. Or they can recog-
developing world.145 nize that growth does not mechanically deliver
Today’s challenges for labor statistics can be the jobs that do most for development. Jobs for
regrouped into three key areas: data gaps; data women, jobs in cities and in global value chains,
quality issues; and planning, coordination, and and jobs providing voice and protection for the
communication issues. Data gaps concern coun- most vulnerable in society may come high on
tries where labor statistics do not exist at all or the list. The precise nature of the jobs challenge
are collected only sporadically. Whenever such depends on a country’s geography, endowments,
statistics exist, data quality is a concern through- institutions, and level of development. What is
out the statistical production chain, from the common to all is the need to remedy the insti-
use of appropriate definitions to questionnaire tutional failures and market imperfections that
design, from sampling frame to interviewer prevent the private sector from creating more
processes, and from data entry and coding to of those good jobs for development. Coun-
verification and estimation procedures. Plan- tries can then return to the difficult questions
ning, coordination, and communication issues posed at the outset. For each of them, there is
arise when different institutions are responsible a conventional wisdom that practitioners do
for collecting and disseminating the data.146 not consider to be totally satisfactory. The jobs
A quarter of a century ago, a renewed em- lens in development does not lead to a flat rejec-
phasis on poverty reduction as the key objec- tion of the conventional wisdom, but to a quali-
tive of development policy launched a long- fication of when it holds and when it does not.
term data effort. Across the world, information In short, countries can leave themselves open
on household living standards was collected to small gains in living standards, slow produc-
through standardized surveys. The sampling tivity growth, and fractious societies. Or, by ad-
methods and the variable definitions used were dressing their jobs challenges, they can enjoy
duly documented. And the data and documen- a self-reinforcing pattern of more prosperous
tation were made available to researchers and livelihoods, rising productivity, and the stron-
practitioners whenever possible. For jobs, em- ger social cohesion that comes from improving
ployment modules attached to household sur- employment opportunities and fairness in ac-
veys used for poverty analyses would need to be cess to jobs.
QUESTIONS When is the conventional wisdom right?
Growth strategies or jobs strategies? The conventional wisdom preneurial potential can thus make a substantial difference
is to focus on growth as a precondition for continued in living standards and productivity.
increases in living standards and strengthened social cohe-
sion. But lags and gaps among the three transformations of Can policies contribute to social cohesion? The conventional
living standards, productivity, and social cohesion are not wisdom is that a lack of jobs is detrimental to social cohesion,
uncommon. The impact of growth on poverty reduction var- but other than ensuring full employment there is little that
ies considerably across countries. And in some cases, growth governments can or should do. Yet open unemployment is
is not accompanied by increased social cohesion—even not the main challenge in many countries, as the characteris-
though poverty may fall and living standards improve for tics of jobs also matter. While not all jobs can positively affect
some, the expectations of others remain unfulfilled. The social cohesion, those that shape social identity, build net-
employment intensity of different sectors and fairness in works—particularly for excluded groups—and increase fair-
access to employment opportunities matter as well. It is thus ness can help defuse tensions and support peaceful collective
jobs that bring together the three transformations. decision making.
Tradeoffs among improving living standards, accelerating Measures that support inclusion, extend access to voice
productivity growth, and fostering social cohesion arguably and rights, and improve transparency and accountability in
reflect a measurement problem, more than a real choice. If the labor market can increase the extent to which people per-
growth indicators captured the intangible social benefits ceive that they have a stake in society. This perception can be
from jobs, from lower poverty to greater social cohesion, a especially critical when risks of social unrest from youth
growth strategy and a jobs strategy would be equivalent. But unemployment and conflict are high. Employment programs
a growth strategy may not pay enough attention to female can undermine social cohesion if they have weak governance
employment, or to employment in secondary cities, or to or divisive targeting, but can have positive effects when they
idleness among youth. When potentially important spill- are well-designed. Jobs policies for youth at risk can incorpo-
overs from jobs are not realized, a jobs strategy may provide rate counseling and training in conflict resolution. Public
more useful insights. works programs can facilitate community participation and
engagement between citizens and local authorities. Policies
Can entrepreneurship be fostered? The conventional wisdom can thus focus not only on the number of jobs, but on expand-
is that most micro- and small enterprises in developing ing job opportunities for excluded groups.
countries are just forms of survivorship, with limited chances
to grow. But self-employed workers account for a large share Skills or jobs—what comes first? The conventional wisdom is
of employment in developing countries. Even if only a frac- that investing in skills will lead to job creation and to higher
tion of them succeeded in building a viable business, the productivity and labor income. High unemployment and
aggregate impact on living standards and productivity would skills mismatches are often attributed to shortcomings in
be substantial. Moreover, in developing countries many large education and training systems. But in reality they can also
enterprises are born large, often the result of government result from market distortions, which send the wrong signals
support or privileged access to finance and information. to the education system or lead to a lack of dynamism in pri-
Breaking privilege is one more reason why the success of vate firms. In such situations, massive investments in train-
micro- and small enterprises is so important. ing systems, as seen in many parts of the world, might show
Management practices are important in explaining firm disappointing results as hoped-for job outcomes do not
productivity, even in small and medium-size firms. The materialize.
capacity to acquire skills and to apply them to business is one A core set of basic skills, both cognitive and social, is
of the most important characteristics of successful entrepre- necessary for productive employment, and they cannot just
neurs. Yet markets fail to nurture entrepreneurship, because be acquired on the job. Without such generic skills, the
knowledge spillovers imply that some of the returns to prospects of improving employment opportunities and
acquiring or developing new managerial ideas and knowl- earnings are thin. Skills are also critical for countries to
edge are appropriated by others. And the potential to absorb move up the value-added ladder, as they can ignite innova-
management practices differs greatly among beneficiaries. tion, produce the benefits of mutual learning, and hence
Observable characteristics of small business owners can pre- lead to job creation themselves. But in between, much
dict entrepreneurial potential, and programs to upgrade learning can happen through work: job opportunities can
their managerial capacity have been shown to make a differ- shape social skills and create demand for education and
ence. Programs targeted to small business owners with entre- training. Learning on the job leads to significantly higher
Moving jobs center stage 37
earnings in many settings, with the return to one year of Protecting workers or protecting jobs? The conventional wis-
work experience being around a third to half of the return dom is that policies that protect people are preferable, because
to an additional year of schooling. they mitigate welfare losses while at the same time allowing
the reallocation of labor, hence supporting creative destruc-
A targeted investment climate? The conventional wisdom is tion. Protecting jobs that are no longer economically viable
that a level playing field is preferable because governments through government transfers and employment protection
do not have enough information to pick winners and tar- legislation freezes an inefficient allocation of resources. Pro-
geting can be c aptured by interest groups. But given the tecting jobs also entails a high risk of capture. It may lead to
often limited fiscal space and administrative capacity of enduringly unproductive jobs, stifle technological advance,
developing countries, creating an enabling business envi- prevent structural change, and eventually undermine growth.
ronment across the board can be challenging, and the rele- However, there are times when many jobs are lost or
vant question is how policy priorities should be set. The threatened at once and few are being created. There are also
conventional wisdom views targeting with a skepticism jobs generating substantial productivity spillovers, whose
that stems from failed experiences with industrial policy. disappearance in large numbers can lead to ghost towns and
However, targeting may not necessarily be aimed at indus- depressed regions. Protecting people should have primacy if
trial sectors. Supporting job creation in sectors with high shocks are idiosyncratic—if the employment dislocation is
rates of female employment, or productivity gains in small- local and limited and if turnover continues to be the norm.
holder farming, or more jobs connected to global value Protecting jobs may be warranted in times of systemic crises
chains may have high development payoffs depending on or major economic restructuring. But job protection policies
country contexts. can create permanent inefficiency, especially in countries
When there is clarity about where the good jobs for devel- with weak institutions, making it indispensable to establish
opment are, and there is sufficient information to under- and enforce trigger rules and sunset clauses that define the
stand what can be done to support the creation of those jobs, extent and size of the protection.
a targeted investment climate may be warranted. But this is
provided that targeted interventions can be designed in a way How to accelerate the reallocation of workers? The conven-
that makes them resilient to capture by interest groups. The tional wisdom is to focus policy on removing the labor
risk of capture is easier to contain when the number of market rigidities that keep workers in firms or areas with
beneficiaries is very large, such as the case of farmers, urban low productivity. But reforms may not always be politically
businesses, and female micro-entrepreneurs. It is much feasible. In India, complex and cumbersome labor market
higher in the case of industrial policy. institutions have unambiguously negative effects on eco-
nomic efficiency but these institutions have remained largely
Competing for jobs? The conventional wisdom is that the num- untouched for 60 years.
ber of jobs is not finite, so that policies for jobs in one country Tolerance for the avoidance or evasion of distortive regu-
cannot be harmful to other countries. Indeed, in the medium lation can help contain their cost but not ensure dynamism.
to long term, total employment is roughly determined by the In India, widespread noncompliance has been the dominant
size of the labor force. But policies may alter global trade, response to cumbersome labor regulations. However, labor-
investment, and migration flows, affecting the composition of intensive manufacturing sectors remain sluggish despite
employment. The concern is that the share of good jobs for buoyant performance of the overall economy. Other coun-
development may decline in one country as it increases in tries with similarly stringent regulatory obstacles have
another. Policies aimed at capturing a larger global share of accomplished more efficiency-enhancing labor reallocation
the jobs with the largest productive spillovers can reduce well- by actively taking advantage of productivity spillovers from
being abroad, even if global well-being increases. jobs in industrial clusters, dynamic cities, or global value
However, not all efforts to support job creation amount to chains to make the regulations less binding. In Sri Lanka,
beggar-thy-neighbor policies. Whether they do so depends on the development of export processing zones (EPZs) drove
the type of instruments used and the nature of the spillovers the takeoff of the garment industry. In Brazil, the surge of
from jobs. A key question is what purpose policies serve. Poli- internal migration is closely associated with the country’s
cies that aim to improve compliance with rights, prosecuting continuing integration into the global economy and a devel-
forced labor and harmful forms of child labor, amount to opment policy that favors clusters and agglomeration. In
providing a global public good. On the other hand, policies China, labor reallocation is rooted in the development of
that aim at reaping the benefits from productive externalities competitive cities, supported by regional competition and
may adversely affect other countries, especially when they experimentation. A strategic focus on enhancing productiv-
undermine an open trading system and are not aligned with a ity spillovers from jobs, through urbanization and global
country’s dynamic comparative advantage. integration, can overcome the labor rigidity.
38 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
128. Chau and Kanbur (2002) find evidence of a vices Location Index, 2011. Chicago: A.T. Kearney
peer effect whereby ratification depends on the Global Services Location Index.
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ratified the convention. inson. 2001. “The Colonial Origins of Compara-
129. Adler and Hwang 2012 for the World Develop- tive Development: An Empirical Investigation.”
ment Report 2013. American Economic Review 91 (5): 1369–401.
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ment Report 2013; Newitt 2012 for the World the Books to Law in Action: A Note on the Role
Development Report 2013. of Regulation in the Production of Good Jobs in
131. Locke, forthcoming; Locke, Quin, and Brause Cambodia’s Garment Sector.” Background paper
2007. for the WDR 2013.
132. Hoekman 2011. Aidt, Toke, and Zafiris Tzannatos. 2002. Unions and
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138. World Bank 2011c.
Alatas, Vivi, and Lisa Ann Cameron. 2003. “The Im-
139. Randriamaro 2007.
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———. 2011b. More and Better Jobs in South Asia.
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Chapter
1
The jobs challenge
W
orldwide, more than 3 billion people In the next 15 years, half of the population in
have jobs, but the nature of their jobs developing countries will reside in urban areas,
varies greatly. Some 1.65 billion have the result of a migration that is rapidly shifting
regular wages or salaries. Another 1.5 billion work from the farm to the factory or the street.
work in farming and small household enterprises, The rural-urban shift generally improves indi-
or in casual or seasonal day labor. The majority vidual well-being, especially for those who find
of workers in the poorest countries are engaged wage employment. Still, workers’ share of global
in these types of work, outside the scope of an income may be declining, a pattern attributed in
employer-employee relationship. Another 200 part to globalization and technological change.
million people, a disproportionate share of them Wages for the same occupation are converging
youth, are unemployed and actively looking for across countries, but a higher premium is paid
work. Almost 2 billion working-age adults are for more skilled occupations. Women’s earnings
neither working nor look ing for work; the still lag behind those of men, and the fraction of
majority of these are women, and an unknown them who work varies enormously across coun-
number are eager to have a job.1 tries. While women’s labor force participation
The jobs challenge facing the world is multi- exceeds 75 percent in Vietnam, it is only 28 per-
faceted, ranging from improving aspects of the cent in Pakistan.
work people do, to supporting the reallocation As the world changes, so do jobs. Despite im-
of people to better jobs, to creating jobs for provements in workers’ education levels, many
those who want to work. Youth bulges in some firms report that they have difficulty finding the
countries are bringing in millions of new job skilled workers they seek. Part-time and tempo-
seekers. Sub-Saharan Africa’s labor force grows rary work appear to be increasing. In India and
by about 8 million people every year. South South Africa, for example, there has been a
Asia’s grows by 1 million people every month. sharp rise in the number of temporary employ-
Elsewhere, the working population is rapidly ag- ment services and labor brokers. Outsourcing
ing, and more and more workers are putting off was once concentrated in manufacturing, but
retirement. By 2020, more than 40 million ad- new technology is now enabling the splintering
ditional jobs will be needed for people 65 years of tasks in services. Meanwhile, new platforms
and older.2 on the internet and mobile phones offer innova-
Structural and technological changes are tions for matching workers and employers, and
moving more people from rural areas to cities. not only for highly skilled jobs.
The jobs challenge 49
A job, but not always a salary people would like to work more hours, whereas
others would rather not. More than 15 percent
To many, the word job brings to mind a worker of those employed in Armenia, Colombia, Gua-
with an employer and a regular paycheck. Yet, temala, and Peru, but less than 3 percent in
this narrow definition excludes nearly 1.5 billion Hungary, Pakistan, Portugal, and the United
people who work for a living. The concept of a States worked fewer hours than desired.5 Some
job is actually much broader than wage employ- people who would like to work have no job.
ment. Jobs are activities that generate actual or Unemployment rates vary over the business cy-
imputed income, monetary or in kind, formal or cle; around 2009 and 2010, when the worst of
informal. But not all forms of work can be the international crisis hit most countries in
deemed jobs. Activities performed against the the world, they ranged from more than 20 per-
will of the worker or involving violations of fun- cent in South Africa and Spain to less than 5 per-
damental human rights should not be consid- cent in Austria, Korea, Malaysia, Singapore, Sri
ered jobs. Some other activities that entail work Lanka, and Thailand.6
effort, such as cooking and cleaning at home, are The world of work is more diverse in devel-
not considered jobs unless they are performed by oping countries than in developed countries.
people hired and paid for the work. This diversity refers not only to the number of
hours worked and number of jobs available,
usual yardsticks in developed countries, but
Multiple forms of work also to characteristics of jobs. Two main aspects
Defining and measuring jobs is challenging be- stand out. First, there is prevalence of self-
cause the ways people spend their time and work employment, which often makes measures of
are diverse (question 1). Economists usually dis- unemployment and underemployment inade-
tinguish between work and leisure, but the real- quate.7 Second, the coexistence of traditional
ity is more complex. Time can be allocated to and modern modes of production leads to
nonproduction and production activities. The large variations in the nature of work, from
first category includes time spent eating, sleep- subsistence agriculture and menial work to
ing, schooling, and at recreation. Production in- technology-driven manufacturing and services.
cludes both market and nonmarket work. Work across the developing world is charac-
Whether an activity is considered production terized by a high prevalence of informality,
can be assessed based on a third-person test: “if whether defined on the basis of firm registra-
an activity is of such character that it might be tion, social security coverage, or a written em-
delegated to a paid worker, then that activity ployment contract. Informal employment is
shall be deemed productive.”3 not under the purview of labor regulations, ei-
Patterns in time allocated to production dif- ther because of their limited scope or because
fer across countries and over time. Jobs that they are deliberately avoided or evaded. Re-
span eight hours a day, five days a week, with gardless of the specific definition used, infor-
paid vacation, are not the norm in developing mal employment is generally associated with
countries. Some jobs involve a few hours of lower productivity. However, this does not nec-
work during certain days of the week or certain essarily mean that firm registration, social secu-
weeks of the year; others entail long hours most rity coverage, or a written contract would result
days of the week almost every week of the year. in greater efficiency. Informality can be a symp-
Some people have had only one job in the pre tom of lower productivity as much as it can be
vious week, while others have engaged in two a cause of it.
or more jobs. In 2011, temporary employment
represented more than one-fifth of total wage
Different places, different jobs
employment in the Republic of Korea and Spain,
but around 5 percent in Australia and the Slovak Self-employment and farming represent almost
Republic.4 half the jobs in the developing world. The vast
The measurement of unemployment or un- majority of those in self-employment work
deremployment is equally challenging. Some in small enterprises with no paid employees.8
50 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
A
F I G U R E 1.1 job does not always come with a wage
men women
100
wage employment
share of total employment, %
80
self-employment
60
nonwage
40 employment
20 farming
0
Europe and Latin America South Middle East East Asia Sub-Saharan
Central Asia and the Asia and and Pacific Africa
Caribbean North Africa
But shares of wage work, farming, and self- explained by education, experience, or sector of
employment differ greatly by gender and across work.
countries. Nonwage work represents more A growing share of youth, typically defined
than 80 percent of women’s employment in as people ages 15 to 24, is in schooling or in
Sub-Saharan Africa, but less than 20 percent in training. Still, youth unemployment reaches
countries of Eastern Europe and Central Asia alarming levels in some countries (above 40 per-
(figure 1.1). cent in South Africa since early 2008 and above
Gender differences are also striking.9 World- 50 percent in Spain in early 2012).10 Even in
wide, less than 50 percent of women have jobs, countries where it is relatively low, the youth un-
whereas almost 80 percent of men do. Roughly employment rate is twice or more the national
50 percent of both working men and working average. In addition, a large share of young peo-
women are wage earners, but this statistic hides ple are considered “idle”—not in education, not
substantial variation across countries and re- employed, and not in training or looking for
gions. Women are significantly underrepre- work (figure 1.2).11 In some countries, more
sented in wage employment in low- and lower- than one-third of 15- to 24-year-olds are idle; in
middle-income countries, but are more likely most countries, unemployment rates are small
than men to work for wages in middle-income compared to idleness rates.12 In many cases,
countries. In countries such as Pakistan, where when youth work they do so in unpaid jobs. If
28 percent of women but more than 82 percent paid, they are less likely to have access to social
of men participate in the labor force, wage em- security.13
ployment is a much lower share of total employ- Although child labor is in decline, it still af-
ment among women than among men. Even in fects 1 in 8 children (1 in 14 in the case of haz-
countries such as Tanzania and Vietnam, where ardous work). The International Labour Orga-
participation rates are above 75 percent for both nization (ILO) defines child labor as any work
men and women, wage employment still lags by a child under age 12 or, for a child above
behind for women. Beyond these stark con- age 12, any work that impedes education or is
trasts, women continue to earn significantly less damaging to health and personal development.
than men. And these differences are not fully Worldwide, 306 million children were at work in
The jobs challenge 51
Employment
F I G U R E 1. 3 growth is needed to cope with population growth
a. Jobs per year b. Annual change in employment
Middle East
East Asia and Pacific
and North Africa
Source: World Development Report 2013 team based on data from the International Labour Organization and World Development Indicators.
Note: Estimations are for the period 2005–20, based on projected population growth assuming constant employment rates.
(Jordan and Singapore). Migrants from coun- been the case.22 Population movements away
tries such as Bangladesh, India, and Mexico rep- from agriculture were indeed associated with
resent a large share of total migrants worldwide; rapid economic growth in East Asia; much less
countries such as Fiji, Jamaica, and Tonga have a so in Sub-Saharan Africa (figure 1.4).
large share of their population overseas. Figures Technological change induces families to in-
for some of the smaller countries are striking. crease market production in place of home pro-
For instance, nearly one-fifth of all Salvadorians duction.23 Structural change has increased the
live abroad, while more than three-fifths of the time devoted to consumption or investment
population in Kuwait, Qatar, and the United activities but it has also meant more work. In
Arab Emirates is foreign-born.18 some cases, structural change has even led to
reduced leisure,24 particularly for workers who
shift to market jobs with low productivity.25 In
Cities, wages, and women the past, this process of structural change often
took decades, but in many developing coun-
Economic development brings significant tries, it is transforming lives within a generation
changes in the composition of the labor force, a (box 1.1).
process known as structural transformation.19 The shift from home to market production is
Before 2020, more than half of the total popula- not gender neutral, because women have tended
tion in developing countries is expected to be to specialize in home production whereas men
living in cities and towns.20 That means that the traditionally have focused more on market pro-
growth of the nonagricultural labor force will duction. As women move into jobs, they often
vastly exceed the growth of the agricultural la- continue to work at home. When both jobs and
bor force.21 Urbanization derives from growth home activities are considered, women are gen-
in agricultural productivity that sustains higher erally busier than men. This is so in rich and
standards of living. It can also be associated poor countries. Evidence from Sub-Saharan Af-
with rapid economic growth at the aggregate rica, Europe, and India shows that women spend
level, because urban jobs tend to be more pro- more time on production activities than men
ductive than rural jobs. But that has not always do.26 But when they take on jobs—especially
The jobs challenge 53
Moving
F I G U R E 1. 4 from farms to cities does not always bring economic growth
Malaysia Liberia
60 60 Cameroon
Nigeria
Indonesia Ghana
45 45
China
Guinea-
Bissau
30 30
Thailand
Madagascar Zimbabwe
Vietnam
15 15 Kenya
Ethiopia
0 0
80 800 8,000 80 800 8,000
GDP per capita, constant 2000 US$ GDP per capita, constant 2000 US$
The process of structural transformation can be seen today in small are preferred. Practices surrounding recruitment have also become
and medium-size cities throughout the developing world. The pro- tighter. “It is public knowledge,” he added, “that to be accepted in
cess has been so fast that most people, even young ones, remem- the company, candidates must have an inside connection because
ber the old rural setting. As they have embraced the traits of mod- more and more people need work, while the number of job oppor-
ern urban life, their jobs and their leisure have changed so much tunities is limited.” Many factory workers in the neighborhood
that they do not contemplate returning to the old mores. work on a six-month contract and hope for its renewal. The best
A neighborhood of 5,000 outside the city of Tangerang, Indone- local job available is often reported to be running one’s own busi-
sia, started coming to life 25 years ago, when iron, rubber, garment, ness. Even when faced with possible unemployment, a 41-year-old
and thread factories sprang up in the surrounding areas. Some in noted he had “never thought of returning to the village. That is
the neighborhood still work as farmhands. But most women and desperate. Don’t be desperate. Find another job and don’t get
men earn their living in the factories, as well as in a variety of jobs picky.”
that rose up alongside them. Many men drive ojeks (motorcycle Comparing the situation now to the early days, a local official
taxis); women sell sweets and other items by the gates of the facto- described the neighborhood’s busy market as “cleaner and more
ries. Residents also make a living through home-based garment strategic now, and there are more sellers or merchants, so there are
piecework, handicrafts such as broom-making, and construction more options. Public transportation to the market is more accessible
work; some are civil servants and teachers. Poorer women collect now. It used to be hard to find, and the streets used to be muddy.”
and resell scraps of fabric. The flow of newcomers has also offered He estimated that poverty in the neighborhood had fallen by half,
an income-generating opportunity to local families from renting from 20 percent at the turn of the century to around 10 percent now.
rooms for lodging. Seemingly everyone in the neighborhood has a He indicated that the neighborhood had weathered the global
cell phone and gets around on their own motorcycle. financial crisis well and that factory workers had been able to keep
A 28-year-old steelworker and father of one said that getting their jobs. These changes to work come with changes in leisure.
factory work used to be a lot easier when the community was Young men now spend time on computer chats and playing video
newer. Junior high school graduates were still accepted for work games. “We used to send letters through the post office,” recalls
then. Now, he said, production workers must have at least a senior a 22-year-old. “Now, nobody wants to go to the post office. . . .
high school degree, and vocational school graduates under age 30 It’s beneath them. Now everyone has cell phones.”
BOX 1.2 Jobs bring earnings opportunities to women, but also new difficulties
Jobs can transform women’s roles in households and in society more easily than men because employers have “more confidence in
more broadly. In a community of 3,000 inhabitants outside Durban, them [the women].”
South Africa, 80 percent of the women were estimated to be work- Increased labor force participation is not without challenges.
ing outside their home, mainly as teachers and nurses but also in The women in Santiago worry about their safety because of assaults,
offices and retail outlets or with the police. Women did not have theft, and gang violence; many think it is too dangerous to work at
such opportunities 10 years ago. “Women are no longer regarded night. Despite the expansion of work opportunities, mobility con-
as housewives,” a young woman remarked in a Durban focus tinues to be a constraint not only because of poor transportation
group. and safety risks but also because of the roles women play as income-
In a bustling neighborhood in East Jakarta, in Indonesia, women earners and as caregivers in the household. In rural areas, women
work as street sellers, peddling food, glasses, plates, and carpets. face difficulties in traveling for farm work and other jobs outside
Young women explained that selling carpets is hard work that their villages because of traditional cultural and gender norms.
women do “because they have to help support their families. Their In a semi-urban area outside Cuzco, in Peru, large numbers of
husbands’ jobs don’t generate enough income.” With more educa- women are now engaged in home-based handicrafts, sewing, and
tion than their elders, young women in this area of Jakarta are more diverse agricultural activities. Outside the home, they take up farm
likely to be working in the nearby ceramic factory or in one of the jobs, run their own small shops or restaurants, or work for hire in
shops or beauty salons in the neighborhood’s markets or at the new these places. The women explained, however, that they consider
shopping malls in the city. home-based activities (such as raising livestock) to be better jobs
In a poor neighborhood of Santiago de los Caballeros, the than jobs outside the home, because “it’s peaceful work, and we can
second-largest city in the Dominican Republic, only a few women look after the kids.”
sold clothes and sweets in the streets a decade ago. Many are now Women encounter many difficulties in commuting across cities
earning incomes from activities such as selling lottery tickets or run- for work. In Lautoka, an urban area in Fiji, the local economy is stag-
ning small clothing stores and beauty salons. The incomes of these nant, and women are working in much larger numbers to help their
women are vitally important to their families because men are households cope. Focus group participants explained that only men
struggling. Factory opportunities and other jobs associated with “can take up jobs in a different town . . . but not the wife because
the city’s free trade zone have been shrinking in recent years. Par- she has responsibilities at home to look after the kids and in-laws.”
ticipants in a Santiago focus group said that women found work
those that are outside the household setting— Transnational companies have built integrated
their economic role changes (box 1.2). value chains and can tap into national skill pools
around the world.30 Outsourcing is occurring in
services as well as manufacturing. The share of
Jobs are changing in surprising ways developing countries in exports of world services
rose from 11 percent in 1990 to 21 percent in
New technologies, globalization, and structural 2008.31 India has led the way in the information
transformation have brought about remarkable technology (IT) sector, but other countries, such
improvements in efficiency. Some developing as the Arab Republic of Egypt, have begun to fo-
countries have managed to narrow the produc- cus attention on exporting services.32
tivity gap with industrial countries in only a few This changing landscape of global produc-
decades.27 But others have failed to catch up and tion has also brought about shifts in skills en-
the gap remains considerable for all developing dowments and in the distribution of top talent
regions (figure 1.5). across countries. India and China rank high in
The nature of work is changing as well. perceived attractiveness as hubs of outsourcing
Industrial countries are experiencing a sus- because of their exceptionally high ratings in
tained shift away from primary and traditional people skills and availability.33 India has close to
manufacturing industries toward services and 20 million students in higher education, nearly
knowledge-intensive jobs. At the same time, as many as the United States; both countries are
technology improvements and greater reliance outpaced by China, with 30 million postsecond-
on outsourcing to developing countries is lead- ary students.34 The United States still accounts
ing to a decline in middle-skilled jobs.28 Technol- for a large share of international top scorers in
ogy has allowed production tasks to be splintered student assessments, but Korea has the same
and therefore performed in different locations.29 share as Germany, and both are closely followed
The jobs challenge 55
Labor
F I G U R E 1. 5 productivity remains low in developing countries
0.40
Europe and Central Asia
0.30
high-income countries
0.20
South Asia
0.10 Sub-Saharan Africa
0.05
0
1991 1995 2000 2005 2009
by the Russian Federation. The number of high- a ttractiveness as hubs for the outsourcing of ser-
performing students in the city of Shanghai vices. Ghana and Senegal, ranked 26th and 28th,
alone is one-fifth of that of G ermany and about come in significantly ahead of emerging market
double that of Argentina.35 powerhouses like South Africa or Turkey.39
Skills are not one-dimensional, however. Dif- High-skilled niches are developing the world
ferent jobs require different combinations of over. They tend to be located in close proximity
manual skills (needed for physical tasks), cogni- to centers of higher education in metropolitan
tive skills (needed for mental tasks), and social areas with good infrastructure, from Cairo’s
skills (needed to interact with others). The dis- Smart Village Business Park to Ghana’s IT En-
tribution of employment by occupation can be abled Service Industry cluster. 40 Bangalore and
used to estimate the skill intensity of produc- Chennai in India and Suzhou in China have
tion. As incomes rise, countries tend to use fewer emerged as global research and development
manual skills in production, and more nonrou- hotspots.
tine cognitive skills. 36 However, even for a given Technology itself is changing the way work-
level of gross domestic product (GDP) per cap- ers and firms connect, through their access to
ita, countries can use nonroutine skills to vary- much larger, even global, marketplaces for em-
ing degrees (figure 1.6).37 ployment. Some of these marketplaces operate
Technological progress expands the possibili- through the Internet; others use mobile phone
ties for emerging and even low-income coun- technology.41 These changes are affecting work-
tries to create jobs in higher-skilled production ers in developing countries and not just those in
activities as well as to link to international value high-skilled occupations. Babajobs, for example,
chains in services and manufacturing. In other was launched in 2009 and is now the largest
words, technological progress enables countries digital marketplace for blue-collar jobs in India,
to diverge from a linear evolutionary path from with more than 320,000 job listings and more
manual skill intensity to the use of higher-order than 80,000 job seekers.
cognitive and social skills.38 India and China top With changes in technology and the organi-
the list of countries in an index measuring their zation of work, permanent jobs are becoming
56 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
The
F I G U R E 1. 6 skills mix changes with economic development
125
Lithuania
100
index, 100 = U.S. level
90 Indonesia
105 Lithuania
Rwanda
100 85
200 2,000 20,000 200 2,000 20,000
GDP per capita, constant 2000 US$ GDP per capita, constant 2000 US$
Source: Aedo and others 2012 for the World Development Report 2013.
Note: GDP = gross domestic product. All skill intensities are measured relative to the U.S. level. Each data point shows the skill intensity of national production, derived from tran-
scribing the occupational structure to individual skills, following Autor, Levy, and Murnane 2003.
A decade ago, the temporary staffing industry was seen as irrele- the modern industry of temporary staffing is only 15 years old,
vant outside of high-income countries. But it is now growing rapidly and is developing rapidly. The number of temporary workers
in some developing countries, even beyond large cities.a This recruited by labor brokers grew more than 10 percent in 2009 and
growth is often viewed as a response to the complex regulatory 18 percent in 2010. According to some media reports, workers are
framework facing employers. Temporary staffing also allows more quitting permanent jobs to move into more attractive temporary
flexibility in the management of peak workloads and in adjusting roles. Some firms claim that as many as 15 percent of new recruits
staffing levels up or down in line with business demands. are permanent employees switching to temporary jobs.d Competi-
Depending on the context, the temporary staffing industry tion in the Indian temporary staffing industry is strong. Agencies
employs different types of workers, from mainly entry-level, previ- have introduced lower recruitment fees to gain more market share
ously unemployed workers seeking to gain experience to highly edu- and to drive growth. Large temporary staffing firms are entering
cated, mid-level career employees looking to fast-track their careers. niche activities such as business consulting (Manpower) and train-
In South Africa, temporary workers make up about 7 percent of ing (TeamLease).e
the labor force; the temporary staffing industry provides employ- As temporary staffing grows, so do calls to examine the regula-
ment to an average of 410,000 workers a day.b Finance—the sector in tory framework of the industry.f Some of those calls focus on
the statistics that includes temporary staffing—was a close second addressing vulnerability. Workers in these jobs typically face lower
to retail in employment growth from 1994 to 2009. Unskilled jobs earnings (because a portion of the pay is diverted to temporary
and service-related occupations dominate the employment distri- staffing agencies). They also face a lack of benefits, coverage by
bution within the labor brokering subsector. A worker employed in labor laws, and job security. Other efforts focus on professionalizing
temporary staffing services is less likely to contribute to pension the industry. For instance, in 2011 TeamLease and seven other staff-
funds or health insurance and is generally seen as more vulnerable. ing firms formed the Indian Staffing Federation to advocate for
Temporary forms of employment have existed in India for changes in labor laws and more acceptance for the industry in a
decades, partly as a way to circumvent rigid labor laws.c However, country where a vast majority of the labor force is unorganized.
Jobs
F I G U R E 1. 7 provide higher earnings and benefits as countries grow
80
2005 PPP US$
10,000
60
40
1,000
20
100 0
300 3,000 30,000 300 3,000 30,000
GDP per capita, 2005 PPP US$ GDP per capita, 2005 PPP US$
Yet in a majority of countries, both indus- does not have a role to play. The quality of the
trial and developing, the share of labor in total civil service is critically important for develop-
income is declining.49 This trend, which has ment, whether it is teachers building skills, agri-
been observed since the mid-1980s and early cultural extension agents improving agricul-
1990s, has been attributed to various forces, tural productivity, or urban planners designing
from technological progress biased toward functional cities. Public works programs or em-
skilled workers to global competition under- ployment programs for the demobilization of
mining workers’ bargaining power. The en- combatants are also justified in some circum-
trance of China and India in world trade has stances. But the private sector is the main en-
doubled the size of the globalized labor force, gine of job creation and the source of roughly
hence reducing the price of labor relative to that nine of 10 jobs in the world. Between 1995 and
of other factors of production.50 2005, the private sector accounted for almost 90
Changes in the distribution of income in percent of jobs created in Brazil. In the Philip-
recent years have actually taken place not only pines and Turkey, the fraction reached 95
between factors of production but between percent.51
workers. Two distinctions are relevant in this re- But the most remarkable example of the
spect: between high- and low-skill workers, and expansion of employment through private
between those who work in tradable sectors and sector growth is the case of China. In 1981,
those who do not. Tradable sectors produce private sector employment accounted for 2.3
goods and services that can be exported or im- million workers while state-owned enterprises
ported, such as shirts or computers. A turning (SOEs) had 80 million workers. Two decades
point came in the mid-1990s, when labor earn- later, employment in private sector firms ac-
ings in developing countries started to grow counted for 74.7 million workers surpassing,
faster than those in industrial countries, regard- for the first time, the 74.6 million workers in
less of level of skill. But the trend is more pro- SOEs (figure 1.10).52
nounced in tradable sectors, whereas low-skill In contrast to the global average, in some
workers in nontradable sectors continue to be countries in the Middle East and North Africa,
the most disadvantaged (figure 1.8). the state keeps a leading role as an employer—a
The relatively lower wages among low-skill pattern that can be linked to the political econ-
workers compared with high-skill workers, par- omy of the post-independence period and, in
ticularly in nontradable sectors in developing some cases, to the abundance of oil revenues.53
countries, are consistent with an increase in re- For a long period, public sector jobs were of-
turns to education. Returns to education mea- fered to young college graduates. In recent years,
sure the wage premium on higher educational however, the fiscal space for continued expan-
attainment for workers of the same sex with the sion in public sector employment shrank, and
same age and work experience. In all regions, “queuing” for public sector jobs became more
more schooling is associated with higher labor prevalent, leading to increasing transitions into
earnings, but the gain is not linear. The labor informality, a devaluation of education creden-
earnings of workers with tertiary education are tials, and forms of social exclusion.54 A relatively
double or more than those of workers with sec- well-educated and young labor force remains
ondary education only. However, workers with unemployed, or underemployed, and labor pro-
only a secondary education earn little more than ductivity stagnates.55
those with elementary education. The education
premium is generally higher the lower the in-
come level of the country (figure 1.9). Vulnerability on a global scale
Wages
F I G U R E 1. 8 in developing countries are catching up
30 30
20 20
10 10
0 0
1985 1990 1995 2000 2005 1985 1990 1995 2000 2005
1.4 1.4
cross -country wage inequality,
1.2
coefficient of variation
1.2
1.0 1.0
0.8 0.8
0.6 0.6
1985 1990 1995 2000 2005 1985 1990 1995 2000 2005
Source: Based on Oostendorp 2012 for the World Development Report 2013.
Note: The database used to construct this figure contains wage data by occupations for an unbalanced panel of more than 150 countries from 1983 to 2008. The data are derived
from the International Labour Organization (ILO) October Inquiry database by calibrating the data into a normalized wage rate for each occupation. For a description of the data,
see Freeman, Oostendorp, and Chor 2011. The vertical axis in panels a and b represents the ratio between U.S. wages and non-U.S. wages. The vertical axis in panels c and d repre-
sents the coefficient of variation of wages—a measure of wage inequality—across all countries in the sample.
whole world. In 1995, a financial crisis in Mex- rea. In 2007, an alarming rise in food prices be-
ico engulfed most of Latin America as well as got problems with food supply and inflation,
other emerging countries. In 1997, a speculative increasing poverty and reducing real wages in
attack on Thailand’s currency severely affected parts of the developing world.56
the economies of Indonesia, Malaysia, and Ko-
60 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Returns
F I G U R E 1. 9 to education are higher in poorer countries
25
private annual returns to education, %
20
15
10
0
world low income lower-middle income upper-middle income high income
Source: Montenegro and Patrinos 2012 for the World Development Report 2013.
Note: Reported figures are unweighted averages of country-level private returns, for the most recent year within the period 2000–10 in a sample of 69 countries.
110
100
90
number of workers, millions
80
70
60
50
40
30
20
10
0
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
state-owned enterprises individual firms (fewer than 8 workers) private firms (8 workers or more) foreign-owned companies
In 2008, the bursting of asset price bubbles creating 22 million new unemployed in a single
and the resulting collapse of financial institu- year. Growth in total employment, which had
tions in the United States and some European been hovering around 1.8 percent a year before
countries initiated a crisis of worldwide span, 2008, fell to less than 0.5 percent in 2009, and by
The jobs challenge 61
In
F I G U R E 1.11 developing countries, the crisis affected earnings more than employment
East Asia and Pacific Europe and Central Asia Latin America and the Carribean
0
–2
change in growth rate, %
–4
–6
–8
–10
–12
GDP growth employment growth earnings growth
2011 had not yet returned to its pre-crisis level.57 countries. The less formalized the labor market,
As Europe struggles with high levels of public the more earnings shrank and the less employ-
debt, vulnerabilities in its banking sector, and ment numbers gave away. In Central and East-
uncertainties about the euro, and as growth de- ern Europe, where the labor market is largely
celerates in China and India, it is by no means formalized, the growth rate of GDP dropped on
clear that the global crisis is over. average by 12 percentage points, employment
The impact of the 2008–09 crisis varied contracted by 3 percent, and earnings fell by
across developing countries. Some, such as the more than 8 percent (figure 1.11).62 In East Asia,
Baltic countries, the Kyrgyz Republic, Mexico, where formal employment rates are very low,
Romania, Russia, South Africa, and Turkey, had the average decline in GDP growth was 5.5 per-
absolute declines in employment; other coun- centage points and total employment numbers
tries such as Brazil, China, and Indonesia expe- barely changed.63
rienced only a brief deceleration. Country- The policy response to the crisis was unprec-
specific studies shed further light on employment edented in its scale, but it also involved different
impacts across different population groups. For combinations of instruments, with potentially
example, it is estimated that the crisis cost China different implications for jobs. Fiscal stimulus
between 20 million and 36 million jobs, particu- across the world amounted to US$5.5 trillion
larly among migrant workers in export-oriented in purchasing power parity, with China, Japan,
sectors.58 In Mexico, it caused a decline of half a and the United States accounting for more than
million jobs between 2008 and the second quar- 70 percent of it.64 Of 77 countries for which
ter of 2009, particularly among women, youth, data are available, 80 percent used fiscal ex-
and older workers, as well as a 10 percent drop pansion. Higher-income countries favored tax
in real wages.59 In Indonesia, although the ef- cuts, higher unemployment benefits, and di-
fects of the crisis were mild, young, casual, and rect support for enterprises. Low- and middle-
informal workers were affected.60 Across coun- income countries boosted expenditures, includ-
tries, the young bore the largest brunt.61 ing spending on training and income-support
Adjustment patterns, in terms of jobs lost or measures.65 Across countries, responses mainly
earnings declines, also varied in developing aimed at preventing or mitigating employment
62 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 1.4 Responses to the crisis went beyond income support for the unemployed
Countries worldwide used an array of policy responses to confront initiatives reached 3.3 percent of the employed in Italy, 3.2 percent
the jobs crisis. Macroeconomic stimulus and targeted sector policies in Germany, and 2.7 percent in Japan.
were supplemented by policies to strengthen income support for Low- and middle-income countries spent 67 percent of their
those affected; measures to boost labor demand through wage resources on direct job creation measures and public works pro-
subsidies, credit policies, and public works programs; and invest- grams. Mexico, for example, extended its temporary works program
ments in skills and tailor-made employment services for those most to around 250,000 workers, or 0.5 percent of the labor force. Wage
affected. subsides were popular in Europe. They were most often imple-
Globally, unemployment insurance played a minor role. Only mented through a reduction in social security contributions and
15.4 percent of the unemployed received benefits during the crisis, were targeted to small and medium enterprises or to disadvantaged
because of the low effective coverage of unemployment insurance groups such as long-term job seekers and the young. To reach an
programs. In 23 countries in the Organisation for Economic Co- effective scale in a timely manner, though, countries needed to have
operation and Development, Central Europe, and Latin America, the had such programs in place before the crisis.
duration of benefits was extended. Countries with large informal In comparison, efforts to ramp up training, employment ser-
sectors or without unemployment schemes relied on a mix of cash vices, or specific support programs for vulnerable groups were rela-
transfers and public works schemes to provide additional income tively modest in scope and scale. Building or maintaining skills took
support for those in need. Colombia’s Familias en Acción—a pro- the lion’s share of the budget in this category, with Chile, Italy, Mex-
gram focusing on strengthening nutrition and education for chil- ico, Turkey, and the United States spending the most.
dren—increased its coverage from 1.8 million to 2.7 million families. Overall, countries with more mature social protection systems as
Argentina expanded the coverage of family benefits to all informal well as established employment programs were able to respond
sector workers. quickly and reduce the impact of the crisis on jobs. With few excep-
Countries across all income levels took measures to boost labor tions, though, little is known about possible unintended effects of
demand. Of the resources devoted to creating and protecting jobs, their programs such as whether preserving some jobs came at the
high-income countries spent more than half (56 percent) on credit expense of destroying others. Careful impact analysis is only in its
policies for firms. They also implemented work-sharing arrange- initial stages.
ments to cushion the impact of the crisis. Take-up rates for these
losses, rather than trying to offset earnings tion of the labor force.66 Youth unemployment
shortfalls (box 1.4). and idleness may be high, and women may face
limited job opportunities, leaving potential eco-
nomic and social gains untapped.67 A repeating
* * * pattern of small gains in living standards, slow
productivity growth, and eroding social cohe-
Demography, urbanization, globalization, tech- sion may emerge. In contrast, countries that suc-
nological progress, and macroeconomic crises cessfully address these job challenges can develop
bring about formidable jobs challenges. Coun- virtuous circles. The results—prosperous popu-
tries that fail to address them may fall into vi- lations, a growing middle class, increased produc-
cious circles of slow growth in labor earnings and tivity, and improved opportunities for women
job-related dissatisfaction affecting a sizable por- and youth—may then be self-reinforcing.
QUESTION
1 What is a job?
The world of work is diverse, especially in devel- on what a job is and what it means almost inevi-
oping countries, and it is changing rapidly. tably influence views on what policies for jobs
Against this backdrop, the diversity of the words should look like. Those for whom the word job
used to describe what people do to earn a living is associated with the image of a worker in an
across countries and cultures should not be sur- office or a factory, with an e mployer and a pay-
prising. Even people who speak the same lan- check, may focus on a supportive investment
guage can have vastly different interpretations climate for firms. Those for whom the word also
of the meaning of a job. For some, the word encompasses farming, street vending, waste
conjures up an image of a worker in an office picking, and domestic employment may think
or a factory, with an employer and a regular of jobs policies as including land reform, agri-
paycheck. Others may think of farmers, self- cultural extension, urban policies, or the provi-
employed vendors in cities, and caregivers of sion of voice to the most vulnerable workers.
children or elderly relatives. According to the International Conference of
Labour Statisticians (ICLS), which sets standard
definitions for official use across countries, a job
Work matters and words matter
is “a set of tasks and duties performed, or meant
The varied interpretations capture the different to be performed, by one person, including for an
aspects of jobs that people value. A woman in employer or in self-employment.”71 Under this
Hanoi, Vietnam, explained, “an old woman who definition, a job is not the same as employment.
just sells vegetables can gain respect from others The existence of job vacancies and people with
and people listen to her.”68 A man who had more than one job means that the number of
worked his way out of poverty in Satgailijhara, jobs is greater than the number of people em-
Bangladesh, linked the value of his job as a rice ployed. The existence of unemployment means
farmer to being able to invest in his children, “I that people do not find the jobs they want. Jobs
have been able to get my children educated. refer to tasks, while the wage employed, farmers,
That’s the best achievement in life.”69 and the self-employed refer to the people who
Ela Bhatt, a lawyer and the founder of Self do them.
Employed Women’s Association (SEWA) in In-
dia, described her struggle with the language of
Some gray areas
work, given the multiplicity of tasks that people
do every day and over time: “A small farmer The ICLS definition excludes some forms of
works on her own farm. In tough times, she also work from official employment statistics. The
works on other farms as a laborer. When the ag- employed are part of the economically active
riculture season is over, she goes to the forest to population, defined as people who contribute to
collect gum and other forest produce. Year “the production of goods and services as de-
round, she produces embroidered items either at fined by the United Nations systems of national
a piece rate for a contractor or for sale to a trader accounts and balances.”72 The system of national
who comes to her village to buy goods. Now, accounts (SNA) includes “all production actu-
how should her trade be categorized? Does she ally destined for the market, whether for sale or
belong to the agricultural sector, the factory sec- barter,” as well as the production of goods for
tor, or the home-based work sector? Should she one’s own use, but “excludes all production of
be categorized as a farmer or a farm worker? Is services for own final consumption within
she self-employed or is she a piece-rate worker?”70 households.”73 This definition thus leaves out of
These questions are not merely semantic. official statistics activities such as child-rearing,
The words and categories that are used to de- care of the elderly, or home cooking, as well as
scribe work have tangible implications. Views traveling to work.
64 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Some countries are starting to develop esti- Informality is another important gray
mates of these other types of activities. The area. After nearly four decades of debates
SNA offers guidelines to countries for produc- about the concept of informality, there is still
ing satellite accounts reflecting forms of house- no consensus on what is meant by informal
hold work that are not considered jobs. Ac- jobs. Some schools of thought link informality
cording to these guidelines, “a job can refer to characteristics of firms—whether the busi-
to unpaid household service and volunteer ness is registered or pays taxes. Others focus
work performed by one person for a household on characteristics of workers—whether they
outside the SNA production boundary but are covered by social protection or have an
within the general production boundary.”74 employment contract. And yet others stress
Mexico, for instance, has used this guidance to modes of production and levels of productiv-
estimate the value of unremunerated activities ity to define informality. A consensus is start-
in households, such as housekeeping and child ing to emerge on how to measure informality,
care. These activities represented nearly a quar- but the definitions used still leave out types of
ter of Mexican GDP between 2003 and 2009 work that some consider informal. Meanwhile,
and were equivalent to about two-thirds of relatively few countries produce regular statis-
worker wages and benefits.75 tics on informality (box 1.5).
The concept of dual economies has an old lineage.a Based on the the Delhi Group has been working with the ILO on a forthcoming
recognition of dual economies and the Harris and Todaro two-sector “Manual of Surveys of Informal Employment and Informal Sector.” In
model, the term informality was first coined by a U.K. anthropologist 2008, the newest version of the United Nation’s system of national
in a paper about Ghana. The concept gained popularity with a accounts adopted most of the previous resolutions and recommen-
widely cited report from a mission of the International Labour Orga- dations on the measurement of informality. That resulted in a broad
nization (ILO) to Kenya.b Since then, studies on informality have pro- definition that includes both the informal sector and informal
liferated, and the concept has become standard in development employment. However, gray areas remain in relation to activities
studies, labor economics, and other disciplines. Today the causes such as farming, independent professionals, and activities among
and implications of informality are the subject of an intense aca- rural workers in general.
demic debate and an extended research agenda aimed at under- Few countries produce regular official statistics on informality.
standing how labor markets function in developing countries.c The dearth of data is apparent in global repositories such as the
A variety of approaches can be used to measure informality, ILO’s Key Indicators of the Labor Market database, which, in its most
informal employment, and the informal sector. Measurement be- recent version, includes data on informality for only 60 countries.d A
comes even more complex when informality is combined with report on informality across the world by the ILO and Women in
other concepts like illegal and underground activities or nonstan- Informal Employment: Globalizing and Organizing (WIEGO) makes
dard work. The lack of systematic country-level data on informality systematic use of the most thorough definition of informality, cover-
has led researchers to construct their own estimates using similar ing informal employment and employment in informal firms, to
but not identical criteria, which sometimes lead to diverging present data on 47 countries.e The ILO-WIEGO report shows infor-
conclusions. mality rates ranging from 40 percent in Uruguay and 42 percent in
Recommendations on the measurement of informality were first Thailand to 75 percent in Bolivia and 80 percent in India.
drafted in 1993 by the 15th International Conference of Labour The extent of informality varies with differences in productivity
Statisticians (ICLS). Four years later, the United Nations created the across firms and workers, as well as with differences in the nature of
Delhi Group to document and recommend methods for defining regulations and the degree to which they are enforced. Whether
and collecting data on the informal sector. In 2003, the 17th ICLS, informality is the result of exit, exclusion, uneven enforcement, or
through the document “Guidelines Concerning a Statistical Defini- low firm productivity is still a matter of debate. Better measurement
tion of Informal Employment,” introduced a definition of informal can provide information on the magnitude of informality and pro-
employment and a series of rules for its measurement. Since 2006, vide more data for the advancement of studies in this area.
180
175
170
number of ratifications,
out of 185 countries
165
160
155
150
145
140
135
Con. 87 Con. 98 Con. 29 Con. 105 Con. 100 Con. 111 Con. 138 Con. 182
freedom of association forced labor discrimination child labor
43. Blanchflower, Oswald, and Stutzer 2001. More 70. Bhatt 2006, 17.
recent (2005) data of the International Social 71. Article 2, ILO 2007. Also see UN (2009).
Survey Programme show similar patterns. 72. Article 9, ILO 1982, http://www.ilo.org/wcmsp5/
44. WDR team estimates from the 2010 Life in Tran- groups/public/---dgreports/---stat/documents/
sitions Survey. normativeinstrument/wcms_087481.pdf.
45. Banerjee and Duflo 2011; Perry and others 2007. 73. UN 2009, 6–7.
46. Banerjee and Duflo 2011. Although, it is not al- 74. ILO 2009b, 42.
ways the case that the self-employed always report 75. INEGI 2011.
lower well-being. In their study from Ghana, Falco 76. UN 1948, http://www.un.org/en/documents/
and others 2012 for the WDR 2013 find that infor- udhr/, article 23 (1).
mal firm owners who employ others are on aver- 77. ILO 1998.
age substantially happier than formal workers. 78. The core international labor standards are the
47. Based on an update by the authors Chen and subject of eight conventions covering the four
Ravallion 2010. areas: Convention 87 (1948), the Freedom of As-
48. World Bank 2011b. sociation and Protection of the Right to Organize
49. Guscina 2006; Lübker 2007; Rodriguez and Convention; Convention 98 (1949), the Right to
Jayadev 2010. Organize and Collective Bargaining Convention;
50. Bentolila and Saint-Paul 2003; Freeman 2008. Convention 29 (1930), the Forced Labour Con-
51. International Labour Office database on labor vention; Convention 105 (1957), the Abolition
statistics, Laborsta, http://laborsta.ilo.org/. of Forced Labour Convention; Convention 100
52. The definition of “private sector” in China is (1951), the Equal Remuneration Convention;
broad and sometimes not clearly defined in offi- Convention 111 (1958), the Discrimination (Em-
cial statistics. There is differentiation between ployment and Occupation) Convention; Con-
what are labeled “private firms” (a profit-making vention 138 (1973), the Minimum Age Conven-
unit invested in and established by natural per- tion; and Convention 182 (1999), the Worst
sons or controlled by persons hiring more than Forms of Child Labour Convention. See “Con-
seven workers) and “individual firms” (those ventions,” NORMLEX Database: Information on
with fewer than eight employees). Foreign- International Labour Standards, International
invested firms and collectives are not part of the Labour Organization, Geneva. ILO (2012). http://
private sector in official statistics. For more de- www.ilo.org/dyn/normlex/en/.
tails, see Kanamori and Zhao (2004). 79. Andrees and Belser 2009; ILO 2009c; ILO 2012b.
53. Nabli, Silva-Jaurengui, and Faruk Aysan 2008. 80. Dillon and others 2012.
54. Assaad 2012; Assaad and Barsoum 2007. 81. Basu 1999; Basu and Tzannatos 2003; Cigno and
55. Mryyan 2012. Rosati 2005; Edmonds 2008.
56. For a study of previous crises, see Fallon and
82. Del Carpio and Loayza 2012; Hazarika and
Lucas (2002). For the food price crisis, see Ivanic
Sarangi 2008.
and Martin (2008).
83. Edmonds (2008) offers a review of the theoretical
57. ILO 2012a.
and empirical evidence on child labor.
58. Giles and others 2012 for the World Develop-
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and currently worker shortages are experienced
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WDR 2013.
PART
1
Jobs are transformational
Introduction to Part 1
E
conomic development is about improve-
ments in living standards supported by
productivity growth. It also involves so- DEVELOPMENT
cial change associated with urbanization, inte-
gration in the world economy, and the drive
toward gender equality. All of these transforma-
tions are related to jobs. The development pro-
cess is about some jobs becoming better and LIVING PRODUCTIVITY SOCIAL
STANDARDS COHESION
others disappearing, about people taking jobs
and changing jobs, and about jobs migrating
to other places within and across countries.
Development often entails the movement of
labor from rural, agricultural, and mostly sub-
sistence activities to urban, nonagricultural, and
mostly market-oriented activities. This move-
ment transforms the lives of families and com- JOBS
munities, the organization of firms, and the
norms and values of societies. It can boost pro-
ductivity and improve living standards and also
affect the cohesiveness of society. Jobs are thus a
key driver of development. haviors, they can influence trust and civic
engagement.
• Living standards: Jobs provide earnings op-
portunities to lift people out of poverty, raise Distinguishing these three transformations pro-
their consumption, and contribute to indi- vides an understanding of how jobs contribute
vidual well-being more broadly. to development. People’s well-being is the ulti-
mate goal, and the transformation of living
• Productivity: Through job creation and de-
standards captures this link directly. But sus-
struction within sectors and reallocations
tained improvements in living standards are im-
across sectors and countries, jobs are also at
possible without productivity growth or when
the root of economic growth.
resources are wasted through confrontation.
• Social cohesion: Jobs define who people are That is why it is necessary to look at the three
in many ways; by shaping values and be transformations jointly.
75
Chapter
2
Jobs and living standards
Jobs are the main source of income for the majority of households and a
key driver of poverty reduction. But their contribution to well-being goes
beyond the earnings they provide.
BOX 2.1 There are many dimensions of living standards and many ways to measure them
Debates on how to define and measure living standards go far back of standards of living and poverty reduction worldwide. Advances
in social sciences. The work by Rowntree and Booth in late 19th cen- toward the first Millennium Development Goal (Eradicate extreme
tury England is usually mentioned as seminal, especially in relation poverty) have been documented using global monetary poverty
to the measurement of poverty. In the 1930s, the creation of the Sys- measures. The availability of richer datasets, in turn, has supported
tem of National Accounts concentrated on measuring the total mar- the emergence of newer measures of living standards, many of
ket value of the goods and services produced in an economy and them multidimensional in nature. These measures combine both
made gross domestic product (GDP) per capita the main indicator monetary and nonmonetary indicators of well-being, as well
of living standards in general. By the 1970s and 1980s, there was a as information on their distribution across different population
growing agreement that important aspects of well-being, such as groups.b
health status, or exposure to crime, pollution, and urban conges- Despite this progress, important controversies remain, particu-
tion, were not fully accounted for in GDP. Research also showed that larly on which indicators are more appropriate for gauging each
the distribution of material amenities affected individual well- dimension of well-being and on the weights that should be attrib-
being. There is now consensus that living standards depend not uted to each. Some recent proposals even suggest a revamping of
only on average incomes and consumption but also on access to statistical systems to formulate better measures of production that
benefits as diverse as health and education, sanitation and housing, take into consideration changes in the quality of goods, govern-
and security and freedom.a ment services, and time allocated to home activities and leisure.
There are ongoing systematic efforts to collect individual, There are also proposals to include among measures of living stan-
household, and community data to better understand and com- dards subjective indicators of well-being and indicators on the level
pare living standards in developing and developed countries. Com- and sustainability of human, physical, and environmental assets.c
plete poverty profiles for different groups of the population within Other proposals emphasize subjective indicators building on a phil-
a country, based on the comparison of income or consumption osophical point of view.d Aggregating indicators and comparing
aggregates to international or national poverty lines, have prolifer- them over time and across space becomes more intricate in this
ated. Microdata collection efforts have allowed a close monitoring case, because of differences in values and beliefs.
Working
F I G U R E 2 .1 hours vary across ages
age group
24–54 years
70 54–65 years
2006 1950
50
40 Russian Guatemala
Federation 2006
1994
Mexico
Latvia 2009
30 2003
20
10
100 1,000 10,000 40,000
GDP per capita
assistance), or savings (social insurance and qualitative studies in low-income countries, get-
pensions). Still, the majority of households ting jobs and starting businesses were two of the
worldwide make their living through their work, main reasons people gave to explain their rise
and labor earnings represent the largest share of out of poverty.5 Conversely, a lack of job op
total household income (figure 2.3). The main portunities reduces the ability of households to
change that comes with development is the improve their well-being.6
composition of labor income.4 Jobs are not the only force that determines
Job-related events are the main escape route whether a household escapes from poverty. De-
from poverty in developing and developed mographic changes, such as the arrival of a new-
countries alike. More than two decades of re- born, relatives moving in, or a family split be-
search on poverty dynamics, spanning countries cause of death or separation, affect expenditures
as different as Canada, Ecuador, Germany, and per capita, hence the household’s poverty status.
South Africa, show that labor-related events The same is true of changes in nonlabor income
trigger household exits from poverty (figure from assets or transfers, be they private remit-
2.4). These events range from the head of a tances, public social assistance, or pensions.
household taking a new job, to family members These developments may all interact and often
starting to work, to working family members occur simultaneously. For example, the migra-
earning more from their labor. In a large set of tion of family members to a city for a job may
Jobs and living standards 79
Women
F I G U R E 2 . 2 spend more time in activities not directly generating income
100
90
80
70
time allocation, percent
60
50
40
30
20
10
0
men women men women men women men women
India Guatemala Spain United States
Source: World Development Report 2013 team based on ISSP 2005 for Spain and the United States, 1999 Time Use Survey of India, and 2006 Guatemala Household Survey.
Note: The figure refers to people aged 15 years and more. Income-generating activities is the time devoted to wage or salaried employment; farming, own-account work,
self-employment with hired labor, and unpaid family labor in household enterprises; investment refers to time allocated to education, health care, and job search; other activities
includes work outside the system of national accounts, for example child care, housework. Leisure and other activities associated with consumption (for example, shopping and
social interactions), as well as sleep, are not included.
improve the well-being not only of the migrants (education, work experience, or region of resi-
but also of those who stay in the rural village. In dence) were important, but that the returns
addition to receiving remittances, those who stay to these characteristics mattered more. Among
behind may have access to the migrants’ land to those returns is the relative price of labor. 9
cultivate and work more as a result.7 The connection between jobs and poverty
With all these changes occurring at the same reduction is not mechanistic, and not all transi-
time, gauging the contribution of labor earnings tions out of poverty require a change in the type
to poverty reduction is difficult. However, recent of work undertaken. Changes in the productiv-
methods allowing to decompose changes in pov- ity of the same job may also be at play. In Ban-
erty by sources of income confirm the funda- gladesh and Vietnam, for example, poverty tran-
mental contribution of change in labor earnings sitions have been dominated not by changes in
(figure 2.5). In 10 of 18 countries considered for income sources from farm to nonfarm income,
the analysis, labor income explains more than but by higher income within the same sector.10
half of the change in poverty, as measured by the Richer insights on the connection between
US$2.50-a-day poverty line. In another 5 coun- labor-related events and transitions out of pov-
tries, it accounts for more than a third of the erty can be obtained from studies that follow
reduction in poverty.8 A further decomposition the same households over extended periods of
of the contribution of labor income to poverty time. Studies in several countries in Asia and in
reduction in Bangladesh, Peru, and Thailand Sub-Saharan Africa show that farming and off-
found that changes in individual characteristics farm activities are intricately related and not
80 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
100
90
percentage of household income
80
70
60
50
40
30
20
10
0
1)
5)
0)
5)
2)
9)
4)
4)
05
03
03
06
01
95
05
05
05
07
01
00
00
00
00
Gh 200
00
00
00
20
20
20
20
20
19
20
20
20
(2
(2
(2
(2
(2
(2
(2
(
a(
a(
a(
r(
a(
a(
r(
i(
ria
sia
sh
Gu pal
ia
an
ia
ria
aw
do
ca
ni
ny
al
gu
an
ta
liv
an
na
de
ist
ga
ge
ne
em
as
ba
Ne
na
kis
ua
al
Ke
ra
Bo
nz
et
jik
la
l
Ni
ag
do
M
Bu
Al
Pa
ca
Pa
Ec
at
Vi
ng
Ta
Ta
ad
In
Ni
Ba
Source: Covarrubias and others 2012 for the World Development Report 2013.
Jobs and living standards 81
Jobs
F I G U R E 2 . 4 take households out of poverty, especially in developing countries
100
90
80
transitions out of poverty, percent
70
60
50
40
30
20
10
0
ca
ile
es
ru
il
en
da
s
do
nd
an
az
in
ric
ai
do
Pe
at
Ri
Ch
na
ed
nt
Sp
Br
ua
Af
rm
la
St
a
ng
Ca
Sw
ge
er
st
Ec
h
Ge
d
Ki
th
Co
ut
Ar
ite
Ne
So
d
Un
ite
Un
labor events nonlabor events
necessarily substitutes for each other. Access to vestments, also raised the odds of escaping pov-
land, increases in farm yields, and access to mar- erty, particularly in Uganda. All of these factors
kets are fundamental for the growth of off-farm affect the labor productivity of farmers but
jobs and hence for diversification in family in- originate in land markets or food markets
comes.11 Simply having work is not what mat- rather than labor markets.
ters most, according to these studies, since most The largest poverty reductions documented
people work in rural economies. What is impor- are associated with jobs in agriculture. The cases
tant for escaping poverty is deriving greater of China and Vietnam, in the 1980s and 1990s
earnings from work. respectively, testify to the importance of agricul-
Other factors of production are critical for tural productivity and the forces unleashed by
explaining poverty reduction through jobs, land reform, investments in rural infrastructure,
particularly in rural areas. Studies from Uganda and off-farm job opportunities.13 In rural China,
and Pakistan, using rural data spanning 4 and poverty reduction was associated with off-farm
10 years respectively, show that higher agricul- activities, but the workers engaged in these ac-
tural productivity, the growing commercializa- tivities tended to be those who had benefited
tion of agriculture, and an increase in cash crop from increased farm incomes and by obtaining
production contributed substantially to pov- more education.14 Furthermore, easier access to
erty reduction. The increase in the price of cash off-farm employment and opportunities for mi-
crops over this period also helped.12 Improve- gration reduced the exposure of households to
ments in land rights and better access to input income shocks. A similar pattern of events has
and output markets, due to infrastructure in- been documented in other Asian and Sub-
82 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Jobs
F I G U R E 2 . 5 account for much of the decline in extreme poverty
200
percentage of total change in extreme poverty
150
100
50
–50
–100
ia
or
ico
ile
va
ica
ay
nd
il
as
sh
ru
pa
do
az
in
an
bi
m
an
ad
ur
de
gu
Pe
do
Ch
la
aR
ex
nt
Ne
na
Br
ua
Gh
m
nd
ai
lv
la
ra
ol
lo
ge
M
Pa
st
Ec
Th
Ro
Sa
ng
M
Pa
Ho
Co
Co
Ar
El
Ba
family composition labor income nonlabor income consumption-to-income ratio
Sources: Azevedo and others 2012; Inchauste and others 2012; both for the World Development Report 2013.
Note: Family composition indicates the change in the share of adults (ages 18 and older) within the household. Labor income refers to the change in employment and earnings for
each adult. Nonlabor income refers to changes in other sources of income such as transfers, pensions, and imputed housing rents. If a bar is located below the horizontal axis, it
means that that source would have increased, instead of decreased, poverty. The changes are computed for Argentina (2000–10); Bangladesh (2000–10); Brazil (2001–09); Chile
(2000–09); Colombia (2002–10); Costa Rica (2000–08); Ecuador (2003–10); El Salvador (2000-09); Ghana (1998–2005); Honduras (1999–2009); Mexico (2000–10); Moldova (2001–10);
Panama (2001–09); Paraguay (1999–2010); Peru (2002–10); Nepal (1996–2003); Romania (2001–09); and Thailand (2000–09). The changes for Bangladesh, Ghana, Moldova, Nepal,
Peru, Romania, and Thailand are computed using consumption-based measures of poverty, while the changes for the other countries are based on income measures.
Saharan African countries. Whereas poverty re- among households with few assets. Studies from
duction in rural areas in Asia is associated with Uganda and Pakistan show that the share of
diversification into nonfarm activities, in Sub- household members who work also has a con-
Saharan Africa, it may be more closely associ- siderable impact. Households with rising de-
ated with increases in farm productivity.15 pendency ratios were more likely to remain
Jobs and relapses into poverty are also con- poor or fall into poverty, while households
nected. Widespread shocks such as droughts, whose share of working-age adults increased
floods, and conflicts can drive households into were less likely to fall into poverty or remain in a
poverty or even chronic poverty. Events specific state of poverty.18
to individuals, such as illness or poor health of
the head of household, can have the same effect.
In these cases it is not joblessness per se that Jobs are more than just earnings
pushes families into poverty but rather the de-
struction of personal and household assets.16 Jobs have consequences beyond wages and earn-
And even taking these shocks into account, job ings. Other aspects such as workplace safety,
loss of the head of household remains a critical stability, commuting time, learning and ad-
determinant of a fall into poverty.17 vancement opportunities, entitlements to pen-
The poor clearly rely on their labor to make sion benefits, and other amenities are highly val-
a living. The death or disability of an income ued by some workers. However, quantifying the
earner significantly increases the odds of falling monetary value of these other aspects of a job
into poverty or remaining poor, particularly is not easy. Comparable surveys in Jianyang,
Jobs and living standards 83
BOX 2.3 The value of job attributes can be quantified through hedonic pricing
Workers place a value on jobs that goes beyond income. At the indi- in Colombia and China to 4.2 percent in Egypt and 5.1 percent in
vidual level, people assess the impact a job might have on their Sierra Leone.a This is significantly lower than the explicit valuations
physical and mental well-being, as well as on their families. In addi- answered by those surveyed: 4.9 percent in China, 10 percent in
tion to the earnings the job provides, they can value the stability of Colombia and Sierra Leone, and, at the highest, 25 percent in Egypt.
a job, its earnings, the possibilities of advancement, or the flexibility This indicates that the revealed preference of individuals for health
of working hours. Workers might also value how well a job connects insurance benefits in the job are lower than the price they express
them to society, the prestige associated with it, or its contribution to they would be willing to pay. Hedonic pricing can also identify the
social goals. revealed preference to pay for other less tangible job charac
Hedonic pricing assesses how people value specific job charac- teristics. Salaried workers in Colombia, China, and Egypt would
teristics through their job satisfaction or happiness more broadly. forgo up to 1.5 percent of hourly wages for jobs that are “meaning-
Indicators of subjective well-being are linked through statistical ful.” In Egypt, salaried workers reveal a price tag equivalent of up
analysis to various job characteristics, including earnings. Statistical to 2.1 percent of hourly wages for jobs that are non-manual or
methods can be used to assess the contribution of each of these job nonroutine.
characteristics to happiness or job satisfaction. This approach is especially relevant in the assessment of job
The weights associated with different job characteristics in the benefits. These benefits involve a deduction from earnings in ex-
estimated hedonic price function allow an assessment of the value change for access to a pension in old age, for instance. Jobholders
workers attach to each job characteristic. The monetary value of a typically value these benefits, but they may value them less than the
job characteristic can be assessed by comparing the corresponding associated deductions in earnings through social security contribu-
weight in the hedonic price function with the weight of earnings. tions. If the expected value of the pension is low or uncertain,
Thus, for instance, a hedonic function reveals the share of earnings they may prefer to remain in the informal sector. In contrast, a well-
respondents would be willing to forgo in exchange for stability, or designed program that allows longevity risks to be pooled with
for creativity at work, or for a job providing voice in the workplace.b other jobholders may be valued by the jobholder more than the
Using surveys commissioned for this Report, hedonic valuation deductions associated with participation.
of health insurance benefits range from 1.5 percent of hourly wages
China; Risaralda, Colombia; Cairo and Fayoum, dents and diseases kill an average of 6,000 peo-
the Arab Republic of Egypt; and Port Loko and ple a day, or 2.2 million a year. Most of these
Free Town, Sierra Leone, showed the limited deaths (1.7 million) result from work-related
ability of respondents to attach a monetary value diseases; the remainder is linked to fatal acci-
to job benefits, despite expressing willingness to dents in the workplace and during commutes
pay.19 Among those who do give an explicit valu- to or from work.20 Every year, more than 400
ation, the willingness to pay for pension benefits million people (nearly 15 percent of the global
goes from 5 percent of monthly wages in China labor force) suffer from occupational accidents
to 7 percent in Colombia and 13 percent in or illnesses involving work-related diseases. In
Egypt. Lower values are given for transportation some cases, the incidence is intolerably high:
allowances (2, 1, and 7 percent, respectively), but half of slate pencil workers in India and 37 per-
having a permanent contract is valued more, es- cent of the miners in Latin America suffer from
pecially in Egypt (3, 8, and 22 percent, respec- some stage of silicosis (an occupational lung
tively) (box 2.3). disease caused by inhalation of silica dust).21
Characteristics of jobs have other less tan- Mental health can be threatened by abusive re-
gible, but no less real, effects on well-being. In lations between managers and workers and
particular, jobs can have a direct impact on sexual harassment. Health risks are not con-
workers’ health, a key component of human fined to wage employment. Collecting and car-
development and personal well-being (box rying water or cooking over open stoves, as
2.4). Exposure to hazardous substances causes many self-employed workers do, poses risks,
an estimated 651,000 deaths annually, mainly and these risks are more likely to affect women
in developing countries. Work-related acci- than men.22
84 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
25
20 Jobs have an impact on the well-being of the
15 high income person who holds them, but they can also have
Latin America and the Caribbean an impact on the well-being of others. Some
10 Europe and Central Asia
East Asia and Pacific jobs bring more poverty reduction and, as
5
Middle East and North Africa such, benefit those who consider eradicating
0 South Asia
d poverty to be a fundamental societal goal.
oye Sub-Saharan Africa
ee mpl loye
d
ers Some jobs promote higher employment rates
wag emp farm oye
d
self- mpl
une among women, giving more say on the way
household resources are allocated, typically
leading to greater spending on raising children.
Sources: Gallup 2009, 2010.
Gender equality, much the same as poverty re-
duction, is a broadly shared societal goal. Jobs
socially useful and high-income jobs did not dif- that have these additional impacts do more for
fer greatly in the Dominican Republic, Mexico, development. Given such spillover effects, jobs
or South Africa. play a fundamental role in the well being of
Job satisfaction and other measures of non- individuals and entire societies. Jobs may thus
material well-being such as happiness or iden- be the center piece of a development strategy
tity may be affected by cultural differences (Question 2).
QUESTION
2 Growth strategies or jobs strategies?
Rapid and sustained growth is generally viewed come and the possibility of redistributing re-
as the main priority for developing countries, sources through the growth process itself and
and as a precondition for continued increases in through government transfers.51
living standards and strengthened social cohe- Behind these sensible qualifiers, it is possible
sion. Economic growth, living standards, and to point to the role of jobs. Growth is “inclusive”
social cohesion can indeed move together, and when higher earnings are driven by employ-
they often do—as shown, for example, by the ment opportunities for the majority of the labor
remarkable experience of East Asian economies, force, particularly the poor. Recent studies show
including the Republic of Korea and Singa- that the impact of economic growth on poverty
pore.45 Building on the East Asian experience, reduction depends critically on the employment
the conventional wisdom is to focus on growth intensity of different sectors.52 Employment
and assume that increased living standards and opportunities also matter for social cohesion.
greater social cohesion will follow. This is the It is thus jobs that bring together the three
main tenet behind “growth strategies,” “growth transformations.
diagnostics,” and “binding constraints analyses,” Realizing the role jobs play implies going be-
all of which aim to identify and remove obsta- yond the sequential view in which growth issues
cles to economic growth and to sustain it over are addressed first and employment follows
prolonged periods of time. from increased demand. Instead, jobs are seen
But transformations in living standards, pro- as a medium that can make the development
ductivity, and social cohesion do not necessarily transformations a reality. From a sta tistical
happen at the same pace. Lags and gaps in rising point of view, the relationship between growth
living standards can be illustrated by the differ- and employment (or unemployment) shows
ent impacts growth has on poverty reduction substantial variation over time, across countries,
across countries. A 2 percent annual growth rate and across sectors. In light of this diversity, a
can reduce poverty rates by 1 percent in some given rate of growth does not guarantee a given
countries and by 7 percent in others.46 Ethiopia, level of job creation or a given composition of
Tanzania, and Zambia experienced periods of employment (box 2.5).
economic growth with very little change in pov-
erty incidence.47 On the other hand, important
When a growth strategy may not be
advances in poverty reduction have also hap-
sufficient
pened during periods of slow growth, as oc-
curred in Brazil and Mexico during the 1990s Focusing on the aggregate relationship be-
and the first half of the 2000s.48 And in some tween growth and employment downplays
cases, growth is not accompanied by increased some of the most important channels through
social cohesion—even though poverty may fall which jobs connect to development. The very
and living standards improve for some, the ex- notion of employment as derived labor de-
pectations of others remain unfulfilled. Tunisia mand does not reflect the situation of the many
is a clear example in this regard: its growth rate working people in developing countries who
is well above the average of the region, but it has are farmers and self-employed. The focus on
nonetheless experienced serious social and po- the labor market as the transmission chain be-
litical tensions.49 tween growth and employment also does not
The recognition of these lags and gaps has capture the interaction of working people with
led to more nuanced approaches to economic others in households, at the workplace, and in
growth in which the growth being sought is society more broadly. Focusing solely on the
“pro-poor,” “shared,” or “inclusive.”50 In these relationship between growth and employment
versions, it is not just the rate of growth that may fail to measure how jobs can foster gender
matters but also the initial distribution of in- equality, support urbanization, or contribute
88 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 2.5 The relationship between growth and employment is not mechanical
The statistical connection between economic growth and employ- ment and the percentage change in GDP. These elasticities show
ment is sometimes termed Okun’s Law. In 1962 Arthur Okun found great variability over time and space, too, making it difficult to fore-
that in the years immediately following World War II, a 1 percent cast net job creation over the course of development. For instance,
increase in gross domestic product (GDP) in the United States in Tanzania growth elasticities of employment declined from 1.04 in
brought about a 0.3 percent decline in unemployment. Since then, the period 1992–96 to 0.27 in the period 2004–08. Similar trends
this empirical regularity has found support in a wide variety of coun- have been reported for Ethiopia, Ghana, and Mozambique.c In Latin
tries. Recent research, however, suggests that Okun’s Law is not as America, recent estimates show that growth elasticities of employ-
stable as its name implies.a ment were much lower during the global financial crisis than in pre-
The debate on the stability of Okun’s Law sheds light on the char- vious crises. In other words, the Great Recession produced compara-
acteristics of economic recessions and expansions. A recent study tively less net employment destruction in that region.d
indicates that, in industrial countries, unemployment has become While employment and unemployment are aggregates, growth
more responsive to output declines over the past 20 years. This has may also affect the composition of unemployment. Important con-
been attributed to institutional reforms that have made labor mar- troversies, such as why manufacturing employment in India has
kets more flexible. Interestingly, economies that suffer financial cri- stagnated despite rapid growth in the sector can be interpreted in
ses and large housing price busts (such as the United States and this light.e Other studies show that, given their different labor inten-
Spain in recent years) have deeper and longer increases in unem- sities, economic growth in some sectors like agriculture, construc-
ployment than Okun’s Law would have predicted; whereas econo- tion, or services generates more employment than does economic
mies with large short-time work schemes (like Germany, Italy, Japan, growth in manufacturing.f Investment projects in agribusiness in
and the Netherlands) show less unemployment than predicted.b Ukraine, in construction in India, and in tourism in Rwanda have had
While Okun’s Law relates to unemployment, other studies focus large employment impacts, not only because of the direct jobs cre-
on the growth elasticity of employment. In its simplest form, this ated but also because of indirect job creation in their large network
elasticity is the ratio between the percentage change in employ- of distribution channels.g
to peaceful collective decision making. Under- In practice, however, tradeoffs between the
standing how to enhance these positive spill- three transformations can amount to more than
overs from jobs might be difficult when only just lags and gaps. Depending on the nature of
aggregates are considered. the jobs challenges facing a country, tensions
The case of urbanizing economies such as may emerge between growth that generates jobs
Bangladesh may support the idea that the three for living standards and growth that generates
major transformations happen simultaneously. jobs for productivity growth or for social cohe-
Taking advantage of their abundance of rela- sion. Examples abound:
tively low-skilled labor, such economies can
engage in world markets through light manu- • In agrarian economies, increasing productiv
facturing. Wage employment is created in large ity in smallholder farming is fundamental for
numbers, providing opportunities for rural mi- poverty reduction, given the share of the pop-
grants, and cushioning social tensions at a time ulation living in rural areas. But urban jobs in
of rapid social change. In Bangladesh, the ex- activities that connect the economy to world
pansion of the light manufacturing sector has markets and global value chains are necessary
allowed for the integration of young women for growth. With limited resources to support
into the labor market, at a time of falling fertility both, a tradeoff between living standards and
rates. Employment opportunities for women productivity may arise.
have in turn led to growing female schooling,
better human development outcomes, and • In resource-rich countries, massive invest-
faster poverty reduction. ments in extractive industries support accel-
Jobs and living standards 89
erated rates of growth and connections with fully accounting for the negative impact of cur-
international markets but generate little di- rent pollution on workers’ future health would
rect (or even indirect) employment and of- make a more complete evaluation of the output
ten little poverty reduction. Moreover, the potential of a growth strategy based on a given
abundance of foreign exchange undermines technology. Opting for defused tensions or
the competitiveness of other activities, mak- greater integration in world trade would lay the
ing it difficult to create productive jobs in ground for accelerating growth in the future in a
other sectors. sustainable way, which a short-term evaluation
based on output growth alone would fail to con-
• In countries with high youth unemployment,
sider. If measures of growth captured the intan-
job opportunities are not commensurate with
gible social benefits from jobs, a growth strategy
the expectations created by the expansion of
and a jobs strategy would be equivalent. How-
education systems. And the active labor mar-
ever, when focusing on measured growth only,
ket programs needed to defuse social tensions
spillovers from jobs can easily be overlooked,
in the short term may not do much for pov-
and this is why a jobs strategy may be needed. By
erty reduction because many of the jobless
focusing on the spillovers from jobs, a jobs strat-
come from middle-class families, and devot-
egy highlights the different outcomes of interest
ing public resources to finance them may re-
in a development process.
duce economic dynamism.
Considering a jobs strategy is a way to call
• In formalizing economies, there is an effort attention to the social value of jobs. A jobs strat-
to support social cohesion by extending the egy assesses the types of jobs that do more for
coverage of social protection to as many development in a particular country context. It
workers as possible. Broad coverage regard- relies on qualitative and quantitative analyses to
less of the type of job is often seen as part of a identify how jobs contribute to living standards,
social compact. But extending coverage with- productivity, and social cohesion. And it seeks to
out distorting incentives to work, save, and identify where the constraints to the creation of
participate in formal systems is difficult and the jobs with the highest development payoff
may have adverse impacts on productivity lie in practice. In some cases, a jobs strategy will
and long-term growth. focus on increasing female labor participation,
in others on creating employment opportuni-
ties for youth, yet in others on creating a sup-
When a jobs strategy may be appropriate
portive environment for the creation of jobs in
Tradeoffs between improving living standards, cities, or jobs connected to global value chains.
accelerating productivity growth, and fostering This may not be too different from preparing
social cohesion arguably reflect a measurement a more comprehensive growth strategy, except
problem. While the contribution jobs make to that jobs would be center stage.
output can be quantified, some of the spillovers Jobs strategies are not needed under all cir-
from jobs cannot. Measured output does not cumstances. A jobs strategy is warranted only
increase when jobs defuse social tensions, even when potentially important spillovers from
though these outcomes are valued by society jobs are not realized, leading to tensions be-
and may increase productivity in the future. tween living standards, productivity, and social
Conversely, measured output does not decline cohesion. When improvements in living stan-
when jobs in export sectors are replaced by jobs dards, productivity, and social cohesion happen
producing for the domestic market, even together, as was the case in several East Asian
though the opportunities to acquire technical countries, and may now be the case in urbaniz-
and managerial knowledge through work tend ing economies such as Bangladesh, a growth
to be higher in the export sectors. strategy may be more appropriate. Yet even re-
If the spillovers from jobs could be appro markably successful East Asian economies such
priately quantified, the tradeoffs would be fully as Korea and Singapore, which undoubtedly de-
understood and an adequate evaluation of the livered inclusive growth over many decades, also
output and employment potential of a given had jobs strategies at specific points in their de-
growth strategy would be possible. For example, velopment histories (box 2.6).
90 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 2.6 Korea went from a growth to a jobs strategy, and Singapore the other way around
The Republic of Korea and Singapore are success stories combining The strategy identifies four pillars to achieve the 70 percent tar-
long-term economic growth with rapid poverty reduction and get. The first recognizes the importance of collaboration between
strong social cohesion. But at different points in time, both coun- the public and private sectors for employment creation and consists
tries relied on jobs strategies. of implementing economic and industrial policies in a job-friendly
Singapore was confronted with a tense social situation at inde- manner. The second aims at improving flexibility and fairness in the
pendence, with both high unemployment and inter-ethnic tension. workplace and consists of a series of reforms to increase regulation
Its first development strategy focused on jobs, housing, and wage in certain areas of the labor law, while decreasing regulation in oth-
moderation. As unemployment subsided, the next strategy was ers. Thus the 40-hour workweek became enforceable for all compa-
geared toward raising labor costs to encourage higher-value-added nies, regardless of size,a with the obligatory introduction of the work
activities. This cost drive resulted in a recession, however, and since time savings system.b Simultaneously, regulations on duration of con-
then Singapore has focused on growth, rather than jobs. tracts for temporary workers and fixed-term contracts were relaxed
Conversely, Korea abandoned development planning in 1996, to allow for more hiring flexibility. The third pillar focuses on increas-
but in 2010, it adopted a jobs strategy for the next decade as its ing labor force participation and skill development of women, youth,
highest-level policy document. In October 2010, the Korean govern- and older workers. This involves developing the option of perma-
ment launched the “National Employment Strategy 2020 for the Bal- nent part-time jobs, thus allowing parents to both work and care for
ance of Growth, Employment and Welfare.” In the tradition of long- their children, especially in sectors suffering from labor shortages
range plans, this national strategy has a clear target for 2020: an and unable to fill full-time jobs. Older workers would be retained
increase in the employment rate of the working-age population longer in the active labor force by having the option to work shorter
(15–64 years) to a minimum of 70 percent—the average among hours under the wage peak system.c Last but not least, the inten-
industrial economies. The strategy was rooted in the mismatch tion is to facilitate welfare-to-work transitions, by encouraging able-
between macroeconomic indicators that pointed to a recovering bodied welfare recipients to enroll in employment assistance pro-
economy and the inability of individuals—especially youth—to find grams and by reinforcing their obligation to pursue employment.
adequate employment.
Sources: World Development Report 2013 team based on Huff 1994, 1995; Republic of Korea 2010.
a. The 40-hour workweek was introduced in 2004 and applied only to companies with over 1,000 employees.
b. This system allows employees to take leave to compensate for overtime, work during holidays, or night work.
c. The wage peak system allows companies to rehire workers after they retire.
© Justin Guariglia / Redux
Day laborer in a pineapple plantation in Pontian, Malaysia
Notes 22. Al-Tuwaijri and others 2008; Brenner 1979.
23. Estimates for both Spain and Mauritius are from
1. Gershuny 2000; Krueger and others 2009; Ramey Ramessur (2009).
and Francis 2009. 24. ILO 2005.
2. Ngai and Pissarides 2008. 25. WHO and World Bank 2011.
3. See Hongqin, MacPhail, and Dong (2011) for the 26. Wilkinson and Marmot 1998.
case of growing female participation in China. 27. Baingana and others 2004; Murphy and Athana-
On the other hand, see Gammage and Mehra sou 1999.
(1999) for the case of stagnant female participa- 28. Brenner 1971; Brenner 1975; Dooley, Catalano,
tion in the Middle East. and Wilson 1994; Dooley, Prause, and Ham-
4. Davis and others 2010. Rowbottom 2000.
5. Narayan, Pritchett, and Kapoor 2009. 29. Lundin and Hemmingsson 2009; Stuckler and
6. See the studies cited in Baulch 2011; Fields and others 2009a, 2009b.
others 2003; and Fields and others 2007. 30. ILO 2010.
7. de Brauw and Giles 2008; Giles and Murtazash- 31. Ouweneel 2002.
vili 2010. 32. Helliwell and Putnam 2004; Stutzer and Lalive
8. Azevedo and others 2012 for the World Develop- 2004.
ment Report 2013. In El Salvador and Romania, 33. Blanchflower and Oswald 2011; Winkelmann
nonlabor incomes compensated for lower labor and Winkelmann 1998. There are valid concerns
incomes as a result of the financial crisis. For about how to compare self-reported subjective
Mexico, although earnings increased for the em- outcomes across countries and cultures. See King
ployed, this effect was compensated for by a de- and others 2004.
cline in occupied adults, resulting in a relatively 34. Gales, Mavridis, and Witoelar 2012 for the World
lower contribution of labor income to poverty Development Report 2013.
reduction when compared to transfers. 35. Björklund 1985.
9. Inchauste and others 2012 for the World Devel- 36. Clark and Oswald 1994.
opment Report 2013. 37. Helliwell and Putnam 2004.
10. Dang and Lanjouw 2012. 38. Dooley, Prause, and Ham-Rowbottom 2000;
11. Estudillo, Sawada, and Otsuka 2008; Himanshu, Winefield 2002.
Bakshi, and Dufour 2011; Lanjouw and Lanjouw 39. Bardasi and Francesconi 2004; Origo and Pagani
2001; Lanjouw and Murgai 2009; Otsuka, Estudi- 2009.
llo, and Sawada 2009; Takahashi and Otsuka 2009. 40. Dehejia, Brown, and Robertson 2012 for the
12. Mansuri and others 2012a for the World Devel- World Development Report 2013.
opment Report 2013. 41. Wietzke and McLeod 2012 for the World Devel-
13. Glewwe, Gragnolatti, and Zaman 2002; Ravallion opment Report 2013.
and Chen 2007; Ravallion, Chen, and Sangraula 42. Graham 2008.
2009. 43. ISSP 2005.
14. Christiaensen and others 2009; de Brauw and 44. Dehejia, Brown, and Robertson 2012 for the
others 2002; Giles 2006; Giles and Yoo 2007. World Development Report 2013.
15. Christiaensen and Todo 2009; Estudillo and oth- 45. Gill and Kharas 2007; Stiglitz 1996; World Bank
ers 2012; Himanshu and others 2011. 1993.
16. Dercon and Porter 2011; Fields and others 2003; 46. Ravallion 2001; Ravallion 2011.
Lawson, McKay, and Okidi 2006; Lohano 2011; 47. Bigsten and others 2003; Demombynes and
Quisumbing 2011; Woolard and Klasen 2005. Hoogeeven 2007.
17. Fields and others 2003; Fields and others 2007. 48. Ferreira, Leite, and Ravallion 2010; Hanson 2010.
18. Mansuri and others 2012b for the World Devel- 49. The GDP per capita (in real 2000 US$) grew in
opment Report 2013. Tunisia at an annual average rate of 3.4 percent
19. Bjørkhaug and others 2012 for the World Devel- between 1990 and 2008, whereas the average for
opment Report 2013; Hatløy and others 2012 the Middle East and North Africa region was 2.0
for the World Development Report 2013; Kebede percent in the same period (World Development
and others 2012 for the World Development Re- Indicators).
port 2013; Zhang and others 2012 for the World 50. There are several measures that gauge “pro-poor”
Development Report 2013. growth. See Ravallion 2004.
20. ILO 2010. 51. Ianchovichina and Lundstrom 2009; Ravallion
21. ILO 2005. 2001.
Jobs and living standards 93
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and Raddatz 2010. 2011. “Time Use Database.” World Bank, Wash-
ington, DC. Processed.
Bhalotra, Sonia R. 1998. “The Puzzle Of Jobless
Growth in Indian Manufacturing.” Oxford Bulle-
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Chapter
3
Jobs and productivity
P
roductivity growth happens as jobs be- regions, however. In Sub-Saharan Africa, the
come more productive, as new high- Green Revolution has not taken place on a large
productivity jobs are created, and as low- scale.
productivity jobs disappear. In the medium Outside of agriculture, productivity varies
term, trends in employment align closely with substantially across enterprises, implying po-
trends in the labor force, so there is no such a tentially large productivity gains from job real-
thing as jobless growth. But the short-term rela- location. The speed at which productivity grows
tionship between employment and growth is also varies. Large firms are more innovative,
more complex. Large numbers of jobs are being provided that they are exposed to competition.
created and destroyed simultaneously, leading At the other end, microenterprises are a diverse
to structural change and spatial labor realloca- group. A vast majority of them, more prone to
tion. Underneath these sectoral and spatial churning than to growth, are a means of survival
changes are firm dynamics that result in a con- for the poor. Yet some are entrepreneurial, and
stant restructuring and reallocation of resources, their success could boost wage employment.
including labor.
In developing countries, many people work
in very small and not so dynamic economic Employment turbulence,
units. Family farms, which often predominate not jobless growth
in agriculture, average only 1.2 hectares in Asia,
and 1.8 hectares in Sub-Saharan Africa. Outside Jobless growth is a popular notion, often be-
of agriculture, microenterprises and household lieved to be grounded on data. However, unem-
businesses account for a large share of employ- ployment rates neither explode nor vanish over
ment in a majority of developing countries. time, so employment trends align closely with
These businesses make a significant contribution trends in the size of the labor force. The growth
to gross job creation and destruction, although of gross domestic product (GDP) certainly mat-
not necessarily to net job creation and produc- ters for employment growth, but in the medium
tivity growth. term it matters less than demographics and par-
In agriculture, the Green Revolution has ticipation rates. Data from 97 countries over the
led to higher cereal yields and to employment past decade confirm that a positive relationship
growth because the new technologies are labor exists between the growth of GDP per capita and
intensive. The progress has been uneven across the growth of employment per capita (figure
Jobs and productivity 99
At the risk of simplifying, four main forces lie behind increases in an measured as changes in total factor productivity. Technological
economy’s per capita output. The first is the use of more capital per progress amounts to combining capital, labor, and skills more effi-
unit of labor. The second is an increase in the number of people ciently, while applying new knowledge.
working, relative to the total population. This happens when fertility Growth decomposition quantifies the contribution of each of
declines and the share of adults in the total population increases; these four forces to economic growth. It can be done for any partic-
it is also happens when women shift their work from household ular country given sufficient data on gross domestic product, capi-
chores to income-generating activities. The third mechanism tal, employment, and human capital. Some of these variables may
through which output can grow is by making people themselves need to be constructed or approximated; for instance, the stock of
more productive. The acquisition of skills, also known as human capital in an economy is estimated based on accumulated invest-
capital accumulation, allows a person to do more using the same ments, while human capital is approximated by the educational
amount of capital. The fourth mechanism is technological progress, attainment of its population, corrected for the quality of education.
3.1a).1 The relationship is not very strong, but deed associated with a decline in employment in
only in very few cases was growth truly jobless. the same year (figure 3.1b). Only in subsequent
On the other hand, the short-term relation- years did this negative employment effect wane.
ship between growth and employment is not Productivity growth is a turbulent pro-
so straightforward. Growth happens partly cess. Analyses covering economies as different
through the disappearance of low-productivity as Ethiopia and the United States in different
jobs as well as through the creation of more periods over the past three decades reveal the
productive jobs.2 So for the same sample of magnitude of gross job creation and gross job
countries over the same decade, surges in total destruction (figure 3.2). In the manufacturing
factor productivity (TFP) in one year were in- sector of developing countries, between 7 and
Economic
F I G U R E 3 .1 growth does not occur at the expense of jobs in the medium term
3 2
0
2
–2
1
–4
0
–6
–1
–8
–2 –10
–3 –12
–4 0 4 8 12 16 in the one year two years three years
same year later later later
growth of GDP per capita, %
Source: World Development Report 2013 team estimates based on average growth decomposition accounting for years 1999–2009.
Note: GDP = gross domestic product; TFP = total factor productivity. Data are from 97 countries. Panel a presents the relationship between annual growth of GDP per capita and
the growth of the employment-to-population ratio. Each dot represents a country. Panel b depicts the correlation between annual growth in total factor productivity (TFP) and
employment rate growth in the same year, and in subsequent years.
100 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Labor
F I G U R E 3 . 3 reallocation across sectors was a driver of productivity growth in
East Asia
8
7
annual labor productivity growth, %
5
4
–1
M ica th no s
th Eu s
t a Ca ope
n
ca
As uth a
a
on m
In olia
T sia
SA land
an ina
Pa e
ilip a
s
Si Rep
er Sou eco ie
dl and ast ie
ne
cifi
So fric
an Asi
in
Ko hin
di
Ph aysi
or
Su No bea
ta
na
fri
ne
Am nd rial nom
Ch
iw h
In
kis
ap
pi
g
r
Pa
Sa th A
Ta R, C
,C
ng hai
et
a,
al
nd rib
do
ng
n
Vi
re
M
d
tin al a ust eco
ra
M
r
ha
E
ia
d ll
a
Ko
b-
st
ng
Ea
as
nt in
Ho
eE
id
r
Source: World Development Report 2013 team estimates based on Kucera and Roncolato 2012.
Note: The figure shows the decomposition of labor productivity growth in 81 economies over 1999–2008 into productivity changes due to changes within sectors and reallocation
across sectors. Seven sectors are considered: agriculture, hunting, forestry, and fishing; mining and utilities; manufacturing; construction; trade, restaurants, and hotels; transport,
storage, and communication; and other services. The regional growth rates are weighted averages, with weights based on an economy’s share in regional GDP.
urban centers has continued for a long period main driver of aggregate productivity growth is
of time. Enterprises have been sprawling into firms becoming better at what they do (figure
the suburbs of urban centers rather than leap 3.4).9 Entry and exit also contribute, which in-
frogging to different locations as in some in dicates that new firms are more productive than
dustrial countries (map 3.1). Similar shifts are those exiting. In general, exiting firms see their
happening in Brazil, China, and Vietnam.7 In productivity decline before they close, whereas
India, large manufacturing enterprises are mov- new firms tend to attain the average levels of
ing away from urban centers into rural loca- productivity of their industry within five years.
tions.8 Regardless of the nature of the shift, al- These complex dynamics imply that at any point
most inevitably jobs are created in some places in time, firms with very different productiv-
and destroyed in others. ity levels coexist, even within narrowly defined
Underneath these sectoral and spatial changes industries.10
in the structure of employment are the firm The popular perception that productivity
dynamics connecting job flows and productiv- grows through downsizing at the firm level is
ity growth. Aggregate productivity grows when partially supported by these analyses. Indeed,
existing firms become better at what they do, in many cases, employment tends to shrink in
when more productive firms enter the market, firms experiencing rapid productivity growth.11
and when less productive ones exit. It also grows But downsizing is only part of the story. There
when more productive firms become bigger and are also many successful upsizing firms, achiev-
less productive ones become smaller. Decompo- ing both productivity growth and employment
sition analyses show that in most countries the growth.12 For instance, one-fourth of manufac-
102 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
REPUBLIC OF KOREA
MANUFACTURING ACTIVITIES ARE SPRAWLING INTO SUBURBS OF URBAN CORE IN KOREA
EMPLOYMENT SHARES OF
MANUFACTURING INDUSTRIES CITIES AND TOWNS COUNTY BOUNDARIES
Manufacturing activities are sprawling out of the main urban centers in the Republic of Korea
PROVINCE CAPITALS PROVINCE BOUNDARIES
m a p 3 .1
40%
30% NATIONAL CAPITAL
This map was produced by the Map Design Unit of The World Bank.
20% The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
10% Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
IBRD 39533
1960 DEMOCRATIC PEOPLE'S
REPUBLIC OF KOREA Sea of
1985 DEMOCRATIC PEOPLE'S
REPUBLIC OF KOREA Sea of
2005 DEMOCRATIC PEOPLE'S
REPUBLIC OF KOREA
SEPTEMBER 2012
Japan Japan
Sea of EMPLOYMENT
Japan
SHARES OF
SEOUL SEOUL SEOUL MANUFACTURING
Incheon INDUSTRIES
CITIES AND TOWNS
37°N 37°N 37°N
40% PROVINCE CAPITALS
30% NATIONAL CAPITAL
Yellow Yellow Yellow
Sea Sea Sea 20%
Taegu Taegu COUNTY BOUNDARIES
36°N 36°N 36°N
10%
PROVINCE BOUNDARIES
126°E 127°E 128°E 129°E 126°E 127°E 128°E 129°E 126°E 127°E 128°E 129°E
FI G U R E 3.4 Efficiency gains at the firm level are the main driver of productivity growth
14
12
annual labor productivity growth, %
10
8
6
4
2
0
–2
–4
Ge p.
Po y
ia
a
Po e
al
Ge es
Un the y
Ki ds
nd
RB
il
Co ile
Ar bia
na
ia
Sl ia
Ko enia
ga
an
ni
an
az
in
c
tv
Re
Un rtug
tv
n
do
at
an
ite rlan
Ch
hi
la
to
rtu
nt
to
m
a,
rm
Br
La
rm
La
St
ov
,C
n
a,
ng
el
Fr
Es
lo
Es
ge
Fi
re
zu
d
an
ite
ne
iw
Ne
Ve
Ta
manufacturing services
100
90
80
70
60
share, %
50
40
30
20
10
0
no. of employment value no. of employment value no. of employment value
plants added plants added plants added
Source: World Development Report 2013 team based on Amadeus Database, Bureau van Dijk, Amsterdam, and Ethiopia Large and Medium Scale Manufacturing and Electricity
Industries Survey, Central Statistical Agency, Addis Ababa.
Note: no. = number. The figure shows the contribution of each of the four groups to the annual growth rate of the variable of interest. The plants considered employ at least
10 workers and exist throughout the entire period. Successful upsizers are plants that increased both labor productivity and employment, successful downsizers are plants that in-
creased productivity but reduced employment, unsuccessful downsizers are plants that reduced employment and productivity, and unsuccessful upsizers are plants that increased
employment but reduced productivity.
turing plants operating in Chile over 2001–06 be successful upsizers.13 Recent evidence based
were successful downsizers, consistent with the on 26,000 manufacturers from 71 countries fur-
popular perception. But another one-fourth ther shows that firms that innovated in products
were successful upsizers, achieving both pro- or processes were more likely to be successful up-
ductivity and employment growth (figure 3.5). sizers; they not only attained higher total factor
More important, the successful upsizers con- productivity than noninnovative firms; they also
tributed more to production, employment, and exhibited higher employment growth.14
aggregate productivity growth than the success- Transition economies in Europe illustrate
ful downsizers. Results were similar in Romania the links between job reallocation and pro-
between 2000 and 2005, and in Ethiopia between ductivity growth. Before reforms were imple-
2005 and 2009. While country experiences vary, mented, these economies suffered from large
having a critical mass of successful upsizers is not distortions caused by a rigid planning system,
uncommon. which prevented resources from flowing to
Across countries, successful upsizers in man- more efficient uses. Liberalization led to mas-
ufacturing industries tend to be younger, leaner, sive downsizing and job losses. Eventually, it also
and more innovative. Among survivors in the strengthened incentives, mobility, and markets,
same industry and region, younger firms were opening up space for more productive private
more likely to be upsizers in Chile over 2001–06, companies. The entry of these dynamic players
and successful upsizers in Romania over 2000– contributed between 20 and 50 percent of total
05. In all three countries, survivors employing labor productivity growth in the late 1990s. The
fewer than 20 employees tended to upsize fewer exit of obsolete firms released resources that
rather than downsize. In Romania, survivors in- could be used more effectively by new or exist-
vesting more in capital per worker also tended to ing firms. Although lack of experience and small
104 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
size often made the new firms less productive census reported 1.33 million manufacturing
than the average firms of more advanced coun- firms with annual sales above RMB 5 million.16
tries, these new firms were more efficient than Most of them were private. The entry of these
domestic incumbents. They played a strong role new businesses and the closure of nonviable
in boosting productivity in medium- and high- state-owned enterprises (SOEs) accounted for
technology industries and in exerting competi- two-thirds of TFP growth in manufacturing
tive pressure on existing firms.15 sectors over 1998–2006.17
China’s rapid productivity growth was
also underpinned by large-scale reallocation.
Beginning in 1978, economic reform efforts Most jobs are in very small farms
gradually expanded the influence of markets and firms
and deepened global integration. All of this
created unprecedented opportunities for the Many people in developing countries work
formation of private entities, including town- in very small and not very dynamic economic
ship and village enterprises, and the entry of units—family farms, microenterprises, and
foreign companies. During the first decade of household businesses. Although microenter-
reform (1978–88), reallocation from agricul- prises are often defined as firms employing ten
ture to nonagriculture activities was the source or fewer workers, many among them are actu-
of almost half of all productivity growth. In the ally one-person businesses. Given their contri-
following decades, however, the main drivers bution to total employment, these small eco-
of productivity growth were labor reallocation nomic units cannot be ignored. Understanding
out of the state sector, private sector vibrancy, their dynamics is crucial to deciphering the rela-
and state sector restructuring. The scale of tionship between jobs and productivity.
business entry was startling: the number of In family farms, hired labor is usually em-
industrial firms rose from 377,000 in 1980 to ployed in simple tasks such as weeding and har-
nearly 8 million in 1996. The 2004 economic vesting, whereas family labor usually carries out
care-intensive activities such as water manage-
ment, land preparation, and fertilizer applica-
Smallholder
F I G U R E 3 . 6 farming is dominant tion. Limited reliance on hired labor is due to
the difficulty to monitor effort, and without
outside Latin America
machinery, farms cannot be expanded beyond
Europe and
the size manageable by the family’s labor, which
Central Asia is typically 1 to 2 hectares.18 Family farms domi-
100 4.8 ha
Asia nate even in high-income countries, and owner
1.2 ha
Sub-Saharan Africa cultivation is the most common form of land
1.8 ha tenure, especially in Asia (figure 3.6).
80 Latin America
Middle East and 61.5 ha At 1.2 and 1.8 hectares, respectively, average
farms owned, %
North Africa
3.2 ha farm size is small in both Asia and Sub-Saharan
60 Africa.19 In Asia, farmers typically own land
plots, which they supplement through tenancy
contracts that facilitate transfers from relatively
40 land-abundant to relatively labor-abundant
households. Farms in Sub-Saharan Africa are
slightly larger than in Asia, but size and the im-
20
portance of owner farming are becoming similar
0 5 10 15 20 25 30 35 40
in both regions.20 There are some exceptions to
farms rented, %
this pattern. Colonial governments created large
farms in some developing countries, such as es-
Source: FAO 2010.
Note: ha = hectare. Countries in Asia include: Bangladesh, India, Indonesia, the Lao People’s Democratic tates in southern Africa, haciendas in Latin
Republic, Nepal, Pakistan, and Thailand; in Europe and Central Asia: Azerbaijan, Croatia, the Czech Republic, America and the Philippines, and plantations in
Georgia, the Kyrgyz Republic, Latvia, Serbia, Slovenia, and Turkey; in Latin America and the Caribbean: Brazil, the Caribbean. In Sub-Saharan Africa, large ar-
Guatemala, Nicaragua, St. Lucia, St. Vincent and the Grenadines, Uruguay, República Bolivariana de Venezu-
ela, and Virgin Islands (United States); in the Middle East and North Africa: the Arab Republic of Egypt, Jordan, eas are also held as customary land—owned col-
Morocco, Qatar, Saudi Arabia, and Tunisia; and in Sub-Saharan Africa: Côte d’Ivoire, Ethiopia, and Madagascar. lectively by extended families, clans, or lineage.21
Jobs and productivity 105
The
F I G U R E 3 . 7 employment share of microenterprises is greater in developing countries
Ethiopia
Egypt, Arab Rep.
India
Bolivia
Colombia
Ghana
Mexico
Venezuela, RB
Argentina
Poland
Turkey
Hungary
South Africa
Uruguay
Czech Republic
Slovenia
Chile
Romania
Vietnam
industrial countries (average)
0 20 40 60 80 100
share of employment, %
manufacturing sector services sector
Sources: World Development Report 2013 team estimates based on International Income Distribution Database (I2D2) and EUROSTAT.
Note: Microenterprises are firms, formal or informal, with fewer than 10 workers. Data for developing countries are from Argentina (2006–10); Bolivia (2005, 2007); Chile (2006,
2009); Colombia (2009); the Czech Republic (2005–07); the Arab Republic of Egypt (2006); Ethiopia (1999); Ghana (1991); Hungary (2007–08); India (2004, 2009); Mexico (2004–10);
Poland (2005–07); Romania (2005–07); Slovenia (2005–07); South Africa (2005–07); Turkey (2006–10); Uruguay (2009); República Bolivariana de Venezuela (2004–06); and Vietnam
(2009). Data for industrial countries are from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden,
and the United Kingdom over 2005–07.
BOX 3.2 Microenterprises account for most job creation and destruction
In some household and labor force surveys, employees are asked to The distribution of job flows by firm size that emerges from
report the size of the firm they work for, or the size of their own busi- the manufacturing survey can be adjusted based on the distri-
ness if they are self-employed. This information can be used to esti- bution of employment by plant size from Chile’s household survey,
mate the distribution of employment by plant size. This distribution the National Socioeconomic Characterization Survey (Encuesta de
can in turn be used to correct for the omission of informal enter- Caracterización Socioeconómica Nacional, or CASEN). Before this
prises in an economic census or plant-level survey. adjustment, larger firms seem to account for most job creation and
This approach was applied to Chile’s manufacturing survey, the destruction. But the adjustment shows that microenterprises con-
Annual National Industrial Survey (Encuesta Nacional Industrial tribute about 80 percent of gross job flows. This estimate should not
Anual), which covers more than 90 percent of employment among be taken literally, because the microenterprises for which informa-
establishments with 50 workers or more, but less than half the tion on job creation and destruction is available are not necessarily
employment in establishments with 10 to 49 workers. Nearly representative—the Chilean census started to include microenter-
300,000 workers in microenterprises are omitted from the survey; prises only in the late 1990s. But even with a margin of error, the
250,000 of them work in firms with fewer than 5 employees. estimate is so large that it changes the picture of job creation and
job destruction.
a. Contribution by firm size before correcting, 2000–06 b. Contribution by firm size after correcting, 2000–06
80 80
60 60
percent
percent
40 40
20 20
0 0
0–5 6–9 10–49 50–199 > = 200 0–5 6–9 10–49 50–199 > = 200
firm employment size firm employment size
shares in job creation, % shares in job destruction, % shares in job creation, % shares in job destruction, %
shares in employment, % shares in employment, %
in the manufacturing sector in Ethiopia and 39 yields per hectare tend to be higher in smaller
percent in Chile. In services sectors, their role is farms, because family farms apply more labor
often more important. Even in Eastern European per unit of land, even though they apply fewer
countries, where private sector entry is only two purchased inputs. This inverse relationship be-
decades old, microenterprises account for 10 to tween farm size and productivity was first ob-
20 percent of employment in manufacturing and served in South Asia.27 But it has also emerged
for 30 to 50 percent of employment in services. in Sub-Saharan Africa as population pressure
Micro- and small enterprises also play a critical on the land has led to agricultural intensifica-
role in job creation and destruction (box 3.2).26 tion. In Kenya, Malawi, Tanzania, and Uganda,
a 1 percent increase in farm size is associated
with a 0.1 to 0.2 percent reduction in yield.28
In farms, uneven technological The use of family labor per hectare is also in-
progress versely correlated with farm size.29
The relationship between crop yields and
It is generally assumed that large farms are more farm size emerges, because the larger, more
productive. In low-income countries, however, mechanized farms have higher productivity. But
Jobs and productivity 107
Crop
F I G U R E 3 . 8 yields have diverged vastly across regions
6
4
tons per hectare
1 Sub-Saharan Africa
0
61
64
67
70
73
76
79
82
85
88
91
94
97
00
03
06
09
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
Source: FAOSTAT-Agriculture (database), Food and Agriculture Organization, Rome.
Note: Figures are weighted averages of yields for wheat, rice, and coarse crops.
constraints in land markets usually slow expan- may not be productive in Sub-Saharan Africa,
sion and mechanization.30 and high-yielding varieties in irrigated areas
The new technologies of the Green Revolu- may be low-yielding in rain-fed areas.35
tion contributed to job creation because they The agricultural growth associated with
were labor intensive. Short-statured, fertilizer- the Green Revolution not only creates jobs in
responsive, high-yielding varieties of rice and farming but also facilitates the development of
wheat were developed by international agri- the nonfarm sectors.36 The adoption of mod-
cultural research centers in the late 1960s. The ern technology stimulates the production and
varietal improvement of other cereals such as marketing of fertilizer and other purchased
maize followed. These varieties, as well as im- inputs. Increased supply of cereals stimulates
proved production practices, were quickly dif- the development of food markets and keeps
fused, particularly in tropical Asia. The amount the cost of living low for those who migrate to
of inorganic fertilizer applied has steadily in- the cities. In addition to these backward and
creased over extended periods.31 Thanks to forward links, the increase in farmers’ incomes
continual technological improvements and heightens the demand for goods and services.37
sustained adoption, cereal yields have increased Cross-country analyses show that agricultural
dramatically for the past several decades.32 growth has resulted in the expansion of non-
Progress has been uneven across regions, farm sectors, particularly where the agricul-
however (figure 3.8). In Sub-Saharan Africa, tural sector is large.38
there is no evidence to suggest that small farm-
ers were slower than larger farmers in adopting
the new technologies. But the Green Revolution Among firms, much churning and
has not taken place on a large scale, even though few gazelles
farmland has been growing scarce because
of population pressure on limited cultivable Outside of agriculture, productivity varies sub-
areas.33 Feeding growing populations from a stantially across enterprises, implying that job
shrinking amount of farm land requires Sub- reallocation could lead to large gains in aggre-
Saharan African countries to increase cereal gate productivity. In India, within a narrowly
yields.34 Yet improved agricultural technology defined manufacturing industry, a plant at the
is location specific: improved varieties in Asia 90th percentile of the TFP distribution gener-
108 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
The
F I G U R E 3 . 9 dispersion of productivity in manufacturing is greater in developing countries
United States
China
Argentina
Ecuador
Chile
Bolivia
Uruguay
El Salvador
India
Mexico
0 5 10 15 20 25 30
productivity ratio between 90th percentile and 10th percentile of TFP distribution
ates 22 times as much output as a plant at the efficiency tends to suffer. Large SOEs without
10th percentile. In comparison, the estimated foreign competitors are less innovative and pro-
ratio is only 9 to 1 in the United States.39 The ductive than other large firms.41
dispersion of TFP is also high in a number of For a given size, young firms are also more
Latin American countries (figure 3.9). Detailed likely than old firms to engage in innovative ac-
data on nonmanufacturing firms are scarcer. tivities. They also have better growth prospects,
But the dispersion of TFP in retail businesses in a finding consistent with evidence from indus-
Mexico, and in communication and transporta- trial countries (figure 3.11).42 For example, in
tion businesses in Uruguay, is also sizable.40 the 1990s, when China was in the early stages
The speed at which productivity grows also of reform, human and financial resources were
varies across firms. Large firms are typically concentrated in SOEs. However, the incentive
more innovative than small firms. They tend to structure in these enterprises hindered innova-
invest more in machinery and hire more edu- tion. In contrast, the new township and village
cated workers. They are also more likely than enterprises lacked the resources to adopt new
small firms to engage in activities such as devel- technology and import new equipment, but
oping new product lines, introducing new tech- they were more flexible in their decision mak-
nology, opening and closing plants, outsourc- ing. As a result, these younger firms were more
ing, and engaging in joint ventures with foreign dynamic than large SOEs, although they were
partners (figure 3.10a). Large firms produce less productive than large and medium private
more with a given amount of labor, are more companies.43
likely to export, and tend to export more. They In developing countries, the dispersion of
also pay substantively higher wages than micro- productivity and growth prospects across firms
and small enterprises (figure 3.10b). They pay a is further widened by the large number of
wage premium even controlling for age, educa- micro enterprises, many of which are barely
tion, and other worker characteristics. Not all more than a means of subsistence for the poor.
large firms are innovative, however. When size A majority of these microenterprises have lim-
is supported through nonmarket mechanisms, ited capital and often even lack a fixed address.
Jobs and productivity 109
F I G U R E 3 .10 Large firms tend to perform better and to pay better than small ones
estimates, %
incorporated new technology
upgraded existing product line
opened a new plant 2
probability to
discontinued at least one product engage in
innovative
entered new joint venture with foreign partner activities
entered new licensing agreement 0
0 20 50 80 120
closed at least one existing plant
wage premium, relative to microenterprises (%)
outsourced a major activity
brought in-house a previously outsourced activity small large
0 10 20 30 40 50 60 70
difference, relative to small firms (%)
Source: World Development Report 2013 team based on Ayyagari, Demirgüç-Kunt, and Maksimovic 2011a; and Montenegro and Patrinos 2012 for the World Development Report
2013.
Note: Panel a uses World Bank enterprise surveys covering more than 54,000 firms across 102 developing countries over 2006–10 for overall performance, and 19,000 firms across
47 developing countries over 2002–05 for innovative activities. The analysis controls for firm characteristics, industry, and country. In this panel, large firms employ 100 or more
workers and small firms fewer than 20 workers. Panel b uses 138 household and labor force surveys spanning 33 countries over 1991–2010 and controls for worker characteristics.
In this panel, large firms are those employing more than 50 workers and small firms 10 to 50 workers.
Young
F I G U R E 3 .11 firms are more likely than old ones to engage in innovative activities
Source: World Development Report 2013 team based on Ayyagari, Demirgüç-Kunt, and Maksimovic 2011a.
Note: The figure uses World Bank enterprise surveys covering 19,000 firms across 47 developing countries over 2002–05, controlling for firm characteristics, industry, and country.
Statistically insignificant estimates are reported as zeroes.
110 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 3.3 Most microenterprises are in rural areas and engage in commerce
Microenterprises in urban areas, and particularly those in the infor- other manufacturing and food (16 percent) and other services (11.8
mal sector, tend to attract the attention of academics and policy percent). Similarly, the surveys of countries in Africa and in Latin
makers. But microenterprises are prominent in rural areas as well. America and the Caribbean suggest that 56 to 74 percent of micro-
The surveys of micro- and small enterprises in Africa and in Latin and small firms in urban areas, and 60 to 70 percent in rural areas,
America and the Caribbean show that fewer than half are in cities are engaged in commerce. The surveys of household enterprises in
and towns with 20,000 inhabitants or more. The urban share reaches Sub-Saharan African countries show similar patterns. These surveys
46 percent in the Dominican Republic but is below 30 percent in all identify three manufacturing activities as the most important across
other countries surveyed. Even if rural towns are counted (generally, all countries: textiles and apparel, food and beverages, and wood
localities with 2,000 to 20,000 inhabitants), well over half of the and forest products. These three categories account for about 75
enterprises are in strictly rural areas in most countries. percent of manufacturing enterprises in urban areas and nearly 90
The vast majority of microenterprises are engaged in commerce, percent of manufacturing enterprises in rural areas.
supporting the conventional view that associates microenterprises Most of the microenterprises operate from home or on the
with street vendors and petty traders. But a significant number are street. According to the surveys of household enterprises in Sub-
involved in light manufacturing activities. According to the 1-2-3 Saharan Africa, 25 to 45 percent of these microfirms use home as
surveys of West African countries, the most important sector in capi- primary point of operation, and 10 to 40 percent of them simply
tal cities is petty trading (27.1 percent of all enterprises), followed by work on the street.
Sources: Fox and Sohnesen 2012; Grimm, Kruger, and Lay 2011; Liedholm 2002.
Many are located in rural areas, absorbing some cumulated human and physical capital while
labor slack during the low agricultural season working for a wage or a salary. Operating
(box 3.3). Across 18 developing countries, 44 microenterprises is a choice for them. Those
percent of the people living on less than US$1 a who achieve higher productivity levels are more
day in urban areas, and 24 percent of those in likely to stay in business, grow, and create job
rural areas, work in a nonagricultural business. opportunities for others.46
On average, they do not earn much.44 A very small group of microenterprises actu-
Nonetheless, these nonfarm activities pro- ally displays a strong performance. This group
vide an important channel to diversify income bears similarities with the so-called “gazelles” of
for the poor. In nine Sub-Saharan African coun- industrial countries—high-growth companies
tries, most nonfarm jobs were generated by whose revenues increase by at least 20 percent
households starting businesses, rather than en- annually for four years or more. In industrial
tering the rapidly expanding private wage sector. countries, the term “gazelle” is used for com
Despite being modest, earnings from household panies starting from a revenue base of at least
enterprises contribute to consumption much US$1 million, which makes them very big
the same as earnings from wage employment by developing-country standards. Nonetheless,
do. And these small businesses offer an avenue the same dynamism can be found at a much
for poor households to engage in gradually smaller scale. Data from seven Sub-Saharan
more productive activities.45 African countries show that the median capital
While microenterprises have a lackluster per- stock held by urban informal enterprises is less
formance as a group, they are also very diverse. than US$80, whereas the capital stock for those
In middle-income countries, a significant share in the top quintile averages US$5,000. The aver-
of the owners of micro- and small enterprises age monthly profit of those in the top quintile
are as entrepreneurial as their peers in indus- is seven times the median monthly profit. The
trial countries. Their weak performance may rate of returns to capital is also relatively high in
be driven more by contextual factors such as these firms.47 This heterogeneity among micro
limited access to credit and policy-induced bar- enterprises suggests they can be an incubator
riers to access technologies and markets, than for large and productive firms.
by limited capacity. In several Latin Ameri- The dynamism of microenterprises matters
can countries, for example, entrants into self- not only for livelihoods but also for productivity
employment tend to be workers who have ac- growth. Large firms innovate more, but they are
Jobs and productivity 111
Surviving
F I G U R E 3 .12 firms were born larger and grew less in Ghana than in Portugal
a. Initial year: All firms versus surviving firms
Ghana Portugal
0.4 0.4
frequency
0.2 0.2
0.1 0.1
0 0
1 10 100 1,000 1 10 100 1,000
number of employees number of employees
Ghana Portugal
0.4 0.4
frequency
0.2 0.2
0.1 0.1
0 0
1 10 100 1,000 1 10 100 1,000
number of employees number of employees
not all born large. In industrial countries, some a multinational conglomerate comprising 114
of the more resounding successes, from Honda companies and subsidiaries across 8 business
to Microsoft, started in garages. And many suc- sectors on several continents.49 Many of China’s
cessful companies in developing countries also successful clusters, such as the footwear and
grew out of small household businesses. Thai- electric appliance industry in Wenzhou, also
land’s Charoen Pokphand Group, founded in started from small family businesses working
1921 as a small seed shop in Bangkok by two close to each other.50
brothers, has grown into one of the world’s larg- A vibrant firm life cycle is often missing,
est multinational conglomerates in agribusiness, however. Larger and older firms tend to be
operating in 15 countries and encompassing stagnant, while smaller enterprises are prone to
close to 100 companies.48 India’s Tata Group churning. In Ghana, for example, many firms
transformed from a Mumbai-based, family- are born large and show little growth over 15
owned trading firm in the late 19th century to years (figure 3.12). In Portugal, by contrast,
112 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
a. Employment over a firm’s life cycle b. Productivity over a firm’s life cycle
11 11
10 10
employment, relative to birth
35
35
5–
–1
–1
–2
–2
–3
5–
–1
–1
–2
–2
–3
<
<
≥
≥
10
15
20
25
30
10
15
20
25
30
age o firm, years age of firm, years
India Mexico United States
many more firms are born as microenterprises 20 to 30 percent of household enterprises leave
and grow substantially in 7 years.51 The major- the market over a two-year period, while the
ity of firms are born small in India too, but they total number of household enterprises remains
tend to stay small, without displaying much about the same.54 In Sub-Saharan Africa, few
variation in employment over their life cycle. household enterprises expand into employment
A revealing comparison involves the size of 35- beyond the household, as shown by the experi-
year old firms relative to their size at birth. In ences of Ethiopia, Tanzania, and Madagascar.55
India, the size declines by a fourth. In Mexico, it In Mexico, individuals starting microenterprises
doubles. In the United States, it is 10 times larger are more likely to remain the sole worker than to
(figure 3.13a). Productivity growth over a firm’s increase the firm size (table 3.1).56
life cycle follows similar patterns in these coun- The wide dispersion of productivity among
tries (figure 3.13b).52 businesses, the large number of unsustainable
Churning—entering and exiting at a rela- microenterprises, and the stagnation of larger
tively high rate—is much more common than firms all suggest that the process of market se-
growth among the micro- and small enterprises lection and creative destruction that has under-
of developing countries. In several Sub-Saharan pinned the rapid growth of transition economies
African and Latin American countries, about 20 and East Asian countries in the past decades is
percent of micro- and small enterprises enter weak in most developing countries. This weak-
and leave the market in the same year. A majority ness impedes labor and other resources from
of closures occur within three years of starting moving toward their most productive uses and
up. Among the survivors, less than 3 percent ex- undermines both job creation and productivity
pand by four employees or more.53 In Vietnam, growth. Gains from tackling the difficulties faced
Jobs and productivity 113
by the start-ups and removing constraints to the are exchanged among people more effectively,
growth of incumbents could be sizable, but the making everybody more productive. In clus-
task is daunting (question 3).57 ters, similar firms that locate next to each other
tend to benefit from a broader pool of qualified
workers and common support services. Firms
* * * also connect with foreign businesses through
trade and investment, and, in integrating with
Jobs can have an impact on the productivity of global value chains, they can acquire more ad-
others, beyond the jobholder and the economic vanced knowledge, technology, and manage-
unit where they belong. Jobs that have these ad- ment know-how. In all these ways, specific jobs
ditional impacts do more (or less) for develop- can contribute to productivity gains of others
ment. These additional impacts arise because and elsewhere in the economy. But effects can
jobs differ in the way they connect with each be negative as well if jobs overuse natural re-
other, and some of the connections do not oc- sources or damage the environment, thus re-
cur through markets. In functional cities, ideas ducing aggregate productivity.
QUESTION
3 Can entrepreneurship be fostered?
F I G U R E 3 .14 Some among the self-employed have the potential to become successful entrepreneurs
60 8
7
employment share, %
per capita GDP, US$ 2005 PPP per capita GDP, US$ 2005 PPP
low-potential self-employed workers employers
high-potential self-employed workers
Sources: Gindling and Newhouse 2012 for the World Development Report 2013; World Development Report 2013 team estimates based on data from 36 countries.
Note: GDP = gross domestic product. PPP = purchasing power parity. In panel b, each dot represents a country.
ing age population, such additional job creation Removing obstacles to firm growth is thus a pre-
would amount to 8 percent in Kenya, 5 percent requisite to foster entrepreneurship.
in the Arab Republic of Egypt and 4 percent in Obstacles notwithstanding, entrepreneurial
Costa Rica. capacity varies substantially across microen-
While this calculation is hypothetical, several terprises and small firms. A distinction is often
studies report that observable characteristics of made between innovative or transformative en-
micro- and small informal enterprise owners, trepreneurs and replicative or subsistence entre-
such as education and gender, are important preneurs.67 The former correspond to Schumpe-
determinants of innovation and employment terian type of entrepreneurs, while the latter, who
growth.65 In Mexico, after a business registra- generally manage micro- and small enterprises,
tion reform, informal enterprise owners with are followers. Such a distinction, however, does
observable traits similar to those found among not capture the broader gradation of managerial
formal enterprise owners were more likely to performance that lies between the transformative
register their business than those similar to wage and subsistence extremes. A study of the number
workers.66 of management practices adopted by the owners
of micro- and small enterprises in Sub-Saharan
Africa reveals a large variation of management
What constrains entrepreneurship?
scores (figure 3.15). These scores are closely as-
Even potentially skilled entrepreneurs would sociated with business performance.68 A broad
have difficulty succeeding without access to dispersion of management scores is also found
basic infrastructure and financial resources. In among relatively larger firms in India.69
their absence, managerial capacity alone may An emerging literature confirms the impor-
not be enough to realize productivity gains and tance of management practices in explaining
employment expansion. The investment cli- firm productivity. Although much of the focus
mate matters for business performance as well. is on large firms, recent studies have turned their
116 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Management
F I G U R E 3 .15 scores vary widely across small enterprises in
Sub-Saharan Africa
9
8
7
6
% of firms
5
4
3
2
1
0
1 6 11 16 21 26
management score
attention to how innovation in small and me- up an offer of a wage subsidy covering 50 percent
dium firms takes place. The most telling studies of the cost of hiring a worker for six months and
involve management training provided for free 25 percent of the cost for another two months.
to randomly selected firms whose performance Overall, these results suggest that lack of access
is then compared to that of a control group of to finance is not the only constraint.
firms. Evaluations of these programs find that Entrepreneurial skills, measured by the edu-
the training improves the financial literacy and cation of business owners and their partici
basic management skills of business owners. The pation in training, explain a large share of the
estimated impact is also positive, but less robust, differences in productivity across firms and re-
when it comes to improved business outcomes gions in developing countries.71 Yet markets fail
and job creation. Better outcomes are associated to nurture entrepreneurship, because knowl-
with business owners who already had an ini- edge spillovers imply that some of the returns to
tial understanding of the concepts and relatively acquiring or developing new managerial ideas
better access to financial resources. are appropriated by others. More important
On the other hand, similarly designed inter- perhaps, entrepreneurs themselves do not rec-
ventions to provide financial resources to mi- ognize the relevance of management expertise.72
croenterprises, or to process their registration Only 3 percent of Brazil’s owners of micro- and
with authorities, or to pay the salary of an ad- small enterprises, for instance, see management
ditional employee, show mixed impacts on busi- as a binding business constraint.73 This may be
ness performance.70 In Mexico and Sri Lanka, an area where information and knowledge fail-
grants given to microenterprises increase the ures matter, leading to a vicious circle of low
income of their owners—and then only if they productivity, low living standards, and insuffi-
are male—but do not result in employment cre- cient job creation.
ation. In Ghana, similar grants given to female The capacity to acquire skills and to apply
business owners do not result in significant them to business seems to be one of the most
growth of their microenterprises. In Sri Lanka, important characteristics of successful entrepre-
only 22 percent of eligible microenterprises took neurs. Success also depends on having core skills
Jobs and productivity 117
such as numeracy and literacy, as well as social from abroad can be found in the case of the gar-
skills. A vast literature highlights the importance ment industry in Bangladesh (box 3.4).
of entrepreneurs’ schooling as a determinant of
firm growth, employment, and efficiency.74 Rus-
The case for targeted management
sian and Chinese business owners have more
training
entrepreneurs in their families and among
childhood friends than otherwise similar indi- Managerial practices are linked to differences
viduals, suggesting that social environment also in productivity, profitability, firm growth, and
matters.75 survival.79 The development experience of the
Learning can also happen through jobs. garment industry in Bangladesh suggests that
Nearly half of entrepreneurs managing the 50 entrepreneurship can be fostered by exposure
largest manufacturing firms in Ethiopia be- to advanced management practices and tech-
gan their careers in trading companies, thereby nologies. But whether managerial capacity can
learning about the market and what it takes to be improved through management training is
meet demand.76 A large number of founders more debatable. Creativity, foresight, and risk
and leading entrepreneurs in the light manu- taking are key elements of any innovative pro-
facturing industries in Asia and Sub-Saharan cess, but the question is whether they can be dif-
Africa were initially traders or employees in the fused and nurtured.
marketing division of large enterprises.77 A substantial number of experiments have
Integration in supply chains with larger, of- been conducted in recent years, providing evi-
ten foreign, firms, is receiving much attention dence of both successes and failures of man-
as a potential source of knowledge transfers.78 agement training interventions. Some patterns
Indian entrepreneurs returning from Silicon emerge from a systematic review of the available
Valley made Bangalore a hub of the information evidence. To be successful, management training
technology industry. Perhaps the most dramatic must be kept simple, appropriate teaching ma-
evidence attesting to the importance of learning terials must be available, and the training must
BOX 3.4 What explains the boom in the garment industry in Bangladesh?
The garment industry in Bangladesh illustrates how important it is contributed to the proliferation of garment manufacturers by pro-
to learn advanced management practices, marketing, and technol- viding a variety of valuable services including international procure-
ogies from abroad. When Daewoo Corporation of Korea teamed up ment and marketing, sample making, and design reengineering.
with Bangladesh’s Desh Ltd. to produce garments for export in Ban- Observing Desh’s good start in exporting, and subsequently the
gladesh in 1979, the South Asian country had no modern industry. success of ex-Desh workers, highly educated people started their
Little more than 20 years later, the industry was generating more own garment businesses, and wealthy families actively invested in
than US$12.5 billion in export revenue. Women accounted for 80 the industry. As a result, the size of garment firms has been quite
percent of its 3.6 million workers large since the beginning; their average size was 300 workers in
Arguably, a wide set of factors, from financial innovation to pol- 1983–84 and 700 in 2010–11. As of 2005, owners of garment firms
icy support, contributed to this development success. But it began had 15 years of schooling on average, and about 60 percent of them
in 1979, when Desh sent 130 newly recruited, educated employees had completed college or university education.
to Daewoo’s garment factory in Korea, where they participated in an Learning from abroad continued. Some entrepreneurs partici-
eight-month intensive training course covering topics from sewing pated in training programs in Singapore, Japan, and Europe. Beyond
skills to factory management, quality control, and international pro- garment enterprises in Korea, other newly industrial countries in
curement and marketing—skills that they then applied in the Desh East Asia followed Daewoo into operation in Bangladesh and in-
factories in Bangladesh. Within a few years, almost all the trainees vested in training Bangladeshi workers and managers. Thus, many
had left Desh to start their own garment businesses. Some of the Bangladeshi traders and manufacturers had work experience in gar-
ex-Desh workers joined new garment factories established by afflu- ment trading and production, including the experience of working
ent businessmen, while others founded trading houses, which then at joint ventures, before starting their current businesses.
Sources: Bangladesh Knitwear Manufacturers and Exporters Association 2012 ; Easterly 2002; Mottaleb and Sonobe 2011; Rhee 1990.
118 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
last for a certain minimum length of time. Com- identify those business owners with the highest
plementing classroom teaching with instructors’ potential to benefit from management train-
visits to trainees on the job can yield significant ing. Expert panels may be used to identify and
positive effects.80 In Mexico, for example, such rank micro- and small enterprises on their po-
on-site visits improved sales, profits, and pro- tential to grow, but such methods are expen-
ductivity.81 But in Ghana, on-site visits and sup- sive and difficult to apply on a large scale. An
port for microenterprises were not successful.82 effective alternative is a survey questionnaire
It is also possible that key entrepreneurial skills designed to capture abilities, attitudes, and man-
are gained more effectively through work expe- agement scores of potential trainees.87 Manage-
rience in large productive firms than through ment training itself can be used as a screening
training programs.83 device. Trainees with high potential often under-
Entrepreneurship training for women has take new investments and expand employment
had mixed results. Nurturing female entrepre- as a result of their training. Financial institutions
neurship has the potential to create wider social could view such activity as an indication of po-
benefits associated with female employment, tentially high investment returns. Programs that
such as changes in the household allocation of combine management training with financial
resources that improve family well-being, espe- support yield better firm performance in devel-
cially of children. Female entrepreneurship often oping countries.88
provides employment opportunities to women Training programs can be implemented by
that allow them to balance work and family private providers and financed by private inves-
roles. Yet providing classroom training to female tors with a significant interest in the success of
microentrepreneurs in Peru had no effect on key the entrepreneurs in whom they have invested.
business outcomes such as sales and profits, even But as long as there are knowledge spillovers
when some business practices improved.84 Class- and the importance of management expertise
room training complemented with on-site visits, is undervalued, governments have a role to play.
though, yielded positive results.85 In Pakistan Given the differing capabilities among business
and Tanzania, management training improved owners, proper targeting is crucial to ensure pos-
management practices and business outcomes itive returns to publicly funded programs. Ran-
for male but not female entrepreneurs.86 These domized experiments in Ghana, Tanzania, and
mixed results can also reflect wider constraints Vietnam indicate that the benefit of such pro-
facing women in societies, including access to ef- grams generally outweighs the cost, even though
fective learning in schools. the costs of implementing training programs
A common finding of training evaluations is vary greatly.89 If the overall investment climate is
that the potential to absorb management prac- not conducive to private sector growth, however,
tices differs greatly among beneficiaries. Readily targeted training programs for better business
observable individual characteristics can help skills will most likely return meager results.
Jobs and productivity 119
Notes 16. Brandt and Rawski 2008; World Bank and the
People’s Republic of China Development Re-
1. Labor force is used instead of employment in search Center of the State Council 2012.
figure 3.1. Over a long term (10-year period), 17. Brandt, Hsieh, and Zhu 2008; Brandt and Rawski
changes in unemployment rates are small, in gen- 2008; Brandt, van Biesebroeck, and Zhang 2012.
eral, and employment in an economy is driven by 18. Hayami and Otsuka 1993.
the size of its labor force. 19. South Africa is excluded from this figure because
2. Haltiwanger 2011; Schumpeter 1934. it is an outlier, with an average farm size of 288
3. Gross job creation is the sum of all additions to hectares.
total employment. It occurs when expanding 20. In fact, tenancy markets are emerging in Sub-
economic units hire workers and when new eco- Saharan Africa. See Holden, Otsuka, and Place
nomic units are created. In principle, economic 2009.
units can be as small as a one-person microen- 21. Otsuka and Place 2001.
terprise, but most quantitative analyses refer to 22. Pagés 2010.
establishments employing several workers. Gross 23. ADB 2009. The analysis is based on data from
job destruction is the sum of all employment India (2004–05); Indonesia (2006); the Republic
losses. It occurs when economic units close or of Korea (2004); the Philippines (2005); and Tai-
contract in size. Net job creation is the difference wan, China (2006).
between these two gross flows. Job creation and 24. Rijkers and others 2012 for the World Develop-
destruction rates measure how many employ- ment Report 2013; Pagés 2010.
ment positions emerge or disappear in a specific 25. Grimm, Kruger, and Lay 2011; Liedholm 2002.
period (typically one year) relative to the number 26. See also Ayyagari, Demirgüç-Kunt, and Maksi-
of existing positions. See Bartelsman, Haltiwan- movic (2011b) for analysis based on World Bank
ger, and Scarpetta 2009b; Davis, Haltiwanger, and enterprise surveys; the analysis suggests that
Schuh 1996. small firms contribute significantly to employ-
4. Kucera and Roncolato 2012; McMillan and ment and job creation.
Rodrik 2011; Pieper 2000; Timmer and de Vries 27. The body of literature on this subject is enor-
2009. mous. See Barrett, Bellemare, and Hou 2010;
5. World Bank 2009. Carletto, Savastano, and Zezza 2011; and Larson
6. Duranton 2007, Duranton 2012 for the World and others 2012 for the World Development Re-
Development Report 2013; Duranton and Puga port 2013.
2001; Henderson 2002. 28. Holden, Otsuka, and Place 2009; Larson and
7. Park et al. 2011; World Bank 2011b. others 2012 for the World Development Report
8. Ghani, Goswami, and Kerr 2012. 2013.
9. For a discussion on how to decompose produc- 29. For example, in Kenya in 2007, the family labor
tivity growth by firm dynamics, see Foster, Halti- input per hectare in maize production was 418
wanger, and Krizan (2001) and Griliches and Re- hours for the top quartile of farms (measured by
gev (1992). size), but that input reached 1,032 hours for the
10. Bartelsman and Doms 2000; Bartelsman, Halti- bottom quartile.
wanger, and Scarpetta 2004; Foster, Haltiwanger, 30. The positive relationship is found not only in
and Krizan 2001; Roberts 1996; Syverson 2011; such high-wage economies as Japan but also in
Tybout 1996, 2000. The dispersion of productiv- India recently. See Foster and Rosenzweig 2011;
ity across firms is not, by itself, sufficient to gauge Hayami and Kawagoe 1989.
the efficiency of the job creation and reallocation 31. Evenson and Gollin 2003.
process. Poor market structure and institutions 32. World Bank 2007. Improvement in agriculture
can distort the process. See Haltiwanger 2011; technology can lead to fast growth in produc-
Nelson 1981. tivity in the sector and convergence in aggre-
11. Bartelsman, Haltiwanger, and Scarpetta 2004; gate productivity. On the basis of data from 50
Tybout 1996. countries over 1967–92, Martin and Mitra (2001)
12. Baily, Bartelsman, and Haltiwanger 1996. found that productivity growth in agriculture
13. WDR 2013 team estimation based on Amadeus was faster than in manufacturing in these coun-
Database, the Annual National Industrial Survey tries over the period.
of Chile, and Ethiopia Large and Medium Scale 33. However, TFP has been increasing since the early
Manufacturing and Electricity Industries Survey. 1980s, suggesting that the Green Revolution has
14. Dutz and others 2011. taken place in some areas of Sub-Saharan Africa.
15. Bartelsman, Haltiwanger, and Scarpetta 2004; See Block 2012.
Rutkowski and others 2005. 34. Hayami and Ruttan 1985.
120 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
35. David and Otsuka 1994. 61. Djankov and others 2005, 2006b. See also Viva-
36. Ravallion 2005; Ravallion and Chen 2007. relli (2012) on the importance of disentangling
37. Haggblade, Hazell, and Reardon 2007. entrepreneurship drivers to craft policies target-
38. Christiaensen, Demery, and Kuhl 2011. ing high potential entrepreneurs.
39. Hsieh and Klenow 2009. 62. Methodological details of this technique to iden-
40. Pagés 2010. Figures are based on physical pro- tify high-potential entrepreneurs can be found
ductivity (or TFPQ), as defined by Foster, Halti- in Gindling and Newhouse (2012) for the World
wanger, and Syverson (2008). This factor is a Development Report 2013; and Grimm, Knor-
measure of real output per unit of input, which ringa, and Lay (2012) for the World Develop-
is computed using plant-level price deflators. ment Report 2013.
TFPQ is more precise than TFPR—a revenue 63. Gindling and Newhouse 2012 for the World
proxy for TFPQ that is computed using industry- Development Report 2013.
level price deflators. TFPQ is a preferred measure 64. de Mel, McKenzie, and Woodruff 2008b.
because TFPR combines the effects of quantities 65. de Mel, McKenzie, and Woodruff 2009; Sonobe
and prices. Quantities and prices are affected and Otsuka 2006; Sonobe and Otsuka 2011.
by demand factors, quality differences, mark- 66. Bruhn 2008.
ups, and potential distortions. A survey of earlier 67. Baumol 2010; Schoar 2010.
studies based on TFPR did not find a higher dis- 68. Fafchamps and Woodruff 2012.
persion of productivity in developing countries, 69. Bloom and others 2011.
but those studies are not very informative be- 70. de Mel, McKenzie, and Woodruff 2010; Faf-
cause they are based on outdated methodologies. champs and others 2011; McKenzie 2010.
See Tybout 2000. 71. Gennaioli and others 2011; Kelley, Bosma, and
41. Ayyagari, Demirgüç-Kunt, and Maksimovic 2011a.
Amorós 2010; van der Sluis, van Praag, and
42. Ayyagari, Demirgüç-Kunt, and Maksimovic 2011a;
Vijverberg 2005.
Haltiwanger, Jarmin, and Miranda 2010.
72. Bloom and others 2011; Mano and others 2011.
43. Lin 2012; Wang and Yao 1999.
73. Estimate from Brazil’s ECINF 2003 survey.
44. Banerjee and Duflo 2011; Fox and Sohnesen
74. Fafchamps and Woodruff 2012; Gindling and
2012; Schoar 2010; Sutton and Kellow 2010.
Newhouse 2012 for the World Development Re-
45. Fox and Sohnesen 2012.
port 2013; Grimm, Kruger, and Lay 2011; Otsuka
46. Perry and others 2007.
and Sonobe 2011; Sonobe and O tsuka 2006.
47. Grimm, Kruger, and Lay 2011; McKenzie and
75. Sutton and Kellow 2010.
Woodruff 2008.
76. Otsuka and Sonobe 2011; Sonobe and Otsuka
48. Mertens 2011; The Economist 2001; Charoen
Pokphand Group, www.cpthailand.com. 2006.
49. Kasbekar 2007; Witze 2010. 77. Djankov and others 2006a, 2006b.
50. Sonobe, Hu, and Otsuka 2004. 78. See the initiative by the Inter-American Develop-
51. Sandefur 2010. ment Bank, “Bringing Market-Based Solutions
52. Hsieh and Klenow 2011. to Latin America and the Caribbean to Promote
53. Liedholm 2002; Mead and Liedholm 1998. Social Change,” http://browndigital.bpc.com/
54. Results from 1-2-3 Survey. publication/?i=92819.
55. Grimm, Kruger, and Lay 2011; Kinda and Loen- 79. Bennedsen and others 2007; Bloom and others
ing 2008; Loening and Imru 2009. 2011; Bloom, Schweiger, and van Reenen 2011;
56. Fajnzylber, Maloney, and Rojas 2006. Bloom and van Reenen 2007, 2010.
57. Bartelsman, Haltiwanger, and Scarpetta 2009a; 80. Drexler, Fischer, and Schoar 2011; Kairiza and
Haltiwanger 2011; Hsieh and Klenow 2009; Sonobe 2012 for the World Development Report
Syverson 2011. 2013; Mano and others 2011; Valdivia 2011.
58. Banerjee and Duflo 2004; Banerjee and others 81. Karlan, Bruhn, and Schoar 2012.
2009; de Mel, McKenzie, and Woodruff 2008a; 82. Karlan, Knight, and Udry 2012. In Ghana, the in-
Göbel, Grimm, and Lay 2011; Grimm, Kruger, tervention included only a 10-hour consultancy
and Lay 2011; McKenzie and Woodruff 2008. treatment, in contrast to 700 hours provided in
59. Banerjee and Duflo 2011; Schoar 2010; Sutton a successful Indian program for larger firms that
and Kellow 2010; Tokman 2007. See de Soto was implemented by Bloom and others (2011).
(1989) and Yunus and Jolis (1999) for a more 83. Bloom and van Reenen 2010; Bruhn, Karlan,
positive view. and Schoar 2010; Bruhn and Zia 2011; de Mel,
60. Fajnzylber, Maloney, and Rojas 2006; results McKenzie, and Woodruff 2009.
from World Bank’s informal enterprise surveys 84. Karlan and Valdivia 2010.
conducted between 2009 and 2010. 85. Valdivia 2011.
Jobs and productivity 121
86. Berge, Bjorvatn, and Tungodden 2011; Giné and nal Microdata.” Journal of Economic Literature
Mansuri 2011. (38) 3: 569–94.
87. Fafchamps and Woodruff 2012. Alternatively, see Bartelsman, Eric, John Haltiwanger, and Stefano Scar-
the work done by the Entrepreneurial Finance petta. 2004. “Microeconomic Evidence of Creative
Lab at the Kennedy School (http://www.efinlab Destruction in Industrial and Developing Coun-
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88. Cho and Honorati 2012 for the World Develop- ———. 2009a. “Cross-Country Differences in Pro-
ment Report 2013. ductivity: The Role of Allocation and Selection.”
89. Sonobe, Higuchi, and Otsuka 2012 for the World Working Paper 15490. National Bureau of Eco-
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———. 2009b. “Measuring and Analyzing Cross-
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Chapter
4
Jobs and social cohesion
Jobs can shape social interactions and the ways societies manage
collective decision making. They connect people with others
and can provide access to voice.
And people’s trust in government and their con- intergroup relations, and the effectiveness of
fidence in institutions may increase if they be- channels for resolving conflicts. Cross-country
lieve that job opportunities are available to them data on political stability, the absence of vio-
either now or in the future. Jobs can influence lence, and voice and accountability can be used
social cohesion through their effects on social to construct an index of social cohesion at the
identity, networks, and fairness. country level.6 The Nordic countries, Swit-
zerland, and New Zealand, score high on this
index. Although the index is a static measure,
Jobs can help manage social the capacity for peaceful decision making can
tensions evolve over time as societies change, through
urbanization, more female employment, and
News reports about the financial crisis and the the growth of a middle class.
Arab Spring have broadcast a common senti- The nature of the interactions through jobs
ment that unemployment, especially among affects the degree of social cohesion in commu-
young people, can ignite unrest and violence.1 nities and societies. Trust and civic engagement
In September 2010, a Telegraph headline re- are two measurable indicators of social cohe-
ported that the “IMF Fears ‘Social Explosion’ sion at the individual level. These indicators are
from World Jobs Crisis” ahead of a summit associated with the country-level index of the
of the International Monetary Fund and the capacity for peaceful collective decision making
International Labour Organization (ILO).2 In (figure 4.1).
2011, Le Monde linked jobs and social unrest Trust refers to the extent to which individu-
in Tunisia to concerns about social justice: als have confidence in people whom they know
“protesters aren’t asking the Government to personally, including family and neighbors.7 It
find them a job, but denouncing the lack of can also refer to trust in people met for the first
transparency and justice in the labor market.”3 time and in people of different religions and
The revolution in Tunisia was sparked by the nationalities.Civic engagement captures the
protests of a fruit vendor frustrated by his in- extent to which people participate voluntarily
ability to get a permit to do his job. High lev- in civil society by joining community organiza-
els of youth unemployment were a significant tions, unions, political parties, or religious or-
contributing factor to the riots in the United ganizations, and by engaging in civic life. These
Kingdom in the summer of 2011.4 forms of involvement and activism include
These events suggest that jobs can contrib- nonviolent activity, such as participating in pro-
ute to social cohesion, including how societies tests, that can be constructive for social cohe-
handle differences and manage tensions among sion. Civic engagement relates to social capital,
different groups, and how they avoid and resolve participation, and the agency that motivates in-
conflicts. There are many possible ways to de- dividuals to be part of collective action.
fine social cohesion (box 4.1). But overall, social
cohesion refers to the capacity of societies to
. . . and they are influenced by jobs
peacefully manage collective decision making.5
Social cohesion thus relates to the processes and Trust and civic engagement can be linked to
institutions that shape how groups interact. It jobs. Having—or not having—a job may af-
does not follow that collective decision making fect the way people view the world by influenc-
should be imposed from above, but rather that ing their values and attitudes, including trust in
channels for voice, accountability, and inclusive others and in institutions. Jobs can also provide
participation of diverse groups can contribute channels for people to interact across diverse
to a cohesive society. groups. Jobs with certain characteristics may
contribute more to trust and civic engagement
than others.
Trust and civic engagement matter . . .
Not having a job is associated with less self-
The capacity of a country to support peaceful reported trust in high-income countries (figure
collective decision making involves multiple 4.2a). The relationship is stronger with civic
factors including the quality of institutions, engagement, where unemployment is linked to
128 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
The concept can be traced as far back as the writings of Ibn Khaldun, nomic divisions within society (income, ethnicity, political party,
a Muslim scholar born in Tunis in the 15th century, whose idea of caste, language).”d
asabiyah is generally translated as “social cohesion.” Living during Although social cohesion has multiple definitions with differ-
times of manifold conflicts, Khaldun regarded asabiyah as the soli- ences in focus and emphasis, some common threads emerge:
darity of small groups (tribes) that has the power to promote
• Social cohesion is generally viewed as a positive concept. It can be
broader social integration.a
an end in itself, as well as a means. The Organisation for Economic
Four centuries later, Emile Durkheim considered cohesion in
Co-operation and Development describes a cohesive society as
the context of societal transformation.b He was particularly con-
one that “works towards the well-being of all its members.”e The
cerned with two different types of solidarity that he observed
French Commissariat General du Plan defines social cohesion as “a
emerging through industrialization in Europe. Primitive societies,
set of social processes that help instill in individuals the sense of
he found, were marked by mechanical solidarity and a strong col-
belonging to the same community and the feeling that they are
lective ethos based on relatively homogeneous patterns of life
recognized as members of the community.”f
and work. Advanced capitalist society, in contrast, with its complex
division of labor, was marked by organic solidarity based on merit, • Social cohesion relates to the interactions among individuals,
respect for different roles within the labor force, and the need for groups, and societies. These interactions are seen as “the forces
moral regulation. holding the individuals within the groupings in which they are”
More recently, social cohesion has been related to social capital. and as linking diverse groups together.g
In the 1990s, Pierre Bourdieu and others focused on the benefits
• Social cohesion contributes to sustainable social development.
that accrue to individuals through their participation in groups and
According to the Club de Madrid, “shared societies are stable, safe
the need for individuals to invest in these relations. Robert Putnam’s
and just and based on the promotion and protection of all human
analysis of the conditions for creating responsive, effective, and rep-
rights . . . , including disadvantaged and vulnerable groups and
resentative institutions builds on this theme. Famously, northern
persons.”h
Italy had more of these institutions than southern Italy, and Putnam
concluded that the central enabling condition was the existence • Last, some definitions of social cohesion relate the concept to pro-
of more social capital, measured through the density of local cesses and institutional characteristics. For example, social cohesion
associations.c Social cohesion can be understood as a broader con- can refer to “the capacity of societies (not just groups, networks)
cept than social capital in that it considers intergroup relations in to peacefully manage collective action problems.”i This definition
a wider context. Easterly, Ritzen, and Woolcock define social cohe- links social cohesion to participation and civic engagement.
sion (or lack thereof) as “the nature and extent of social and eco-
Sources: World Development Report 2013 team based on Norton and de Haan 2012 for the World Development Report 2013; OECD 2011.
a. Weiss 1995.
b. Durkheim 1893.
c. Putnam, Leonardi, and Nanetti 1993.
d. Easterly, Ritzen, and Woolcock 2006, 105.
e. OECD 2011, 17.
f. Jenson 1998, 4.
g. Moreno and Jennings 1937, 371.
h. OECD 2011, 53.
i. Woolcock 2011.
lower participation in associations and dem- In developing countries, the type of job, the op-
onstrations, and signing petitions (figures 4.2b, portunities the job provides, and the way jobs
c, and d). With the exception of low-income connect people may be more relevant for social
countries, the relationship between unemploy- cohesion.
ment and active membership in an association Further indications of a connection between
is significant and negative. The mixed findings jobs and social cohesion comes from looking
on trust and unemployment underscore that at job characteristics. The 2005 wave of the
unemployment may not always be a meaningful World Values Survey asks people whether their
concept in low-income countries. Open unem- jobs involve manual or cognitive, routine or cre-
ployment is frequently low in developing coun- ative tasks, and how much independence they
tries and is not always concentrated among the have at work. An index of these self-reported
worse-off, because most people work to make characteristics captures how motivating a job
ends meet in the absence of social safety nets. is. The index is positively associated with trust
Jobs and social cohesion 129
Trust
F I G U R E 4 .1 and civic engagement go together with peaceful collective decision making
0.7 0.8
share reporting trust in people
0.7
0.6
0 0
–2.0 –1.5 –1.0 –0.5 0 0.5 1.0 1.5 2.0 –1.5 –1.0 –0.5 0 0.5 1.0 1.5 2.0
index of peaceful collective decision making index of peaceful collective decision making
Sources: World Development Report 2013 team, based on World Values Survey 2005 (database), World Values Survey Association, Stockholm; Worldwide Governance Indicators
2005.
Note: The analysis includes 56 countries (panel a) and 49 countries (panel b). “Index of peaceful collective decision making” is an average of indicators of “voice and accountability”
and “political stability and the absence of violence” from the Worldwide Governance Indicators. “Index of civic engagement” is the average of responses to questions from the World
Values Survey on (a) active membership in associations; (b) whether the respondent participated or would participate in a demonstration; and (c) whether the respondent would
sign a petition.
in high- and upper-middle-income countries ciety. Moreover, trust and civic participation are
(figure 4.3a). This relationship is not significant influenced by peer and social interaction effects
in lower-middle- and low-income countries. (such as the trust or participation of others),
Holding a job with perceived cognitive, creative, which can make it difficult to draw conclusions.
and autonomous attributes is positively linked While the primary focus is on how jobs can
with civic engagement indicators in all but contribute to trust and civic engagement, this re-
low-income countries (figures 4.3b, 4.3c, and lationship goes in both directions. There are ways
4.3d).9 Similarly, in surveys conducted in 2012 in which social cohesion can affect jobs. Trust and
in China, Colombia, and the Arab Republic of social capital (an element of civic engagement)
Egypt, workers who perceived that their jobs may create an economic and political environ-
involved more autonomy and greater creative ment that is conducive to economic growth.11
and cognitive content were more likely to report Trust can reduce transaction costs and overcome
helping other people.10 market failures that arise because of uncertainty;
it can reduce costs related to search and informa-
tion, policing and enforcement, and bargaining
More than correlations?
and decision making; and it can be the basis for
As suggestive as they are, these relationships be- the transmission and exchange of knowledge
tween jobs and social cohesion do not establish and allow for innovation, coordination, and co-
causality. While unemployed people may be less operation among firms.12 Meanwhile, factors
likely to trust others or join associations, people such as mistrust, discrimination, fragmentation
with less trust in others may also be more likely along ethnic lines, or inequality can also influ-
to be unemployed or not participate in civil so- ence whether jobs are created, and what kind.
130 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
People
F I G U R E 4 . 2 who are unemployed trust and participate less
marginal probability
◆ –0.1 ◆
0
◆
◆ –0.2
◆
–0.04 –0.3
◆
–0.4
–0.08 ◆
–0.5
–0.12 –0.6
high upper lower low high upper lower low
income middle middle income income middle middle income
income income income income
0 0
marginal probability
marginal probability
–0.02 –0.02
◆ ◆ ◆ ◆
◆
–0.04 –0.04 ◆
◆
–0.06 –0.06
◆
–0.08 –0.08
–0.1 –0.1
high upper lower low high upper lower low
income middle middle income income middle middle income
income income income income
Source: Wietzke and McLeod 2012 for the World Development Report 2013.
Note: The analysis includes 54 countries. The vertical axis shows the marginal probability (d-probit coefficient) of individuals’ self-reported trust or civic engagement on being
unemployed. The estimates control for the income, education, and demographic characteristics of respondents. Trust is based on the question, “Generally speaking, would you say
that most people can be trusted or that you need to be very careful in dealing with people?” Civic engagement variables are (a) whether the respondent is an active member of
one or more of nine different associations; (b) whether the respondent attended or would attend a demonstration; or (c) whether the respondent signed or would sign a petition.
The line indicates the 95 percent confidence interval of each coefficient. If the line crosses the horizontal axis, the corresponding coefficient is not statistically significant.
Evidence of a directional link between em- Controlling for other factors, men and
ployment status and civic engagement comes women who were working in 2000 but not in
from a survey in Indonesia that tracked partici- 2007 were less likely to be participating in com-
pation in community meetings and volunteer munity activities than others. Conversely, men
activities and interviewed the same respondents and women who were not working in 2000 but
in 2000 and 2007.13 On average, participation were working in 2007 were significantly more
in community activities increased 8 percent likely to be involved in community activities
during the period, but it increased at different than those who were not working in 2007.15
rates among people with different work histo- Reasons not controlled for in the analysis could
ries (figure 4.4).14 explain these findings; for example, people who
Jobs and social cohesion 131
People
F I G U R E 4 . 3 with motivating jobs trust and participate more
marginal probability
◆
0
0.01
◆ ◆ ◆
–0.01
0
◆
–0.02
–0.01
high upper lower low high upper lower low
income middle middle income income middle middle income
income income income income
marginal probability
◆
0.06 ◆ ◆ 0.01 ◆
◆
0.04
0
◆
0.02 ◆
–0.01
0
–0.02 –0.02
high upper lower low high upper lower low
income middle middle income income middle middle income
income income income income
Source: Wietzke and McLeod 2012 for the World Development Report 2013.
Note: The analysis includes 54 countries. The vertical axis shows the marginal probability (d-probit coefficient) of individuals’ self-reported trust or civic engagement on an index
assessing whether respondents think their job is cognitive, creative, or independent. The estimates control for the income, education, and demographic characteristics of the
respondents. Trust is based on responses to the question “Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with
people?” Civic engagement variables are whether the respondent is an active member of one or more of nine different associations and whether the respondent attended or
would attend a demonstration, or signed or would sign a petition. The line indicates the 95 percent confidence interval of each coefficient. If the line crosses the horizontal axis,
the corresponding coefficient is not statistically significant.
get sick lose their jobs and their ability to partici- employment can break economic and social
pate in the community. New cross-country anal- ties, breed mistrust, and damage people’s sense
ysis from Europe and Latin America suggests a of community and hope for the future. Not hav-
casual relationship between employment status ing a job can mean losing social status as well
and trust in others and institutions (box 4.2).16 as not being able to provide income for one’s
The empirical results relating unemploy- family. A man laid off after 24 years of work in a
ment, trust, and civic engagement imply that factory in Serbia explained, “I automatically lost
losing a job means more than losing income. everything. I lost any freedom and power I had.
Job loss can undermine feelings of self-worth Everything was lost.”17 Ethnographies of com-
and strain family and social relationships. Un- munities in Argentina, Bulgaria, and Guyana
132 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 4.2 Do jobs cause trust? Analysis of Eurobarometer and Latinobarómetro Surveys
An analysis using the Latinobarómetro and Eurobarometer values institutions over time. The estimated effects measure how a per-
surveys during the 2000s makes it possible to study the evolution of centage change in, say, the unemployment rate for a cohort in a
trust and jobs and links in both directions. The surveys include ques- given year predicts changes in the percentage of individuals of that
tions on interpersonal trust and trust in institutions. Cohorts are same cohort reporting to trust in the subsequent year.
defined and examined in the different survey years. The analysis This analysis finds that increases in unemployment are fol-
looks at how social cohesion and employment conditions for the lowed by increases in trust among Europeans, but the opposite is
cohorts evolve over time, controlling for certain country characteris- true among Latin Americans. At the same time, increases in self-
tics that could be correlated with both trust and employment employment lead to higher trust in Europe while the opposite is
status. true in Latin America. These results hold in Latin America for trust
The dataset captures important features of the formation of both in government and in others. Conversely, the analysis finds
social cohesion, because perceptions of trust and civic participation little evidence of a causal link from trust to jobs, except for a small
are highly influenced by peer and social interaction effects. For negative impact of self-employment on trust in government in
instance, an individual’s propensity to trust other people or the Latin America. These results may reflect the higher coverage of
state depends on the perceived or actual trust of others belonging social protection in Europe and the lower importance of open
to similar sociodemographic groups. unemployment in Latin America than in Europe. They are consis-
The model simultaneously allows group level job conditions, tent with evidence that in Latin America self-employment, while a
including unemployment and self-employment, to influence trust last resort for many unable to find wage employment, is valued by
and vice versa. The empirics quantify how earlier changes in group- some for the independence it provides.a
level employment conditions predict their trust in society and its
Source: Arias and Sosa 2012 for the World Development Report 2013.
a. Perry and others 2007.
Jobs and social cohesion 133
BOX 4.3 Displacement and unemployment can lead to the erosion of trust and ties
Downsizing of bauxite mines in Guyana state jobs entailed the loss of numerous benefits, including health
The downsizing of bauxite mines in the absence of new opportuni- care and job security. In focus groups, people linked job loss to poor
ties has contributed to a deterioration in family and community health, social isolation, and crime. Older men, in particular, lost face
relationships in Linden, Guyana.a Between the early 1970s and the when they had to ask young relatives or employers for work.
mid-1980s, bauxite mining near Linden was cut by half, and layoffs Unemployment did more than simply weaken social ties; it
continued throughout the 1990s. By 1999, formal unemployment in created distrust and mutual suspicion. The restructuring created
Linden stood at about 40 percent, and residents complained of ris- winners as well, and they also suffered from the mutual distrust.
ing crime. People who had lost their jobs began to avoid traditional social
Once among the best-paid workers, miners were respected for gatherings because they were unable to afford gifts that they were
their work and seen as drivers of the economy. People felt particu- expected to provide. People felt that security—once linked to
larly demeaned by the downsizing process: “The people off the good health, the opportunity to pursue personal and professional
job don’t get any information. They treat us like we don’t exist. fulfillment, good personal relations, respect in the community, and
Yet . . . before we came off, there used to be meetings with us, social cohesion—had moved out of reach. In communities that
[about] what was happening.”b were once relatively equal, people identified five or six levels of
Material hardship and insecurity took a harsh toll on identity well-being.
and the relations between men and women. Women directly linked
men’s inability to retain their authority as breadwinners to domes- Economic reforms in Argentina
tic violence. “Especially in cases of abuse, you would be surprised La Matanza is a city of 1.2 million outside Buenos Aires that was
that after counseling them, the problem comes right back to the once a manufacturing center of textiles, diesel engines, household
economic situation. The man can’t provide adequately for the appliances, and steel. Economic transformations in the 1990s led to
home.”c Indigence was linked to shocking forms of child neglect increased reliance on technology and skilled workers. Factories in La
and abuse. Some parents were said to be prostituting their chil- Matanza closed, and job opportunities became scarce. With mobil-
dren. The cultivation of cannabis, the use of cocaine, and involve- ity low, people had to take up temporary or casual jobs without
ment in the international transshipment of drugs were said to be unemployment or health insurance. Those who managed to find
rapidly increasing among young men. jobs complained of exploitative pay, abusive treatment, and assaults
Downsizing also diminished the economic resources available to their dignity.
to community organizations such as churches: “The churches are in As elsewhere, job loss affected men and women’s relationships.
crisis also. As individuals, we are part of the crisis, so we carry it into While some men adapted to a more egalitarian role, many re
church and it in turn goes into society,” one person said.d sponded to the blow to their self-esteem as breadwinners with
depression or anger; women complained that violence in the
Regime change and unemployment in Bulgaria household increased. Men felt joblessness undermined their roles
Bulgaria massively downsized its unsustainable state enterprises in the family.
following the end of the Communist regime. The disappearance of
involved with drugs and guns had joined “be- placed persons, can be particularly disorient-
cause they were searching for the support, trust, ing. It can influence status and identity, for
and cohesion—social capital—that they main- example, for migrants who had better jobs in
tained their families did not provide, as well as their places of origin. The social effects of un-
because of the lack of opportunities in the lo- employment among dislocated populations
cal context.”21 Similarly, analysis in the United may be especially isolating for people lacking
States has found that gangs provide youth with family or other ties in their new communities.
the income, respect, and social ties that they It can have implications for psychological well-
were unable to find in jobs, particularly given being, as well as the ability to participate in civil
the limited opportunities available in cities such society. Even migrants who find work may be
as Chicago and New York that had lost stable, vulnerable if their jobs do not provide adequate
unionized manufacturing jobs.22 channels to integrate within the new society or
The lack of jobs among dislocated popula- if the migrants lack voice or information about
tions, including migrants, refugees, and dis- their rights.
134 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Jobs (or the lack of jobs) can shape child care, education, biotechnology, and manu-
social interactions facturing define job competencies and give em-
ployees the chance to develop skills, participate
The link between social cohesion and jobs is not in training, and increase their responsibility.
necessarily direct or linear. Interactions between Results from a program implemented in nurs-
jobs and societies are contextual and multidi- ing homes in Massachusetts in the United States
mensional; effects can be positive as well as nega- found that having opportunities for growth im-
tive. Having, or not having, a job can influence proved communication and teamwork, reduced
how people view themselves in relation to others, turnover, and built self-respect and confidence
with implications for values, attitudes, and be- among staff.25
haviors. Jobs can connect people with informa- Jobs can have similar effects for low-wage
tion, economic activities, and other people. And workers in developing countries, and these ef-
how jobs are allocated can affect whether people fects can have implications for social cohesion.
think their society is fair and merit-based, believe The growth of the garment sector in Bangla-
they have a stake in society, and have expecta- desh brought more than 3 million women into
tions and aspirations for the future (Question 4). the workplace. Although the factory jobs were
physically demanding and poorly paid, they ex-
panded women’s autonomy and increased their
Jobs provide social identity
opportunities to participate in public life.26 “I
Some jobs can contribute positively to how peo- am braver now,” a 26-year-old worker explained,
ple view themselves and their relations with oth- “I understand more things which I did not be-
ers. The identity conveyed by a job can influence fore.”27 Observers noted that the sight of women
the social categories that individuals associate walking back and forth to work changed popu-
with, their behaviors, and the norms that shape lar notions about the acceptability of women in
this behavior.23 In industrial countries, jobs that the public space and their right to access public
give people opportunities to learn and develop institutions.28 Coworkers travel together, share
careers can be motivating and strengthen iden- information about work opportunities, and
tity. In the United States, programs that provide form savings groups.29
skill development and growth opportunities to The effect of jobs on identity also holds
low-wage workers aim to strengthen self-esteem for self-employed workers, including farmers
and motivation.24 Public and private sector ini- (box 4.4). Jobs that provide access to voice can
tiatives to establish career ladders in health care, be empowering and give workers a stake and
shared interest in their work.30 Informal workers
lack access to representation on the job and are
BOX 4.4 J obs, motivation, and identity in Risaralda, similarly excluded from local government and
Colombia economic associations. Associations of self-em-
ployed workers and farmers help fill these gaps.31
David is the owner of a small shop in one of the rural areas of Risaralda. He was A core strategy of the Self Employed Women’s
born in another part of Colombia but has lived in the region of Risaralda for Association (SEWA) in India has been to em-
some years now. He loves living in this area for the safety and peace that exists. power its members and partners by increasing
He has had his shop, located next to the main street of his village, for around their say in communities (box 4.5).
15 years.
One of the things he loves the most about his job is the deep sense of
belonging to the community that it offers. When necessary, people come to his Jobs connect people
shop and ask for credit for the goods they need. Despite a few unpaid bills
some of his customers have left him, he does his best to help the villagers. The Some jobs bring people into contact with others
income from the shop provides only enough to subsist, and it is necessary for whom they might not otherwise encounter, in-
him to engage in other businesses so that he can have an additional income. He cluding people of different ethnicities and social
feels that his shop is a way of giving back to the community and that by being backgrounds (box 4.6). This connecting aspect
there, he is able to provide for the needs of his neighbors.
of jobs can contribute to social cohesion. Jobs
can create opportunities for repeated interac-
tions focused on tasks leading to interdepen-
Source: Bjørkhaug and others 2012 for the World Development Report 2013. dent relationships.32 A study of political views
Jobs and social cohesion 135
BOX 4.5 Voice can be extended to the self-employed: The case of SEWA
The Self Employed Women’s Association (SEWA) began in 1972 with loans, and insurance), social services, infrastructure, and training
a small group of migrant women cart pullers in the wholesale cloth and capacity building.
market of Ahmedabad City in Gujarat, India. These women worked Of particular concern to SEWA is the fact that the working poor,
as head loaders, carrying clothes to and from the wholesale market. especially women, do not have a voice in institutions that set the
They were paid on a per-trip basis, regardless of the distance they rules that affect them. The association seeks to expand the voice of
traveled or the weight they carried. Often, they were not paid the its members at the local level through representation and by build-
full amount they were owed because no records were kept. Ela ing capacity to participate in local councils; municipal, state, and
Bhatt, head of the Women’s Wing of the Textile Labor Association, national planning bodies; tripartite boards; minimum wage and
helped organize the group and negotiate with the cloth merchants other advisory boards; sector-specific business associations; and
to gain fair treatment. local, state, and national labor federations.
SEWA is now a member of the International Confederation of Over the past decade, SEWA has also inspired or cofounded
Trade Unions and has become a model for associations of informal national and regional networks of home-workers in other parts of
workers internationally. In 2011, SEWA had more than 1.3 million South and Southeast Asia, national networks of street vendors in
members across India, of which over 820,000 were in Gujarat, while India and Kenya, and international networks of domestic workers
the rest were in eight other states. The members are drawn from and waste pickers. While some of these networks and organizations
multiple trades and occupations and from all religious and caste remain weak, most have been able to collaborate, leverage re
groups. sources, and influence policies. The regional and international net-
SEWA stresses self-reliance and promotes organizing around the works of domestic workers, home-based workers, street vendors,
central strategies of work security, income security, food security, and waste pickers have secured two international conventions (for
and social security. Primarily a trade union, SEWA now engages in home-workers and domestic workers) and policies, laws, or legal
a wide range of other areas, including leadership development, judgments in several countries.
collective bargaining, policy advocacy, financial services (savings,
Source: Chen and others 2012 for the World Development Report 2013.
and the workplace in the United States finds that likely to witness ethnic violence, while riots were
cross-cutting interactions at work lead to greater more frequent in cities with fewer economic ties.
awareness of the rationales for views other than The existence of civil society organizations, such
one’s own and for “exposing people to political as clubs, political parties, labor unions, and busi-
dialogue across lines of political difference.”33 In ness associations, contributed to reducing vio-
a survey of 200 managers, owners, and sales rep- lence. But economic interests provided a com-
resentatives in Trinidad and Tobago, 81 percent mon motivation for community members of
of the interviewees reported that their working both groups to participate in these associations.37
lives brought them into contact with people of a Jobs can also play a connecting role out-
wider range of races than did their social lives.34 side of urban environments. Studies in Ghana
Interactions through jobs can contribute to and Uganda illustrate how farmers connected
greater trust and positive interdependence be- through networks can access information and
tween groups. In the 18th century, Montesquieu increase productivity. In Ghana, pineapple farm-
wrote that “the natural effect of commerce is to ers adjusted their use of fertilizer in response
bring peace. Two nations that negotiate between to the successful or unsuccessful experiences of
themselves become reciprocally dependent, if their neighbors. Farmers who were starting to
one has an interest in buying and the other in cultivate pineapples were more likely to make
selling.”35 Relations through jobs, whether built changes based on information they had received
through trade or other transactions, can influ- from other farmers, showing the potential that
ence social relations. on-the-job interactions and learning from oth-
A 2001 study of multiethnic cities in India ers can have.38 In a qualitative survey, youth in
suggests that economic interdependence, in- Ghana who were asked about the characteristics
cluding through jobs, can reduce the incentives that would make a job attractive emphasized
for violence between communities.36 Cities with the importance of jobs as opportunities to meet
more interlinked economic relations were less new people and build social networks.39
136 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Surveys carried out across the world illustrate the ways jobs can connect native. It is, in the strictest sense, a medley, for they mix but do not
people from different backgrounds. combine. Each group holds to its own religion, its own culture and
language, its own ideas and ways. As individuals they meet . . . in the
“In Sadakhlo market in Georgia, next to the borders with Armenia market place, in buying and selling.”d
and Azerbaijan, one does not hear the virulent expressions of In ancient Cordoba, Spain, the marketplace represented “the
mutual hatred one can hear a few miles away across the border. place of encounter over and above the gender, tribal, and faith
‘They fight, we don’t,’ says Mukhta, a trader from Azerbaijan, while divides that constituted Islamic urbanization.”e
putting his arm round his Armenian colleague Ashot.”a “You don’t reconcile in a vacuum. There must be a practical pro-
“According to one of the stallholders at Ergneti market, on the gramme; there must be something that brings people together. As
disputed border between South Ossetia and mainland Georgia, they work together, cleaning the coffee, they talk together so they
‘There are no political questions here. The market has one language: start talking business but later they start talking family affairs. It fos-
economic. That is it.’”b ters relationships and reconciliation.” f
“In Guinea, members of the Malinke ethnic group are wholesal- “If I wasn’t in this job, I might have only Indian friends or African
ers in the groundnut market chain, while the primary producers of friends,” said a sales manager for a processed food manufacturer in
groundnuts tend to be Guerse. Malinke wholesalers and Guerse Trinidad and Tobago. “But now I have plenty, plenty friends. White
farmers are willing to trade with each other. This is helping over- friends in Mayaro. Chinese friends in Port-of-Spain. And real close.
come ethnic and religious tensions. . . . This willingness to trade is Closer than if you born with someone, your next-door neighbor.
due to the mutually recognized possibility of profit.”c And that’s why I wouldn’t swap this job for anything else.”g
“In Burma, as in Java, probably the first thing that strikes the
visitor is the medley of peoples—European, Chinese, Indians, and
The exclusionary nature of networks is high- Respondents at a focus group explained that,
lighted by the experience of migrants moving “to get jobs, one needs someone to speak for
from rural areas to cities. Migrants often choose him, particularly from Sana’a.” Young people re-
destinations where they have connections. But ported that inheriting a civil service post from
if they do not, they can be uprooted from fam- one’s father was not viewed as wrong under the
ily and community ties that provide economic country’s civil service rules.47
and social support, including access to jobs. Jobs that are allocated based on connections
They may also lack the information needed to and other circumstances beyond the control
integrate into their new destinations. Migrants of an individual can influence whether people
moving across borders or regions, internally dis- view society as fair. Recent work on the mea-
placed persons or refugees fleeing from conflict surement of inequality of opportunities exam-
or returning after a peace agreement, and sol- ines the extent to which access to basic services
diers demobilized after conflict may be particu- that are essential for human development, such
larly vulnerable to exclusion from job opportu- as education, health, nutrition, and sanitation,
nities. This is a concern in conflict situations as is based on circumstances of birth or arises be-
well as in contexts of structural transformation, cause of inequality within society (box 4.7).48
when massive numbers of people move from Application of this approach to access to jobs
rural to urban areas.45 Networks also do not considers the extent to which opportunities are
reach many among the self-employed, especially related to circumstances at birth, including gen-
home-based workers who work in isolation and der, ethnicity, and parental educational attain-
domestic workers who lack opportunities to in- ment and political affiliation, or to attributes,
teract with others. including educational attainment and age.49 Re-
sults from 29 countries in Europe and Central
Asia indicate that inequality across groups based
Jobs influence aspirations and
on circumstances and attributes varies between
expectations
3 and 20 percent. The share of inequality attrib-
The various ways in which jobs are distributed utable to circumstances is substantial in most
can affect expectations and aspirations and in- cases, contributing to more than half of the
fluence whether people believe that they have a overall inequality (figure 4.5).
stake in society. The jobs that other people have Circumstances at birth contribute the most
can contribute to an individual’s values, atti- to inequality in Azerbaijan, followed by Uz-
tudes, and behaviors. Children’s goals for the fu- bekistan, Georgia, Turkey and Albania. In these
ture may be influenced by whether their parents countries, such factors contribute the most to
have jobs or not, as well as by the types of jobs inequality in access to jobs. Education plays an
their parents have. Frustration and even social outsized role in inequality in some countries—
unrest may develop when education and effort Armenia stands out in particular, along with Al-
are not rewarded or when people perceive the bania, Bulgaria, and Romania.
distribution of jobs to be unfair. Similar analysis for 18 countries in Latin
The Arab Spring was as much or more America using the 1990 Latinobarómetro sur-
about political voice as it was about jobs. Yet vey confirms these findings. On the whole, the
widespread disappointment, especially among education of the worker and the circumstances
youth, about the lack of job opportunities and he or she was born into play important roles
frustration with the allocation of jobs based on in explaining inequalities in access to jobs, and
connections rather than merit echoed across the role of education is especially important for
countries. A young person in Egypt commented, regular employment in the formal sector.50
“To work in a big company, you’ve got to have
wasta [connections; literally, a middleman]. Re- * * *
gardless of your qualifications, you must search
for someone to secure the job for you. In some The interaction of jobs and social cohesion is not
cases, you have to pay money.”46 Social assess- linear or simple to disentangle. This is an emerg-
ments in the Republic of Yemen documented ing area for further research across disciplines.
frustration with the allocation of jobs based on The effect of jobs on trust and civic engagement
tribal, family background, or party affiliation. at the individual level suggests that exchanges
138 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
The approach butes), and which circumstances contribute the most. Circumstances
The concept of equality of opportunity, which can be traced back to can affect access to a job involving more than 20 hours of work a
John Rawls and Robert Nozick,a stems from the idea that an individ- week through direct and indirect channels. An example of a direct
ual’s chances of success in life should not be caused by circum- channel is when belonging to a minority group can affect the chance
stances that are beyond the individual’s control, such as gender, of getting a job. As for indirect channels, circumstances can influ-
ethnicity, location of birth, or family background. John Roemer’s ence the education of a person, which, in turn, influence the chance
1998 work formalized the principle of equality of opportunity and of getting a job. The decomposition of D is intended to measure
argued that policy should seek to equalize opportunities indepen- the direct channel, which is to say the inequality attributable to the
dent of circumstances.b Empirical applications of this concept use predetermined circumstances, net of the effect attributed to differ-
different measures of opportunity and estimate the extent to which ences in education and experience among workers.f
inequality arises because of circumstances at birth, rather than indi-
vidual attributes such as effort or talent.c Caveats
The Human Opportunity Index (HOI) is one approach that is A number of questions complicate the exercise and act as caveats to
being used across countries and regions to analyze the opportuni- the analysis. First, how should opportunity be defined in terms of
ties available to children in terms of access to basic goods and ser- access to jobs? People have different preferences about jobs, so
vices such as sanitation, clean water, electricity, and basic education.d part of the measured inequality may reflect voluntary choices
The HOI captures both the extent to which societies provide these rather than a lack of access. And people with certain circumstances
goods and services and how equitably access to them is distributed and attributes may be more (or less) likely to be in the labor force in
among groups with different circumstances in a society. the first place. Second, which circumstances should be considered?
Recent work has tested the application of the HOI methodology The data only report a limited range of them, and some may simply
to jobs in Europe and Central Asia and Latin America using data not be observable. Gender, minority status, and parental education
from the 2006 Life in Transition Survey and the Latinobarómetro are commonly considered in the literature; and whether parents
Survey.e In this case, opportunity is defined as having a job involving were affiliated with the Communist Party can be a proxy for social
more than 20 hours of work a week; circumstances are the gender of status in the European and Central Asian countries, even many
the individual, the educational attainment of the father, parents’ years later. However, parental education may be correlated with
past affiliation in the Communist Party (in Europe and Central Asia), unobserved abilities of an individual. Controlling for the individual’s
and self-reported minority status; and attributes are educational education level partially resolves this problem but does not address
attainment and age. Those lacking opportunity are people working the possibility that among children who receive the same educa-
fewer than 20 hours a week, the unemployed, and those who want tion, children with educated parents may acquire better skills stem-
to work more. ming from unobservable inputs. The methodology makes no
The HOI is the coverage rate of the opportunity, adjusted for assumptions about missing circumstances, which are likely to exist
inequality between groups defined by circumstances and attributes. since information on all circumstances is not typically available
Inequality is measured by a “dissimilarity index” (henceforth, D), from the same survey. The inequality or dissimilarity index has the
which reflects the share of available opportunities that would have property that the index will always increase with the addition of
to be reallocated to achieve the same coverage rate of opportunity more circumstances or attributes. Despite these caveats, this
across all groups. A decomposition of D indicates how much circum- approach is a first step in applying the inequality of opportunity
stances contribute to inequality between groups (relative to attri- analysis to access to jobs.
Source: Abras and others 2012 for the World Development Report 2013.
a. Nozick 1974; Rawls 1971.
b. Roemer 1998.
c. Roemer and others 2003.
d. Paes de Barros and others 2009.
e. Life in Transition Survey I (database), European Bank for Reconstruction and Development, London.
f. Estimating the indirect channel—the effect of circumstances through education—would be difficult because education depends on a host of factors other than the circum-
stances on which information is available. Moreover, excluding the impact of circumstances through education is justified because we are interested in measuring the extent to
which inequality in access to jobs is attributable to circumstances. While circumstances may have influenced educational attainment as well, these effects would have occurred
at a much earlier stage of life (primarily in childhood) and therefore do not reflect inequality of opportunities specific to jobs.
and relationships established through jobs can contribute more to social cohesion than others.
have broader effects on societies, including how What matters is not necessarily whether people
they manage tensions between groups and col- have a job but whether the job and its charac-
lective decision making. But some jobs may teristics can contribute to social cohesion. In
Jobs and social cohesion 139
20
16
12
D-index
0
Se n
ec Es ia
pu a
Be lic
kh s
an
ov C ia
Re tia
Uk blic
Hu ine
Po ary
d Sl nd
eg ia
on a
hu ia
M jiki a
ac en n
rg ni ro
pu R
Bu lic
Tu ia
M key
Ge va
Ro rgia
kis a
A an
er nia
Ar jian
ia
za ru
Re ni
M vin
Ta ani
be ni
Re FY
tio
M ont sta
rb
tv
rz en
Lit gol
ar
en
Ky edo eg
b
do
st
t
ak roa
la
h to
Uz a
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ng
ra
r
pu
ba
lg
La
o
ra
m
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m
yz a,
ol
de
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n
ia
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Sl
ss
an
Ru
ia
sn
Bo
Sources: Abras and others 2012 for the World Development Report 2013; based on the data from the Life in Transition Survey I (database); European Bank for Reconstruction and
Development, London.
Note: Opportunity is defined as having a job with 20 or more hours a week. Circumstances include gender, ethnicity, and parental education and political affiliation. The D Index is
the share of available opportunities that would have to be reallocated to achieve the same coverage rate of opportunity across all groups.
certain contexts, jobs can transform societ- influence identity, connect people through
ies if they influence social identity and social networks, and increase a sense of fairness and
norms; if they shift bargaining power within meritocracy in access to jobs have the potential
households, communities, or society; or if they to contribute to social cohesion.
alter power relations between groups. Jobs that
140
4
WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
In Rabat, Morocco, unemployed college gradu- programs themselves are subject to corruption
ates gather daily in front of government build- and governance risks. These negative experi-
ings to protest the lack of jobs.51 In Juba, South ences may reveal poor program design, however,
Sudan, the fledgling government faces the chal- rather than prove the impossibility for jobs poli-
lenge of demobilizing 150,000 combatants and cies to contribute to social cohesion.
reintegrating large numbers of internally dis-
placed persons after conflict.52 For policy mak-
Access to information, rights, and voice
ers in countries with high youth unemployment
and in countries affected by conflict, expanding Policies can take social cohesion into account by
job opportunities has urgency for social and po- expanding opportunities for groups who face
litical reasons, as well as for economic reasons. barriers to getting jobs and increasing access
In industrial and developing countries alike, to voice and rights. People may feel frustrated
the conventional wisdom is that having a job is if they perceive that jobs are allocated on the
what matters for social cohesion—how societies basis of privilege and connections rather than
peacefully manage collective decision making. merit and achievement. Increasing fairness and
The idea that jobs can build identity, or might equality of opportunity for jobs involves in-
be associated with trust or more participation forming the public about jobs and how to get
in society, is often seen as relevant only for a them, and about the existence of legal mecha-
narrow set of occupations in rich countries. nisms, such as antidiscrimination laws and af-
Those jobs are perceived as a luxury that devel- firmative action programs to reduce discrimina-
oping countries cannot afford. Even those who tion and support the inclusion of groups who
concede that some jobs can do more for social lack access. But having laws on the books is
cohesion in developing countries are skeptical not enough. Increasing fairness involves institu-
that policies can do much beyond supporting tions for enforcement, and redress mechanisms
job creation. Given that most employment is in for accountability. Although such measures can
the private sector, it is unclear how or whether be motivated by multiple objectives, including
the government could influence the nature of poverty reduction, they can also be considered
the jobs. Some even doubt that jobs on their from a social cohesion perspective.
own lead to greater social cohesion. They view Transparency and access to information
jobs as only one element that can contribute to about jobs can increase fairness and equality
changing values, attitudes, and behaviors within of opportunity by ensuring that vacancies are
a complex web of institutional, historical, politi- widely publicized, together with information
cal, and social factors. Given this multiplicity of about accessing public employment programs.
influences, engineering social cohesion through Access to information about rights is similarly
jobs is not an option. important for ensuring that labor practices are
Negative experiences with publicly funded fair. Farmers, self-employed workers, and work-
employment programs give some justification ers without formal labor contracts are often not
to this skepticism. Temporary employment pro- knowledgeable about their rights in relation to
grams that place people into dead-end jobs with land owners, traders, local authorities, and em-
no hope for future employment may do more ployers, or about their options for appeals. Civil
harm than good.53 Similarly, demobilization society organizations such as cooperatives, asso-
programs in post-conflict environments risk ex- ciations of informal workers, and trade unions
acerbating tensions between former opponents can disseminate information about rights and
through divisive targeting.54 Social cohesion the channels to voice grievances.55
is actually undermined when jobs in publicly A related challenge is the extension of effec-
funded programs are allocated to friends and tive legal protection to those who work outside
relatives of government officials, or when the of legal frameworks. At the international level,
Jobs and social cohesion 141
dents also explained that the program expanded ability in the labor market can improve equity.
their professional networks by giving them op- They can also increase the extent to which
portunities to interact with mentors. “I now people perceive that they have a stake in society.
have a social network. I know whom to consult,” This perception can be especially critical when
explained a female participant.74 risks of social unrest from youth unemployment
While not all jobs affect social cohesion, and conflict are high. While policies with weak
those that shape social identity, build networks, governance or divisive targeting can undermine
and increase fairness, particularly for excluded social cohesion, well-designed programs may
groups, can defuse tensions. Increasing fairness have positive effects. Jobs policies for youth at
in the allocation of jobs and at work can also be risk can incorporate counseling and training in
important for social cohesion. Measures that conflict resolution. Public works programs can
support inclusion, extend access to voice and facilitate community participation and engage-
rights, and improve transparency and account- ment between citizens and local governments.
Jobs and social cohesion 145
28. Feldman 2009, cited in Dudwick 2012 for the Datta 1999; Deshpande 2008; Funston 2001;
World Development Report 2013; Hossain 2011 Gudavarthy 2012; Montlake 2010; Teoh 2008;
for the World Development Report 2012. Weisskopf 2004; Yadav 2010.
29. Amin and others 1998. 66. Das 2012 for the World Development Report
30. Marsden 2000. 2013.
31. Chen and others 2012 for the World Develop- 67. Blattman, Fiala, and Martinez 2011.
ment Report 2013. 68. Blattman and Annan 2011.
32. Kilroy 2012 for the World Development Report 69. Ibarraran and others 2012.
2013; Pickering 2006. 70. Public works programs can be scaled up quickly
33. Mutz and Mondak 2006, 153. and reach large numbers of people. In Argen-
34. Kilroy 2011; Kilroy 2012 for the World Develop- tina, a program, Jefes y Jefas de Hogar, intro-
ment Report 2013. duced after the 2002 crisis was scaled up quickly
35. Montesquieu 1951. and reached more than 2 million people every
36. Varshney 2002. month. Programs have been launched and scaled
37. Chandra 2001. up after conflicts in countries including Guinea
38. Udry and Conley 2004. and Guinea Bissau, Liberia, Nepal, Sierra Leone,
39. Anarfi, Anyidoho, and Verschoor 2008. Sudan, and the Republic of Yemen.
40. Vasilaky 2010. 71. Programs in Kenya, Sierra Leone, and South
41. Allport 1954. Pettigrew and Tropp (2011) pro- Africa also provide vocational training and sup-
vide a meta-analysis of intergroup studies.
port for entrepreneurship for youth.
42. Austin and Worchel 1979.
72. Andrews and Kryeziu 2012 for the World Devel-
43. Gatti and others 2012.
opment Report 2013.
44. Arias, Yamada, and Tejerina 2004. See also Wang
73. Andrews and Kryeziu 2012 for the World Devel-
2011.
opment Report 2013.
45. Willman and Makisaka 2010 for the World De-
74. Brodmann, Grun, and Premand 2011, 3.
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46. Singerman 2007, 33.
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PART
2
What are good jobs
for development?
Introduction to Part 2
E
arnings, benefits (if any), and overall job nation, and the suppression of voice among
satisfaction are what matter to individual workers. These forms of work should not be
jobholders. Those earnings and bene- considered jobs.
fits—tangible or otherwise—are the first and How jobs contribute to living standards,
most direct measure of the value a job has to so- productivity, and social cohesion varies with
ciety. But jobs may also affect others, positively a country’s level of development, its demogra-
or negatively. Jobs for women may influence re- phy, its endowments, and its institutions. Jobs
source allocations at the household level and agendas are thus inherently country specific.
benefit their children. Jobs connected to world By combining the various features of an econ-
markets may lead to knowledge spillovers and omy, however, it is possible to build a typology
make other workers more productive. Jobs that of jobs challenges. It includes agrarian econo-
provide opportunities may convey a sense of mies, conflict-affected countries, urbanizing
fairness to others and help them remain en- countries, resource-rich countries, small island
gaged. Spillovers like these have been the focus nations, countries with high youth unemploy-
of recent thinking on development. The analysis ment, formalizing economies, and aging societ-
may be organized around concepts such as gen- ies. Because the nature of the challenges varies,
der, urbanization, or conflict; but much of the what makes a job good for development in one
action happens through jobs. context may not be so relevant in another. And
Quite often individual and social perspectives in some circumstances, tradeoffs emerge. The
on jobs coincide; but not always. For instance, jobs that do the most to defuse tension in the
jobs with perks and benefits may be highly short term may not do much for productivity,
coveted by individuals, but they may be less or those with the highest productivity impact
valuable to society if their privileges are sup- may not lead to a broad-based improvement in
ported through government transfers or restric- living standards. Identifying good jobs for de-
tive regulations, undermining the earnings or velopment helps visualize these tradeoffs.
job opportunities of others. Because of gaps Different countries face different jobs chal-
like these, jobs that look equivalent from an indi- lenges, but two forces—the migration of people
vidual perspective may be different from a social and the migration of jobs—connect their jobs
perspective. The contributions jobs make to so- agendas. These two flows have an impact on
ciety should be assessed by taking into account countries at the sending and the receiving ends.
the value they have to the people who hold them, The arrival of migrants or the outsourcing of
but also the potential spillovers on others— jobs affects the living standards of both migrants
positive or negative. Good jobs for development and locals. The availability of foreign workers,
are those with the highest value to society. the development of migrant networks channel-
Conversely, some forms of work are un- ing savings and ideas, and the arrival of multi-
equivocally bad. A set of universal rights en- national firms bringing in more advanced
dorsed by governments, international organi- techniques, are all bound to increase productiv-
zations, and others seeks to eliminate forced ity. Family structures and community life are also
labor, harmful forms of child labor, discrimi- affected by the movement of people and jobs.
153
Chapter
5
Valuing jobs
Jobs are often assessed from an individual perspective. But they can also
affect the earnings, productivity, and well-being of others—positively
or negatively. These spillovers should be assessed too.
T
he most important impact of jobs is on services, and are obstacles to economic growth
the people who hold them. Jobs provide and poverty reduction. Such jobs may look ap-
earnings, can give access to benefits and pealing from an individual perspective—but
insurance, and are often a source of broader life less so from a social perspective. Good jobs for
satisfaction. Development, in large part, consists development are those that make the greatest
of increasing these direct effects of jobs on contribution to society, taking into account the
individuals. value they have to the people who hold them,
Beyond the importance of jobs for those but also their potential spillovers on others—
who have them, jobs matter for societies be- positive or negative.
cause they can affect the earnings, employment Recognizing the multiple effects of jobs
opportunities, and the productivity of others, is important for understanding the possible
as well as the collective capacity to manage ten- tradeoffs they entail. Some jobs greatly con-
sions. Jobs can also contribute to shared social tribute to productivity growth but do not lead
objectives, such as poverty reduction, environ- to poverty reduction in the short run. In other
mental protection, and fairness. Often, the cases, jobs are urgently needed to avoid an un-
individual and social values of jobs are similar; raveling of social cohesion, but the job creation
but these two perspectives may differ. For in- that can be immediately supported using pub-
stance, Vietnam’s poverty rate declined with lic funds is unlikely to result in rapid produc-
unprecedented speed in the 1990s when land tivity growth. An understanding of the various
was redistributed to farmers and agricultural effects of jobs on aggregate well-being, both
commercialization was liberalized.1 Albeit in- direct and indirect, may help identify when a
creasing individual incomes, farming jobs in- virtuous circle of jobs along all three transfor-
volved difficult working conditions, substantial mations may arise, and when a vicious circle
variability in earnings, and no formal social looms.
protection. But they made a major contribu- The value of a job for the person who holds it
tion to the development of Vietnam. Bloated is a primary indication of its development pay-
public utilities, on the other hand, often offer a off. But assessing the broader value the job has
range of privileges to their employees even to society also requires information on the spill-
when the utilities themselves provide only lim- overs the job may have on the living standards
ited coverage of the population and unreliable of others, on aggregate productivity, or on social
Valuing jobs 155
Much artisanal gold mining in Mali is village based and focused on “It’s my stepmother who makes me work there. I don’t want to.
alluvial deposits that require panning for separation. Although child My real mother left. My stepmother takes all the money they pay
labor tends to be relatively controlled in Mali, an estimated 20,000 me. . . . I don’t get any money from the work. . . . Our work starts at
to 40,000 children, some as young as age 6, work in artisanal gold 8 a.m. and continues the whole day. . . . I take the minerals [ore] and
mining.a Human Rights Watch has documented the perilous nature pan them. I work with mercury, and touch it. . . . He said mercury was
of this work: a poison and we shouldn’t swallow it, but he didn’t say anything
“They dig shafts and work underground, pull up, carry and crush else about the mercury. . . . I don’t want to work in the mines. I want
the ore, and pan it for gold. Many children suffer serious pain in their to stay in school. I got malaria, and I am very tired when I work there
heads, necks, arms, or backs, and risk long-term spinal injury from [at the mine].”
carrying heavy weights and from enduring repetitive motion. Chil- —Mariam D., estimated age 11, Worognan, Sikasso Region,
dren have sustained injuries from falling rocks and sharp tools, and April 8, 2011c
have fallen into shafts. In addition, they risk grave injury when work-
ing in unstable shafts, which sometimes collapse.”b “It’s dangerous—there are often collapses. People are injured.
The work is toxic because miners use mercury to separate the Three died in a cave-in. The little children don’t come down into the
gold from the rock. Mercury poisoning can cause serious neurologi- hole. . . . I have had problems since working there—my back hurts
cal disorders, vision impairment, headaches, memory loss, and and I have problems urinating. No one says anything to me about
problems with concentration. Often, the children themselves are safety.”
aware of the dangers: —Ibrahim K., age 15d
Source: World Development Report 2013 team based on Human Rights Watch 2011.
a. The Government of Mali has taken steps to protect children’s rights, including banning hazardous child labor in artisanal mines and adopting a National Action Plan for the
Elimination of Child Labor in Mali in June 2011.
b. Human Rights Watch 2011, 6.
c. Human Rights Watch 2011, 29.
d. Human Rights Watch 2011, 31.
156 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
At the international level, the United Na- • Many labor laws and regulations cover only
tion’s Universal Declaration of Human Rights workers in formal employment relation-
of 1948 establishes that “everyone has the right ships, limiting the extent to which workers
to work, to free choice of employment, to just can appeal to legal mechanisms. The grow-
and favorable conditions of work and to protec- ing involvement of agencies in hiring work-
tion against unemployment.” These rights are ers complicates legal accountability because
further elaborated in international conventions temporary workers often have contracts with
and regional frameworks and are translated into
employment agencies, which, in turn, enter
domestic laws.5 The global agenda for workers’
into the contracts with the actual employers.
rights became focused on four fundamental
principles and rights in the workplace in 1998. Often, such workers would not count against
Back then, a vast majority of members of the In- legal minimum employment levels at which
ternational Labour Organization (ILO) signed labor rights become binding. 11
a declaration covering a core set of labor stan-
dards on the elimination of forced and com- • Some labor laws deliberately exclude domes-
tic workers, family workers, or workers in
pulsory labor, the abolition of child labor, the
elimination of discrimination in employment small enterprises.12 Exclusions can also ap-
and occupation, and freedom of association and ply in export zones and other areas where
collective bargaining.6 Other ILO conventions regulation is suspended to attract investment.
cover a range of related subjects including work- Unpaid family workers in agriculture and en-
ing time, social security, occupational safety and terprises, including children on family farms,
health, and labor inspections.7 may also be excluded. Many women perform
International law requires that countries non-remunerated work of this sort.13
bring their domestic laws into compliance with
the international legal instruments the countries • Tensions may also exist between labor rights
have ratified. The core labor standards have a defined in national and international contexts
special status among ILO conventions because and customary, religious, and indigenous laws.
the 1998 declaration requires all ILO member Many countries are characterized by legal
states to “respect, promote, and realize” the stan- pluralism, whereby multiple legal systems ex-
dards, regardless of whether they ratify specific ist side by side. Overlapping jurisdictions are
conventions.8 The standards influence other in- most common in the case of family law relat-
struments for protecting workers’ rights through ing to marriage, divorce, and inheritance.14
references in national and regional legislation,
the texts of many bilateral free trade agreements, Gaps between rights on paper and those
the procedures of international organizations, in practice underscore a substantial agenda to
and corporate codes of conduct.9 International eliminate unacceptable forms of work. Nonstate
legal frameworks arguably do not cover some actors, including private employers and civil
fundamental rights. The core labor standards, society organizations, are increasingly involved
for example, do not directly address working in efforts to improve compliance with labor
conditions including safety and health.10 rights and standards. Multinational corporations
Gaps remain between rights on paper and and industry associations often adopt codes
implementation in practice (box 5.2). Even in
of conduct, voluntary standards, and monitor-
countries that have ratified the core labor stan-
ing and auditing strategies.15 Nongovernmental
dards and have laws on the books, children work
organizations monitor factories and firms, pro-
in harmful conditions, discrimination happens
in access to jobs and in pay, forced labor persists, vide training and education to workers, and co-
and freedom of association is limited. Commit- ordinate domestic and global campaigns. While
ments in treaties, conventions, and laws may not this heightened involvement in rights and stan-
change the institutions, practices, and behaviors dards does not guarantee that implementation
that affect workers’ rights on their own. A key will improve, it provides potential channels and
factor driving these gaps is the fact that many partnerships for increasing accountability for
workers are not covered by laws. For example: rights at work.
Valuing jobs 157
The number of countries that have adopted the eight core labor deprived women of equal access to jobs. Inequality in laws relating
standards included in the International Labour Organization’s 1998 to marriage, inheritance, and property ownership, as well as tradi-
Declaration of the Fundamental Principles and Rights at Work is tional and customary laws, also affect the access of women to pro-
steadily increasing. But compliance gaps with the four principles— ductive assets and business opportunities.
child labor, forced labor, discrimination, and freedom of association Discrimination in employment may be the outcome of policies
and collective bargaining—are still apparent.a not dealing directly with labor issues. For example, in some coun-
tries of Central and Eastern Europe, Roma children are often tracked
Child labor. ILO conventions 138 and 182 require countries to develop into schools intended for children with special needs, which provide
and monitor action plans regulating work by children under age 18. limited opportunities for further advancement in education and
Convention 182, covering the most harmful forms of child labor, subsequent employment. Roma graduates of special schools in the
has been ratified by 175 countries. The largest numbers of children Czech Republic were twice as likely as non-Roma graduates to be
in hazardous work are in East Asia and the Pacific, but across regions out of the labor force.i A study of Roma in the Czech Republic found
there is evidence that progress is being made.b Brazil and India are that 19 percent of Roma ages 10–19 had attended a special needs
among the countries showing improvements. In Brazil, between school, while the share in the non-Roma population was 7 percent.
1992 and 2008, employment among 7–15 year olds fell over 10 per- The figures in the Slovak Republic were 12 and 8 percent
centage points, from 18 percent to 7 percent. At the same time, respectively.j A 2007 court case involving Roma students in the
school attendance rose from 85 percent to 97 percent. In India, Czech Republic noted that they were more likely to be placed in
children’s employment fell from 8 percent to nearly 4 percent, and schools for the mentally challenged than non-Roma children. The
school attendance rose 14 percentage points (from 72 percent to European Court of Human Rights ruled that this overrepresentation
86 percent).c violated nondiscrimination protections in the European Convention
on Human Rights.k
Forced labor. More countries have ratified conventions 29 and 105,
the core standards on forced labor, than the other core standards. Freedom of association and collective bargaining (FACB). Although
An estimated two-thirds of forced labor takes the form of economic conventions 87 and 98 are among the oldest of the core standards,
exploitation; one-fifth is linked to forced labor imposed by the state they have been ratified by fewer countries than the others. These
or the military; and the remainder involves commercial sexual conventions cover the right to establish and join organizations and
exploitation. This last form disproportionately affects women and call for mechanisms for negotiations between employers and
girls.d The long-term effects on individuals, families, and communi- worker organizations. FACB are “enabling rights” in that they give
ties can be severe. Nongovernmental organizations that rescue vic- workers voice to advocate for other aspects of working conditions,
tims of forced labor, particularly forced commercial prostitution, including safety and health.l
find that post-traumatic stress, social stigma, and disease can crip- FACB is curtailed in countries where unions and other associa-
ple reentry into society.e tions are banned, where associations face restrictions on their activ-
ity, or where members are threatened by violence or repression.
Discrimination. Conventions 100 and 111 refer to discrimination by FACB rights of both workers and employers are monitored by the
gender, ethnicity, disability, or other status as a source of disparities ILO Governing Body’s Committee on Freedom of Association (CFA),
in access to jobs, segregation within the labor market, pay gaps, and a universal monitoring mechanism that functions in addition to
harassment or violence at work. From a legal perspective, discrimi- the ILO’s regular supervisory mechanisms for monitoring ratified
nation can be understood as inequality before the law within either conventions. The CFA handles complaints related to civil liberties,
the formal legal system or customary law. It results from unequal including murder, abductions, disappearances, threats, arrests, and
treatment on the grounds of race, gender, religion, political opinion, detentions of trade union leaders and members, as well as other
national extraction, or social origin; or the unequal impact of poli- acts of antiunion harassment and intimidation and violations of
cies, practices, or rules. Employment outcomes are affected by each freedom of assembly and freedom of expression.m Convention 87
of these layers of discrimination.f Although progress has been made protects the rights of all workers, including the self-employed. In
in removing legal obstacles that affect women’s access to jobs, bar- practice, however, implementation of FACB is limited because many
riers remain.g Labor laws in 44 countries restrict the hours that workers are employed outside traditional employer-employee rela-
women may work,h and 71 countries impose legal limits on the tionships or do not work in occupations or sectors that are covered
industries in which women may work. Such restrictions have often by formal unions.
The value of jobs to individuals A job may also matter for others, beyond its
and society holder. When asked about their most preferred
jobs, survey respondents from four diverse
The most obvious outcome of a job is the earn- countries provide different answers from those
ings it provides to the worker. These earnings they offer when asked about the most impor-
can be in cash or in kind and may include a range tant jobs to society (figure 5.1). They frequently
of associated benefits. The earnings the job pro- mention working in the civil service or as a shop
vides, as well as the output it generates, typically owner as the jobs they would prefer for them-
increase with the skills of the worker. Improv- selves, while identifying teachers and doctors
ing skills is thus one of the most direct channels as the most important jobs for societies. China
to enhance the value jobs have to individuals is the only country where a job in civil service
and society (question 5). Other characteristics is seen as more important for society than for
of the job may also matter from the point of the individual. In the Arab Republic of Egypt, a
view of individual well-being. Stability, voice, job as a teacher is more valued individually than
and fulfillment at work all play a role in overall socially. And in Sierra Leone, being a farmer is
job satisfaction, as do any detrimental impacts appreciated both individually and socially, while
of jobs on mental and physical health through in the other countries it is recognized as socially
stress and anxiety.16 valuable but is not a preferred job.
Several of these dimensions of jobs have been This intuition can be developed into a more
combined into the concept of decent work intro- structured analysis of the reasons why some jobs
duced by the ILO in 1999 (box 5.3). Since then, may be more or less valuable to society than they
many governments have used it to articulate are to those who hold them. Those reasons can
their policy agendas on jobs. The concept of de- be grouped under three main headings, each
cent work has also been embraced by the United corresponding to one of the three development
Nations and several international organizations transformations. Individual jobs can improve
and endorsed by numerous global forums. the living standards of others in society, or they
BOX 5.3 The concept of Decent Work and the Decent Work Agenda
Decent Work is defined as “opportunities for women and men to used to help countries measure progress and establish priorities. A
obtain decent and productive work in conditions of freedom, limited set are used to monitor progress toward the MDG target.e
equity, security and human dignity.”a This definition is based on a The ILO’s Decent Work Agenda includes a threshold below
broad concept of work as encompassing all forms of economic which no job should fall. The threshold has four components: pro-
activity.b The International Labour Organization has made Decent ductive employment (not simply any job), basic social protection
Work for all the organizing principle for its activities and has set according to national conditions, opportunity for voice and organi-
an agenda for incorporating the goal of Decent Work for all into zation, and rights at work. As an incremental agenda, Decent Work
national strategic planning objectives.c The ILO’s Decent Work indicators can change, depending on the economic, social, and
Agenda is a policy approach based on four strategic objectives: fun- institutional progress of countries.
damental principles and rights at work and international labor stan- This ILO agenda has gained considerable traction and interna-
dards, productive and freely chosen employment, social protection, tional political buy-in over the past decade. First formulated at the
and social dialogue. International Labour Conference in 1999, it is now part of the ILO
At the global level, the ILO has defined Decent Work indicators constitution and has been endorsed by heads of state at the UN Gen-
to measure the different dimensions of the concept and to track eral Assembly, the Group of 20, and regional authorities such as the
progress over time. In 2010, the United Nations (UN) Summit on the European Union, the African Union, the Organization of American
Millennium Development Goals (MDGs) included a new target States, the Association of South East Asian Nations, and the Southern
under Goal 1 (eradicate extreme poverty and hunger): “achieve full Cone Common Market (Mercosur). Many countries use the Decent
and productive employment and Decent Work for all, including Work concept to define development targets, identify policy priori-
women and young people.”d The Decent Work indicators are being ties, and measure progress toward meeting specified goals.
social value
30 T C 30
F
T
20 20 F
D
10 10
C
S S
0 0
0 10 20 30 40 50 0 10 20 30 40 50
individual value individual value
social value
30 30
20 T 20 F
F T
C
10 10 CS
S
0 0
0 10 20 30 40 50 0 10 20 30 40 50
C D F S T
civil doctor farmer shop teacher
servant owner
Source: Bjørkhaug and others 2012; Hatløy and others 2012; Kebede and others 2012; and Zhang and others 2012; all for the World Development Report 2013.
Note: The figure shows the share of respondents who would want the job for themselves (individual value) and those who think the job is good for society (social value).
can adversely affect their earnings and employ- holds it provides a good measure of the value of
ment opportunities. They can help raise the the job to society. But some jobs also have spill-
productivity of others, or they can harm them overs on the living standards of others, on aggre-
through their environmental impacts. And they gate productivity, or on social cohesion. When
can support more peaceful collective decision spillovers are positive, the job has a greater value
making, or, alternatively, increase social tensions to society than it has to the person who holds
when they are based on privilege. it, and the opposite is true when the spillovers
are negative. In principle, the spillovers can also
be negligible, in which case there is no real dis-
Spillovers from jobs tinction between the individual and the social
perspective. Nonetheless, the idea that jobs can
Good jobs for development are those with the have sizable spillovers is at the core of several dis-
highest payoff to society. As a first approxima- ciplines in the social sciences and has greatly in-
tion, the value of the job for the person who fluenced recent development thinking (box 5.4).
160 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 5.4 Economics and the social sciences deal with spillovers from jobs, under different names
Several disciplines in economics and in the social sciences focus on the degree to which job outcomes are shaped by the circumstances
the channels through which spillovers from jobs occur, even if they in which individuals are born, as opposed to their ability or effort.
may not articulate it that way. One core focus of labor economics is to Finally, conflict studies aim to identify the societal conditions that
assess earnings differentials and their causes, including discrimina- underlie tension not being managed constructively and peacefully,
tion, uneven bargaining power, regulation, and taxation. The public including access to jobs and fairness in their allocation.
finance literature also evaluates the impact on employment, capital These disciplines bring analytical rigor to the assessment of the
intensity, and earnings of taxes and subsidies, including those used gaps between the individual and social values of jobs, hence to the
to finance social insurance contributions. Gender studies examine identification of good jobs for development.a
the economic, social, and cultural determinants of gender discrimi- Although they may not be explicitly articulated around jobs,
nation and their relationships to employment. Poverty analyses these disciplines have shaped recent development thinking. The
study the poverty and inequality impact of job distributions and World Development Report 2007: Development and the Next Genera-
different growth patterns. Economic geography uncovers the pro- tiona shows that opening job opportunities for young people is
ductivity impact of spatial concentration of jobs. International eco- catalytic for future economic and social development. The World
nomics a nalyzes the resource allocation and innovation impetus Development Report 2009: Reshaping Economic Geography discusses
provided by employment in export sectors and foreign-owned reaping the benefits of agglomeration, which happens through
companies. Environmental economics measures and values the neg- jobs, as a source of economic growth. The World Development Report
ative (and positive) impacts of employment in different sectors, or 2011: Conflict, Security, and Development makes the point that jobs
using different techniques, on the natural resource base. Identity are a key element for stabilization in post-conflict societies. And the
economics researches how behaviors and norms are influenced by World Development Report 2012: Gender Equality and Development
the relationship between people and their peer groups, including provides evidence that jobs are a medium to promote gender
through their jobs. The field of equity analysis has started to examine equity and transform it into social and economic progress.
social value in the availability of jobs that take • Sense of fairness. A perceived absence of fair-
others out of poverty. Employment opportu- ness in the overall access to job opportuni-
nities tilted in favor of the poor do more for ties, beyond one’s own job, can undermine
development. the sense of belonging. Job allocations at
odds with the idea of equality of opportu-
• Agglomeration effects. Productivity depends
nity may lead to disengagement from collec-
not only on the internal efficiency of eco-
tive decision-making processes. Jobs that live
nomic units but also on their environment.
Learning and imitation through labor turn- up to standards of transparency and merit
over and interaction with suppliers, as well contribute to the sense of fairness in society.
as a better matching of skills across a bigger Because a job can affect the well-being of
pool of workers, can increase productiv- others and not only the well-being of the job-
ity. Hence, jobs in functional cities tend to holder, two jobs that may appear identical from
be good jobs for development. Conversely, an individual perspective could still be different
negative effects can arise in overcrowded and from a social perspective. In a society that values
congested cities. poverty reduction, an informal job that takes a
• Global integration. Knowledge spillovers also household out of poverty should be seen as more
occur through international trade and parti valuable to society. A job in a protected industry
cipation in global value chains. Firms that en- that needs support through transfers (either
gage in export markets tend to become more by taxpayers or by consumers) is less valuable
productive and, in doing so, they push other, to society, and even less valuable if the need for
less productive firms out of business. Know protection is associated with the use of outdated
ledge spillovers from foreign direct invest- technology that results in high environmental
ment (FDI) increase aggregate productivity. costs. The opposite holds for a job in an export
Jobs that connect to global markets are thus industry that contributes to the acquisition of
good jobs for development. new technical and managerial knowledge from
abroad and spreads it through interactions with
• Environmental effects. Jobs have negative im- suppliers; this job is even more valuable to so-
pacts on aggregate productivity when they
ciety when the jobholder is a woman and her
damage the environment or lead to an over-
work status empowers her. And the same is true
use of scarce resources. But they can also have
for a job that gives a young person a sense of be-
positive effects on the environment, as in the
longing in society and conveys to others a sense
case of jobs to manage forests and other com-
of opportunity (figure 5.3).
mon resources. The social value of a job can-
not be assessed without taking into account The contribution jobs make to develop-
its environmental impact. ment varies, depending on the circumstances.
In low- and middle-income countries, poverty
• Social identity. Jobs can impact the well-being reduction carries significant weight. Productiv-
of others by influencing the values and behav- ity effects vary: heavily urbanized and highly
ior of those who hold them in ways that affect connected countries such as Singapore have
society at large. Jobs can shape the norms that internalized a large part of these effects already,
influence how the jobholder interacts with while urbanizing countries such as Bangladesh
others, starting with basics such as reliability, and Guatemala are still able to reap significant
punctuality, and courtesy. Depending on their benefits. Jobs in illegal mining can cause envi-
characteristics, jobs can foster civic engage- ronmental damage, and their net contribution
ment and result in greater trust. to productivity growth is limited as a result. Jobs
• Networks. Jobs connect people to each other. in Turkey’s wind energy parks, in contrast, likely
They convey information among coworkers contribute to all three transformations in a posi-
and society more broadly. They impact the tive way: they offer earnings and job satisfaction
integration of rural migrants in new urban to workers; they position Turkey at the forefront
settings. Jobs may also contribute to tolerance of technological developments in new energy;
when they increase interactions with people and they often contribute to social cohesion by
from different social and ethnic backgrounds. creating new livelihood opportunities for villages.
162 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
The
F I G U R E 5 . 3 individual and social values of jobs can differ
social value
poverty sense gender
technology of fairness equality
reduction
individual burden
value shifted
individual
environmental value
cost
More often than not, however, jobs entail Can the development payoffs from
tradeoffs. A specific job can entail positive and jobs be quantified?
negative spillovers simultaneously. Take, for ex-
ample, a job that requires relatively low-skills Earnings from labor provide the first and most
but that uses outdated technology and hence direct measure of the contribution jobs make
causes environmental damage. From a social to development. But transformations in liv-
point of view, such a job has a positive spillover ing standards, productivity, and social cohe-
because it leads to poverty reduction, but it also sion happen at a faster pace when jobs lead to
exhibits a negative spillover through its environ- investments in children, give people the possi-
mental effect. Similar tradeoffs can exist for a bility to acquire new skills through their work,
job that connects the domestic economy glob- or engage them more in society. Because these
ally but that has been obtained through connec- transformational aspects are seldom reflected in
tions, thereby decreasing the sense that the job labor earnings, good jobs for development may
market is fair. not be as attractive to individuals as they are im-
Such tradeoffs can take strategic dimen- portant to society. This is why, even in a context
sions: in China, the nature and location of in- of full employment, there may not be enough
vestments in roads have different implications jobs for women in many developing countries,
for jobs. The investments yield their highest or enough jobs connected to world markets, or
growth returns in the eastern and central re- enough jobs for idle young men. Spillovers are
gions of China, where the most productive jobs thus especially relevant in countries where gen-
are. But their contribution to poverty reduction der equality is far from assured, urbanization
is greatest in the western regions, where living and global integration are incipient, and conflict
standards are lower.17 In such situations, soci- is still a possibility.
etal choices are necessary. Assessing and map- Fully valuing the development payoffs from
ping spillovers is an important first step toward jobs entails assessing the earnings they provide,
informed decision making. as well as their possible spillovers. In practice,
Valuing jobs 163
BOX 5.5 Several data sources can be used to quantify the development payoffs from jobs
Household surveys such as those used for poverty analysis are detailed on inputs and therefore has limited potential in the estima-
a critically important input for assessing the contribution jobs tion of changes in productivity, but it gives a more comprehensive
make to society. Regular up-to-date, high-quality data on activity, picture of how firms are born, grow, decline and die and how
employment, and earnings can be used to understand employment employment evolves as a result. Unfortunately, only a few countries
dynamics. Many countries around the world collect household data collect information on the myriad microenterprises in the informal
through living standards surveys and labor force surveys. Social sector. This information is vital to understanding where job creation
security administrations in countries with a high coverage rate of occurs in the economy and where it contributes most to aggregate
social programs record information about their contributors. Unfor- productivity.
tunately, few countries trace employment histories. Such histories Special household surveys inquiring about values and attitudes,
(including employment transitions) are vital to achieving an under- together with qualitative assessments, are important instruments for
standing of how long young jobseekers are unemployed, whether assessing links between jobs on the one hand and beliefs and behav-
unemployment scars the middle-aged, or how internal migration iors on the other. These surveys often provide information on trust in
supports rural families. others and civic participation, and on the characteristics of respon-
Plant-level surveys are another standard input to understand dents and their jobs. Information from these surveys can be com-
the dynamics of job creation and destruction and their implications bined with living standards and labor force surveys to identify popu-
for aggregate productivity. Many countries conduct such surveys lation groups at risk, and analyze how jobs are associated with
out of a sampling frame supposed to capture all units in manufac- peaceful collective decision making. Observing individual or cohort
turing; in some cases, the coverage extends to units in other sectors, groups over time allows for an exploration of possible causal links
such as trade. Other countries collect data on production and among jobs, trust, behaviors, and attitudes.
employment through administrative records; the information is less
this amounts to identifying the gaps between ing standards: jobs can impact the earnings of
the individual and the social values of jobs (if others, they can alter the allocation of resources
any) that are relevant in a particular country within households in a substantial way, and they
context. Such an evaluation requires data, some can contribute to shared social goals such as
of which many countries are now collecting poverty reduction.
on a more or less regular basis (box 5.5). Using
data to measure the full social value of a job Earnings of others. Jobs in subsidized firms and
calls for rigorous analysis too. Patterns in the in bloated public sector agencies have an im-
data may result from spurious correlations, and pact on the earnings of others, as they lead to an
the related conclusions may be tainted if indi- excessive tax burden and a reduction of earn-
viduals and firms with fundamentally different ings (or the disappearance of jobs) elsewhere
characteristics selected themselves into specific in the economy. Jobs characterized by uneven
jobs or activities. Labor economics, productiv- bargaining power between employers and em-
ity studies, and other social sciences have devel- ployees, or discrimination against women or
oped analytical tools for the analyses required. ethnic minority groups, have earnings that are
Sociological and anthropological methods can too high or too low relative to the output gener-
provide texture and context missing in quanti- ated by the job.
tative data. In some cases, randomized trials or The tools of public finance can be used to
natural experiments can shed light on the assess gaps between the individual and the so-
mechanisms at play. But methodological pitfalls cial values of jobs in the case of jobs supported
abound, so the safest approach is to triangulate through transfers. Taxation and government
the available evidence. spending affect earnings and modify incentives
and thus have an impact on resource allocations,
including employment. Analyses of the tax bur-
Living standards
den applying to capital and labor, assessments
Three types of spillovers can enhance or under- of cross-subsidization between individuals or
mine the direct contribution jobs make to liv- firms, or evaluations of the impacts of payroll
164 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
taxation can identify a gap between the individ- ferences between the workers who migrated
ual value and the social value of a job. to the cities and those who stayed behind. So,
A tax wedge does not necessarily imply that even when the gaps are rigorously measured,
the individual and the social value of a job dif- disentangling the reasons behind them is an
fer, or that employment effects are large. The important step before policy conclusions can be
methodological pitfall to avoid in this case is to drawn.
assume that individuals attach no value to the
taxes or contributions they pay. If workers value Household allocations. Who holds a job can
social security contributions as an entitlement matter for how household earnings evolve and
to deferred benefits, their net burden is lower are spent. Job opportunities for youth are par-
than the contribution rate suggests. If they value ticularly important. A difficult transition from
the contribution in full, there would be no mis- school to work can lead to scarring—a negative
allocation of resources. In some systems, con impact on long-term earnings prospects, hence
tributions and benefits are closely linked; in of future household expenditures. The risk of
others, the link is looser and redistribution unemployment later in life is higher for those
stronger. But even when benefits are low com- with difficult school-to-work transitions.20
pared to taxes, the effects on employment de- Jobs that go to women might also benefit other
pend on how much of the taxes employers can members of society as well as the woman hold-
pass on to employees through lower wages. In ing the job. Women generally have lower labor
the extreme case, when the number of workers force participation rates than men and typi-
seeking wage employment is fixed, the entire tax cally earn less than their male counterparts, but
is paid by workers, and employment is the same employment outside the household often em-
then as without a tax.18 In Turkey, a reduction in powers them.21 A body of evidence has found
social security taxes would result in higher net that spending decisions depend on the share
wages and lower total labor cost only partially, of household income contributed by different
thereby moderating the change in employment. members of the household. Women’s control
The effect is somewhat higher, though, for lower- over household resources leads to more spend-
skilled workers earning around the minimum ing on food and children’s schooling.
wage.19 The impact womens’ employment has on
The tools of labor economics can be used to household allocations can be quantified using
measure the gaps between the actual earnings of standard tools in poverty and gender analyses.
specific groups of workers and the earnings they In Mexico, for example, higher women’s income
would have in the absence of uneven bargaining shares were associated with more food and chil-
power or discrimination. Earnings functions (a dren’s clothing and less alcohol.22 Similar results
standard tool of labor economics) can provide were observed in Bangladesh, Côte d’Ivoire,
an estimate of the magnitude of those gaps. and South Africa.23 In the Republic of Congo, a
Actual earnings are lower than they otherwise higher female share in total household income
would be in the case of women, ethnic minori- was associated with significantly higher expen-
ties, and people working in the agricultural sec- ditures on food and significantly lower expen-
tor; they tend to be higher in the case of union diture on clothing for adults and entertainment
members. Some gaps diminish with economic (figure 5.5).24 However, it should not be assumed
development, others persist (figure 5.4). On the that impacts are the same everywhere. Providing
surface at least, the gender and occupational cash transfers in Burkina Faso boosted routine
gaps show no sign of disappearing. preventive care for children, regardless of which
While these exercises are informative, earn- parent received the money.25 And evaluations in
ings gaps may result from differences in the Ghana and Sri Lanka show that microcredit was
characteristics of jobs or workers not accounted invested to a larger extent into a business by men
for in the analysis. Gender gaps can stem from than by women.26
discrimination but also from choices about the Another approach looks directly at the im-
work-life balance. Union gaps may signal strong pacts of women’s employment on human de-
bargaining power but could also reflect higher velopment outcomes, such as children’s educa-
productivity of organized workers. Rural pay tional attainment and health. In a rural setting in
deficits may be affected by unobservable dif- southern India, an increase in annual female in-
Valuing jobs 165
Some
F I G U R E 5 . 4 earnings gaps decrease with the level of development; some do not
0.1 0.1
0
0
–0.1
gap, %
–0.1
gap, %
–0.2
–0.2
–0.3
–0.3
–0.4
–0.4
–0.5
–0.5 –0.6
500 5,000 50,000 500 5,000 50,000
GDP per capita, 2005 PPP US$ GDP per capita, 2005 PPP US$
0.1
–0.1
0.1
–0.2 0
–0.1
gap, %
gap, %
–0.3
–0.2
–0.4 –0.3
–0.4
–0.5
–0.5
–0.6 –0.6
500 5,000 50,000 500 5,000 50,000
GDP per capita, 2005 PPP US$ GDP per capita, 2005 PPP US$
Source: World Development Report 2013 team estimates based on Montenegro and Patrinos 2012 for the World Development Report 2013.
Note: GDP = gross domestic product; PPP = purchasing power parity. Elementary occupations involve simple and routine tasks often requiring considerable physical effort. The
vertical axis indicates the difference in earnings between the two groups depicted in each quadrant, controlling for the characteristics of people in the two groups. The gap mea-
sure is based on country-specific regressions of the logarithms of monthly earnings on years of education, potential years of experience (and its square), and controls for industry,
occupation, urban/rural sector, ethnicity, and gender. Each dot represents a country.
come of US$90 increased schooling by 1.6 years Poverty reduction. Job opportunities and em-
for disadvantaged castes.27 In Mexico, a 10 per- ployment transitions are major determinants of
cent increase in labor demand for adult women changes in both individual living standards and
raised the chance of having a daughter in good overall poverty in a country. If societies value
health by 10 percent.28 In addition, the children poverty reduction, a job lifting an individual or
of women who found work in export manufac- a household out of poverty increases the well-
turing thanks to the opening of new factories being of others. A spillover exists then, as ag-
closer to home were significantly taller.29 gregate welfare increases beyond the increase in
166 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
A
F I G U R E 5 . 5 higher women’s share of household income raises food
expenditures in the Republic of Congo
0.3
impact of a 10 percent redistribution of
wage income from husband to wife,
0.2
percentage points
0.1
–0.1
–0.2
–0.3
od
th
rt
lts
rs
ho
en
cc
io
re
in
po
he
al
du
fo
at
co
us
ld
m
ba
he
ns
ot
ra
uc
hi
in
ho
al
to
tra
rc
rta
fo
ed
fo
te
g
in
en
g
th
in
th
clo
clo
0
jobs—and in which locations—would make the
–1 biggest difference to them. Microsimulations us-
ing household survey data allow estimating the
–2 impact of changes in employment on poverty
rates. For instance, increasing the employment
–3 rate is of highest priority in Bulgaria and Latvia,
two aging countries. Consider the poverty alle-
–4
viation effects of raising the employment rate by
–5 3 percentage points depending on who, among
Bulgaria Latvia those currently not working, gets the additional
jobs for most jobs for most jobs. If the jobs went to the people whose indi-
employable employable vidual characteristics make them more easily
people people among employable, poverty would fall by 1.1 percent-
the poor
age points in Bulgaria and by 1.2 percentage
Source: World Development Report 2013 team.
points in Latvia. If new employment opportuni-
Note: Figure is based on microsimulations using data from household surveys. In each country, the ties instead went to the most employable among
employment rate was exogenously increased by 3 percentage points. The baseline scenario allocated the poor, poverty would fall by 4.7 percentage
the new jobs to those who had the highest likelihood of being employed. Earnings were imputed on the
basis of individual characteristics. The alternative scenario brought into jobs all those who had the highest
points in Bulgaria and by 4.1 percentage points
employment likelihood among the poor. in Latvia (figure 5.6).
Valuing jobs 167
Productivity
Spillovers from jobs on the productivity of other
Agglomeration
F I G U R E 5 . 7 effects vary across
jobs can happen through three main channels. industrial sectors in Taiwan, China
Jobs in functional cities lead to greater special-
ization and mutual learning. Jobs connected to
global markets allow for the acquisition of more apparel
advanced technological and managerial knowl-
edge. And through the production process in plastic products
which they are embedded, jobs can have nega-
tive—or positive—effects on the environment.
machinery
Agglomeration effects. The spatial concentra-
tion of activity is a strong driver of productivity electric appliances
growth in developing countries. Effects can ma-
terialize within sectors (localization economies) computers
or between sectors (urbanization economies).
The sharing of inputs, better labor matching,
0 2 4 6 8
and knowledge spillovers are the main forces
employment growth in response to a 10 percent
behind the geographical concentration of in- increase in manufacturing employment, %
dustries and economic activity in urban envi-
1986–96 1976–86
ronments. The sharing of inputs facilitates the
emergence of specialized producers of interme-
diate goods and services. Proximity allows firms Source: Sonobe and Otsuka 2006b.
Note: The figure shows the increase in the employment of a specific sector in a specific locality when
to more easily find workers to fill positions. total employment in manufacturing in that locality increases by 10 percent, controlling for other relevant
Knowledge spillovers allow firms to learn about factors.
new technologies, products, and practices from
other firms operating in the vicinity. These ag-
glomeration effects signal a difference between
the private and social values of jobs. causes employment in specific industrial sectors
The tools of urban economics can be used to increase between 3.0 and 7.5 percent (figure
to assess the potential gains from agglomera- 5.7).35 Enterprise surveys also show that firms
tion. In industrial countries, as city employ- grow faster in large cities.36 In many develop-
ment increases by 10 percent, wages and firm ing countries, however, the poor functionality
productivity in the city grow by 0.2 to 1.0 of cities undermines the potential gains from
percent.30 To give a sense of the magnitudes proximity. Inefficiencies in labor, land, and
implied, if wages and productivity were to in- housing markets may cause poor functionality
crease by 0.3 percent, workers moving from in cities. Poor functionality may also result from
a city with 5,000 inhabitants to a metropolis of deficits in transportation and communication
5 million would see their earnings increase by infrastructure, especially for smaller cities where
23 percent.31 Nonetheless, not all workers bene market access is critical.37
fit equally from living and working together in But agglomeration can also come with higher
cities, nor do they contribute equally to produc- costs, from more expensive land to worse con-
tivity growth. Workers with better cognitive and gestion and pollution in cities with 1 million to
social skills tend to benefit more.32 Workers also 3 million people. In the United States, between
enjoy higher wages when they are surrounded 1980 and 2000, the number of annual hours per
by a more educated labor force.33 person lost to traffic delays increased from 4 to
The association between urban scale and 22.38 Traffic in central London moves at only
productivity has also been documented in many 11 miles an hour.39 In Mexico City, the annual
developing economies, including Brazil, China, cost of traffic delays amounts to US$580 a per-
India, Indonesia, the Republic of Korea, and son, or 3 percent of annual per capita income.40
Turkey.34 In Taiwan, China, a 10 percent increase Congestion and pollution limit agglomeration
in total manufacturing employment in a locality effects.41 In California, a reduction in ozone
168 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
concentrations of 10 parts per billion would in- through arms-length trade or through intrafirm
crease worker productivity by 4.2 percent. 42 transactions. Global integration improves do-
Analytical tools from the management litera- mestic resource allocation because it puts greater
ture can be used to assess the impact of industrial pressure on firms to be competitive. Exporting
clusters on productivity.43 In many low-income allows the most productive firms to grow. But
countries, industrial clusters account for a large in doing so, they also exert pressure on the least
share of manufacturing employment, includ- productive ones to contract or exit. Global in-
ing self-employment.44 Clustering is more com- tegration also generates knowledge spillovers.
mon in light manufacturing industries intensive These arise through exposure to new tech-
in unskilled labor, such as garments, footwear, nologies embodied in traded goods or through
furniture, and metalworking. The formation of new management practices in companies re-
a cluster often starts with a pioneer, typically a ceiving FDI. Knowledge spillovers take place
former trader or engineer who is able to iden- horizontally, between competitors, and verti-
tify a new, profitable business. Success leads to cally, through buyer-supplier relationships.
imitation, and a large number of relatively small International economics has devoted con-
and similar enterprises emerges in the vicin- siderable efforts to quantifying the productiv-
ity. The management literature can help iden- ity impacts of global integration. In Colombia,
tify dynamic clusters, where jobs have positive productivity increased faster at the plant level
spillovers. during the trade liberalization period than dur-
ing the import substitution period.46 In India,
Global integration. The fragmentation of pro- industry restructuring immediately following
duction across borders is one of the most notable the trade reforms of 1991, including the entry
features of the global economy.45 Value chains and exit of firms, contributed significantly to
connect firms and jobs across borders, be it productivity increases.47 In Brazil, Côte d’Ivoire,
and Turkey, the lowering of trade barriers led to
a reduction of markups—a sign of intensified
competition.48 Productivity-enhancing effects
Knowledge
F I G U R E 5 . 8 spillovers from foreign direct of exports have been found in China; Indonesia;
investment increase domestic productivity Korea; Slovenia; and Taiwan, China, as well as at
the regional level in East Asia and Sub-Saharan
2.5 Africa.49
A specialized literature focuses on the knowl-
total factor productivity growth, %
Sources: World Development Report 2013 team estimates based on IEA 2011, International Income Distri-
Environmental impacts. Jobs that overuse natu- bution Database (I2D2), and the ILO’s Labor Statistics.
ral resources or damage the environment are Note: CO2 = carbon dioxide; GDP = gross domestic product. Estimates are based on data from the Interna-
less productive than their direct output might tional Energy Agency and methods and emission factors from the revised 1996 Intergovernmental Panel
on Climate Change guidelines for National Greenhouse Gas Inventories. The figure considers only CO2
suggest. The environmental damage they create emissions from fuel combustion associated with productive activities in the manufacturing and con-
imposes a negative spillover on others, resulting struction sectors. Bubbles represent countries. The size of the bubbles represents the comparable size of
in a lower net contribution to aggregate output. manufacturing GDP in constant prices.
BOX 5.6 International definitions of green jobs can be too narrow for developing countries
While the concept of green growth is well developed, there is less But these definitions can be too narrow. In developing countries,
consensus on the concept of green jobs.a The Organisation for Eco- some jobs associated with green growth that have prospects for
nomic Co-operation and Development (OECD) uses this label for substantial expansion, such as biofuel and biomass production, may
jobs linked to environmental industries.b The European Commis- not qualify as Decent Work.e Moreover, the focus on renewable
sion focuses on employment in industries whose products are energy and low-carbon manufacturing may shift attention away
deemed beneficial to the environment.c Examples include jobs in from activities with positive environmental impacts that also pro-
renewable energy sectors and low-carbon manufacturing. Several vide higher earnings to the poor.
national governments are developing their own definitions of Consider efforts toward reduced forest degradation and sustain-
green jobs, both for statistical purposes as well as to inform policy able management of trees.f Tree resources outside of closed forests
making. are becoming increasingly important to satisfy the demand for
The United Nations Environment Programme defines green charcoal, firewood, timber, and nonwood forest products. Locally
jobs as “positions in agriculture, manufacturing, construction, managed reforestation and regeneration of degraded landscapes
installation, and maintenance, as well as scientific and technical, may generate income opportunities for poor people as well as posi-
administrative, and service-related activities that contribute tive environmental impacts. Trees with the capacity to fix nitrogen
substantially to preserving or restoring environmental quality.”d have been used to improve soil fertility and provide fodder, wood,
For the United Nations Environment Programme and the Interna- and fuel. Such enhanced tree management has helped increase sor-
tional Labour Organization, these jobs must also qualify as Decent ghum yields by as much as 85 percent in some areas and millet
Work. yields by as much as 50 percent.
ing countries lie outside the modern sector, in portant for youth. Jobs can contribute to social-
areas such as agriculture and forestry manage- ization and the process of acquiring values and
ment. Agriculture and deforestation account for behaviors for the workplace and society.62
nearly 30 percent of the greenhouse gas emis-
sions in the world.59 Low-productivity agricul- Social identity. A job can influence the social
ture leads to deforestation as cultivated areas groups that individuals associate with, their
are expanded.60 As such, efforts to reduce the behaviors, and the norms that shape those be-
environmental spillovers from jobs in develop- haviors.63 The degree to which a job, or its char-
ing countries are bound to concern rural areas, acteristics, shapes the way individuals perceive
affecting farming and rural livelihoods.61 For themselves in their community and society
example, they may involve community partici- varies with traditions, culture, and the level of
pation in the management of commons such as economic development. But when the relation-
forests and natural habitats. ship is significant, a spillover from jobs to social
cohesion exists.
Quantifying spillovers from jobs on social co-
Social cohesion
hesion is bound to be more difficult than for liv-
If jobs change values, behaviors, and attitudes of ing standards or productivity. However, a rough
people, they can influence how societies func- assessment is possible using household surveys
tion, specifically, how groups in society are able as well as qualitative studies. For instance, about
to resolve tensions and engage in peaceful col- half of respondents in China judge their jobs to
lective decision making. Three such spillovers be somewhat or absolutely meaningful, but in
from jobs to social cohesion are social identity, Sierra Leone the share is 90 percent, potentially
networks, and a sense of fairness. The effect of signaling the social importance of jobs in a low-
jobs on social identity can be particularly im- income and post-conflict setting.
Valuing jobs 171
Proximity
F I G U R E 5 .10 of garment factories stimulates schooling among young
girls in Bangladesh
a. Boys b. Girls
70 40
60
30
boys enrolled, %
girls enrolled, %
50
40
20
30
20
10
10
0 0
1980 1985 1990 1995 1980 1985 1990 1995
villages with garment factory in their vicinity
villages without garment factory in their vicinity
Behaviors and norms can also be changed firms.65 The program has led to a decrease in
by perceptions about access to jobs—by rais- involvement in gangs, violence, and other risky
ing peoples’ expectations and aspirations for behavior, including drug use and unprotected
the future—and in some cases these changes in sex. Participants described the positive impact
perceptions can be gauged as well. For instance, on their self-esteem and behaviors.
school enrollments in Bangladesh increased
among girls after garment factories opened Networks. Jobs can create new contacts and be a
within commuting distance of their villages.64 vehicle to transmit information. On the negative
No such effect was observed among boys, while side, they can also have an exclusionary effect,
some older girls dropped out of school to take moving the individual further from the wider
up the new job opportunity (figure 5.10). As society. Positive network effects can give people
jobs in the factories became available to women, a stake in their community or society; negative
it is likely that parents saw more employment effects can increase social distance.
opportunities for their daughters and realized Again, surveys can inquire about these dy-
the importance of education. The women work- namics as a first entry to gauge whether a spill-
ing in these garment factories thus set an exam- over exists. In four countries, participants in a
ple for other women and girls. survey were asked whether their job was useful
Program evaluations are another source of or not in establishing contacts with other people,
information on the spillovers from jobs on social providing information about societal matters or
cohesion. For instance, the Programa Juventud other jobs, or helping with news about good
y Empleo (Youth and Employment Program) in deals (on food, for example). Only a quarter of
the Dominican Republic reaches young people respondents in China, but fully three-quarters of
who have not finished secondary school, are those in Sierra Leone judged these network ef-
unemployed, and are living in poor households. fects to be at least somewhat important (figure
Participants receive a combination of voca- 5.11). While comparisons across countries need
tional training and training in life skills, includ- to be interpreted with caution, comparisons
ing self-esteem, teamwork, and communication across individuals in the same country may be
skills, followed by internships at private sector informative.
172 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Not
F I G U R E 5 .11 all jobs provide social identity, networks, or a sense of fairness
100
agree with the statement, % of respondents
90
80
70
60
50
40
30
20
10
0
China Egypt, Arab Rep. Colombia Sierra Leone
My job is meaningful My job establishes networks The most qualilfied people get the jobs
Source: World Development Report 2013 team estimates based on Bjørkhaug and others 2012; Hatløy and others 2012; Kebede and others 2012; and Zhang and others 2012; all for
the World Development Report 2013.
Quantitative methods are necessary to con- atively few people judge jobs to be distributed on
textualize network effects. Surveys in Bosnia and the basis of merit. In Colombia as well as Sierra
Herzegovina and the former Yugoslav Repub- Leone, the percentages were significantly higher.
lic of Macedonia have found that the number Beyond these subjective assessments, fairness
of people willing to work or do business with in access to jobs can actually be measured rigor-
someone of a different ethnicity was greater ously, building on the emerging literature on in-
than the number of people in favor of intereth- equality of opportunity. This literature explores
nic cooperation in schools or neighborhoods.66 to what degree factors beyond talent and effort
Focus groups in Bosnia and Herzegovina in the matter in accessing jobs. These factors include
late 1990s found that the workplace was “the the circumstances in which a person is born:
area in which there is the greatest support for location, family background, gender, ethnic-
ethnic cooperation.”67 Business people work- ity, and language.69 A society that offers equal
ing in print and packaging, food and beverages, opportunities would record little influence of
construction, and retail in Trinidad and Tobago these circumstances on job trajectories much
have reported that interactions through work later in the life. In some countries, however, the
with others of different ethnicities have posi- share of inequality that arises from such birth
tively influenced their social life.68 circumstances is large. In this case, the existence
of deeply rooted inequities determines the life
Sense of fairness. Whether access to jobs is fair chances from early on and becomes apparent
naturally depends on a subjective evaluation. later on through the access to jobs and the re-
Opinion surveys can provide an assessment lated rewards.70 The approach can also be used
of how fair the job market is judged to be, and to assess the importance of different factors that
tracking such evaluations over time can be of contribute to inequality in employment oppor-
guidance to policy makers. About 30 percent tunities. Among several countries in Eastern and
of Chinese respondents feel that the most- Central Europe, father’s education is a driver for
qualified people get jobs—an indication that rel- inequity in access to jobs, especially in the Rus-
Valuing jobs 173
Gender
F I G U R E 5 .12 and father’s education account for a large share of
inequality of opportunity in access to jobs
Russian Federation
Lithuania
Kyrgyz Republic
Slovenia
Croatia
Latvia
Kazakhstan
0 10 20 30 40 50 60 70 80 90 100
percent
Source: Abras and others 2012 for the World Development Report 2013.
Notes: The figure shows the contribution of each circumstance to an inequity measure, the D-index. The D-index is the share of available opportunities that would have to be
reallocated to achieve the same coverage rate of opportunity across all groups. Opportunity is defined as having a job with 20 or more hours per week. Parents’ connections refers to
parents who were affiliated with the Communist Party. Father’s education is measured in years of completed schooling.
sian Federation and Slovenia, while gender is with a variety of means. Some of them allow
predominant in Latvia, Kazakhstan, and Croatia for an actual quantification, some others for a
(figure 5.12). qualitative treatment of the difference between
the individual value and the social value of jobs.
Assessing the social value of different types of
* * * jobs can inform policy discussions about trade
offs and priorities for developmental policies.
The assessment of the social value of jobs is The relevant spillovers are bound to be different
important for the identification of what good in countries at different levels of development
jobs for development are in a particular coun- and with different characteristics, thus leading
try context. Such assessments can be pursued to diverse jobs agendas.
174
5
WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Since human capital theory first established a fill job vacancies through external candidates
link between skills and economic performance, than other firms—a sign of skill-related con-
it generally has been held that education and straints being more binding.80 On the other
training are wise investments for increasing em- hand, farmers and entrepreneurs of unregistered
ployment and earnings—and are hence neces- firms in both rural and urban environments
sary ingredients for growth and job creation. tend to rate skills bottlenecks as less severe.81
The risk of living in poverty declines with the The straightforward response to such mis-
acquisition of basic cognitive skills, especially matches would be for private firms or individu-
numeracy and literacy, and the associated en- als to upgrade skills through further education
hancement in earning opportunities. Skills, es- or training—but several well-known reasons
pecially cognitive abilities, are strongly related prevent this from occurring. Firms and farms—
to productivity growth, more so than school at- especially smaller ones—and workers seldom
tendance rates.71 They also are closely associated have the necessary funds nor can they borrow
with structural transformation, especially for for this purpose.82 Firms are also reluctant to in-
low- and lower-middle-income countries where vest in training employees for fear that workers
they create opportunities for people outside of will leave after being trained.83 And both firms
agriculture.72 Across 1,500 subnational regions and workers may lack the information needed
in 110 countries, education emerges as the criti- to identify skills gaps.
cal determinant of knowledge spillovers and Because of such market failures, policy mak-
entrepreneurship.73 And skills can shape how ers often turn to education and training systems
jobs link people to neighbors, communities, and to deal with high unemployment or stifled pro-
societies.74 ductivity growth. Many countries are currently
But around the world, available skills are not making a big push to hone the skills of the
fitting well with the demands of the economy. current and soon-to-be workforce through in-
Skills mismatches are arguably growing rather creased emphasis on on-the-job training and on
than shrinking. Albeit not easy to pinpoint, up pre-employment (vocational) education. Tur-
to one-third of the employed in countries as di- key’s Public Employment Agency has expanded
verse as Brazil, Costa Rica, Pakistan, Sri Lanka, vocational training enrollment almost tenfold
and Tanzania are either under- or over-qualified since 2007, delivering close to 250,000 courses
for the work they do.75 Managers of registered, in 2011. India has launched the National Skills
formal firms around the world judge workforce Mission with a stated goal of training 500 mil-
skills as an obstacle of above-average impor- lion people by 2022.
tance in the production process.76 In countries
at all development levels, skills obstacles are also
The pitfalls of skills building
judged to be more acute now than in the first
half of the 2000s (figure 5.13). The importance of skills cannot be over-
Skills shortages are an especially serious con- stated (box 5.7). But caution is needed before
straint for the most dynamic entrepreneurs.77 jumping from this recognition to the launch-
Larger as well as younger and growing firms ing of large skills-building programs. The root
tend to identify skills as a constraint more than cause of skill shortages or mismatches might
medium-sized and smaller firms.78 Export- not lie with the education and training system.
oriented firms in Indonesia and the Philippines Shortages and mismatches may instead result
report skills bottlenecks more than firms pro- from wrong signals generated by market distor-
ducing for the domestic market in those coun- tions and institutional failures elsewhere in the
tries.79 Across 106 developing countries, firms economy. If a civil service career pays overly well,
that adopt technology more rapidly and those young people may study to obtain such jobs,
that are more globally integrated take longer to even if they need to queue for them. This can
Valuing jobs 175
Relative
F I G U R E 5 .13 to other obstacles, skills have become a more severe constraint to business
2.5
change in severity of skills constraint,
2.0
relative to other constraints
1.5
1.0
0.5
0
low income high income
countries ordered by income per capita
BOX 5.7 How skills are formed, and how they can be measured
Skills are acquired throughout life. People learn, adapt, and form esteem, self-efficacy, and aspirations, increasing scores on school-
their skills through a multitude of interactions and mechanisms leaving examinations and initial labor market outcomes.c But while
within the household and neighborhood, during the formative foundations are laid early on, skills are also shaped after childhood
years of schooling, at work, and in training. Cognitive skills include and in working life.
verbal ability, working memory, numeracy, and problem-solving Attention to the measurement of skills has gained prominence
abilities. Social skills are based on personality traits that underlie worldwide. Achievement tests provide infor mation for parents,
behaviors such as teamwork, reliability, discipline, or work effort.a instructors, and administrators, and enable a better understanding
Technical skills enable the performance of specific tasks. Because all of systemwide performance and achievements. While the skills
jobs require a combination of skills that are formed in multiple ways measured on these tests appear to be purely academic in nature,
and in diverse circumstances, policy makers face complex chal- test scores reflect more than individuals’ cognitive skills. A good
lenges in forging the best path for skills development. part of the variation in achievement tests can be attributed to per-
The first months and years of life are the most crucial for skill for- sonality traits or social skills as well as to incentive systems. These
mation. This is when intelligence and learning abilities, the founda- personality traits and social skills are critical in predicting individu-
tions for the development of core cognitive and social skills, are als’ life outcomes, including educational attainment and earnings.
cemented.b Brain maturation occurs in steps, with new skills build- More recently, efforts have gone in the direction of assessing
ing on earlier ones. If the foundation is strong, higher-order cogni- adult competencies, by measuring the variety, intensity, and fre-
tive and social skills can be added later on. This leads to higher quency of skills used in the workplace. These measures range from
adaptability in rapidly changing job environments and the acquisi- assessing different types of manual and workplace skills of a more
tion of job-specific techniques. In the slums of Mumbai, a special routine manner to complex capabilities, such as problem solving
program run in parallel to primary schooling raised children’s self- abilities.d
lead to the acquisition of skills that are irrelevant plague training programs and pre-employment
in the private sector and to unrealistic expecta- education around the world.
tions, as was observed, for example, in the Arab What is being taught matters as well. Social
Republic of Egypt.84 Similarly, compressed pay skills are often the ones missing, but they can
scales reduce the incentives to invest more in rarely be acquired in schools or training centers.
education and training.85 Lack of information In India, employers of engineers stress reliabil-
about employment opportunities, transporta- ity, willingness to learn, and entrepreneurship
tion costs, or housing market failures may be the as more important than specific technical skills,
real reasons why workers do not take available or the command of mathematics, science, or
jobs. In all of these cases, constraints that seem to English.91 In Botswana, theoretical and practi-
be skills related actually reside outside the edu- cal knowledge of the job, as well as other job-
cation and training system. specific skills, are generally considered to be
Besides, the successful delivery of skills-build- less important than skills such as commitment,
ing services is difficult. Pre-employment and communication, and basic problem-solving.92
on-the-job training show varying success in the In Peru, 40 percent of employers complain about
developing world. On-the-job training is con- the lack of dependable work ethics and personal
sistently found to go hand-in-hand with higher qualities such as team work, persistency, ability
labor earnings and productivity increases, even to reach consensus, or initiative among their
more so in developing than in industrial coun- employees. This subjective assessment is con-
tries.86 But only a fraction of workers have access firmed by harder evidence showing that returns
to it; those with less education and those work- to the socioemotional trait of perseverance are
ing in smaller and informal enterprises seldom as high as returns to average cognitive ability.93
have the opportunity to benefit from training.
Technical and vocational education (TVE) has
Learning through jobs
a mixed record: compared with general educa-
tion, TVE led to higher earnings in Rwanda, Sri Just as skills are important for jobs, the reverse is
Lanka, and Thailand, more or less equal earn- true as well. Many technical and social skills can
ings in Indonesia and India, and lower earnings be built through experience in the workplace—
in Pakistan.87 The reach of TVE in rural areas is shaping skills on the job carries sizable returns.
often very limited.88 In some countries, TVE has On average across countries, the return to one
actually reinforced socioeconomic inequalities additional year of work experience in nonagri-
rather than fostered social mobility.89 Poor qual- cultural activities is roughly one-half the return
ity and inequitable access are key constraints in to one additional year of education at the be-
many countries. ginning of work life.94 And managers put a pre-
Accountability and governance arrange- mium on experience. In five African countries,
ments are often the weak link of skills-building managers identified work experience as more
initiatives, with institutional failures often re- important for hiring decisions than technical
placing market failures. On the positive side, skills and education.95
modern and flexible skills-development strate- Apprenticeship programs, fostering the in-
gies have generally replaced old-fashioned and tegration of education and learning through
mechanical manpower planning (box 5.8). jobs, exist in various shapes around the world.
Many countries have also created oversight en- They range from the informal model of Sub-
tities, such as the Pakistan Sindh Technical and Saharan Africa to the dual model of Central
Vocational Training Authority, to separate qual- Europe. Informal apprenticeship, often the
ity control and management of providers from primary mechanism for technical skills to be
financing. In India, the National Skills Develop- passed through generations, can be strength-
ment Strategy is based on the principle that the ened through its gradual integration into na-
institutions in charge of training, certification, tional training systems.96
and accreditation should be strictly separated.90 The dual model, deeply rooted in Germany,
On the negative side, scattered responsibilities combines classroom-based schooling—geared
across many ministries, distance from the pri- to building general and transferable skills—with
vate sector, slow response to rapidly changing learning on the job in the training company.97
skill needs, and capture by providers continue to In France, Germany, and the Netherlands, the
Valuing jobs 177
BOX 5.8 Manpower planning has given way to dynamic skills development
Manpower planning, a technique that used macroeconomic and Association of Software and Service Companies (NASSCOM) devel-
sector forecasts to derive how many workers with specific technical oped standardized skills assessments and certification arrange-
skills would be needed was popular in the 1960s and 1970s. It was ments in 2006. The Korea University of Technology and Education
successful in a few cases in which it was closely integrated with the (KUT) established the Bridge Model, a three-way partnership also
overall economic development strategy of the country and bene- involving a single major enterprise and clusters of small and medium
fited from a universal basic education system, as it did in the Repub- enterprises (SMEs) that serve as its main subcontractors. The major
lic of Korea.a But its rigidity soon became stifling. Manpower plan- enterprise contributes technical knowledge, the SMEs bring in the
ning generally assumed a fixed relationship between labor and employees to be trained, and KUT supplies the teaching facilities
outputs, implicitly ruling out technological change. It also empha- and content.d Samsung was the first “bridge’” in 2006; five other
sized technical skills to the detriment of cognitive and social skills.
major companies have become bridges since then.
And it was slow to adapt to rapid changes in the world of work
Much can be learned from comprehensive skill-building sys-
brought by globalization.b
tems, especially from those of East Asia. But these systems require
Gradually the focus shifted from merely ensuring an adequate
sophisticated institutional mechanisms that may be out of reach in
supply of skills to delivering demand-responsive, quality-skills
lower-capacity contexts.e Over 100 countries have embarked on
development programs. The Republic of Korea stopped developing
comprehensive National Qualification Frameworks, built around
long-term macroeconomic plans with explicit industrial policies by
the mid-1990s. Industrial projections of manpower supply took a the definition of competencies, certification, and accreditation. But
backseat to the country’s new initiatives emphasizing quality and with exceptions, results and impact are sobering.f Often, the
relevance of education and skills development.c The scope became administrative capacity available in low- and middle-income coun-
broader and more integrated, replacing mechanistic forecasting. In tries is overwhelmed, and progress is held back by the lack of
the 1980s and 1990s, Singapore developed an integrated strategy strong buy-in from the most important players: parents, teachers,
to upgrade, retrain, and provide lifelong learning for its labor force, training institutes, and firms. Perhaps the most valuable lesson
especially for those with lower levels of education and skills. from East Asian countries is that skills-development systems need
The rapid pace of globalization increasingly requires the private to grow organically from below while being coordinated and fos-
sector to be a driving force in skills development. India’s National tered from above.
dual system is credited with fast and structured experiences—can also shape behaviors and at-
employment integration.98 But the dual system titudes, including the willingness to contribute
requires more than the right economic incen- to society at large.
tives—it is based on a social contract between Importantly, jobs also support the transmis-
employers (to offer places and invest in the fu- sion of knowledge through interactions with
ture career of apprentice as a common good), other people. Knowledge spillovers underlie the
trade unions (to accept below minimum wage agglomeration effects observed in cities and in
payment for trainees), and government (to fund production clusters.101 But knowledge spillovers
vocational schools and provide quality con- from jobs also occur in rural areas. During the
trol).99 Private sector commitment, including Green Revolution in India, farmers with experi-
financing of training and continuation even in enced neighbors made larger profits than those
times of economic downturns, is fundamental. with inexperienced ones.102 Benefits from social
Given such high institutional requirements, at- learning at the village level were substantial.103
tempts to transplant the dual model in its en- Jobs can also ignite skills building by put-
tirety have seen little success. ting people in contact with the outside world.
Building skills on the job is promising, be- Working in foreign-owned companies, or in
cause skills continue to develop and accumulate firms integrated in international value chains,
after formal schooling ends, in teenage years and allows the acquisition of new technical and
during working life.100 Jobs—especially early managerial skills. This learning then spurs imi-
178 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
tation and can have cascading ripple effects.104 to meet. The role of policy here is to ensure that
In Singapore, India’s Tata group was the first signals are adequately transmitted, providing
international company to partner with the Eco- incentives to continue skill accumulation by the
nomic Development Board in 1972 to establish young and those of working age alike. In the
a company-owned training center for precision Dominican Republic, providing students with
engineers. This partnership model was success- information about the actual returns to second-
fully replicated in subsequent years with other ary school education led to substantially higher
foreign companies, eventually leading to the school attendance.108 In India, informing rural
consolidation of various institutions in 1993 to women about job opportunities led to increased
form Singapore’s Nanyang Polytechnic. Today, schooling for girls and delayed marriage and
the polytechnic has become a source of inter- childbearing for women.109 On the other hand,
national expertise on industry-led training.105 privilege in access to jobs distorts the signals. It
Intel’s decision to establish its semiconductor hurts and discourages, rather than encourages,
assembly and test plant in Costa Rica has equally the building of skills.
contributed significantly to that country’s pros- Jobs themselves can build skills, especially at
pects and skill building system.106 entry into the labor market. Given the negative
long-term effects of troubled school-to-work
transitions, placing emphasis on supporting
Jobs need skills, pull skills, and build skills
first-time job-seekers should have significant
Some skills are necessary for productive employ- payoffs.
ment to emerge in the first place. And they cannot But jobs may neither pull nor build skills
be acquired on the job. Without numeracy and to a significant degree, even if the founda-
literacy skills, the prospects of improving employ- tional cognitive skills are in place. This occurs
ment opportunities and earnings, whether in situations where the benefits from agglom-
in agriculture or in urban settings, are thin. To- eration and global integration are present but
day, more than one-tenth of 15-to-24-year-olds not adequately exploited. Countries undergoing
worldwide are functionally illiterate, and that rapid urbanization often have sizable knowledge
does not bode well for their future.107 Also, social spillovers to reap but may fail to move up the
skills assume an ever more important role as value-added ladder. If so, they can be caught in
complements to basic cognitive skills. Given that traps of low productivity and low skills.110 Such
skill building is cumulative, securing the founda- traps arise when skills are insufficient to spur in-
tion on which much of the later path of skill ac- novation and the demand for skills is too low
quisition follows remains an absolute priority. to encourage their acquisition. In those cases,
Many countries are not there yet. more relevant schooling and skill building at the
With this foundation in place, jobs can pull secondary, technical, and likely higher levels are
skills. Employment opportunities increase the needed as a prerequisite for the creation of good
demand for education, which systems then have jobs for development.
Valuing jobs 179
32. Bacolod, Blum, and Strange 2009; Glaeser and 1994), converted to 2009 prices using the U.S.
Resseger 2010; Wheeler 2001. GDP deflator. For sources on estimation meth-
33. Duranton 2006; Moretti 2004a. Early findings odology, see the note for figure 5.9.
in the literature were generated from U.S. data, 58. In contrast, in Europe, the discussion on green
but they have been confirmed for most large, growth often focuses on the use of renewable
developed economies. For transition and de- energy and low-carbon manufacturing (GHK
veloping countries, these findings have been 2009; Oral, Santos, and Zhang 2011).
replicated for Chile (Saito and Gopinath 2011), 59. IPCC 2007.
China (Liu 2007), Malaysia (Conley, Flyer, 60. Stevenson and others 2011.
and Tsiang 2003), and the Russian Federation 61. Otsuka and Place 2001; Pingali, Bigot, and
(Muravyev 2008). Binswanger and Mkhize 1987; Yamano, Otsuka,
34. Duranton 2008; Henderson 2005; Overman and Place 2011.
and Venables 2005. 62. Norton and de Haan 2012 for the World Devel-
35. Sonobe and Otsuka 2006b. opment Report 2013.
36. IFC, forthcoming. 63. Akerlof and Kranton 2010.
37. Duranton 2008; Henderson 2005; Overman 64. Heath and Mobarak 2011.
and Venables 2005; World Bank 2009c. 65. Ibarraran and others 2012.
38. Glaeser and Kohlhase 2004. 66. UNDP 2003a; UNDP 2003b.
39. Santos and Shaffer 2004. 67. Dani and others 1999, 3.
40. Parry and Timilsina 2010. 68. Kilroy 2011.
41. Rappaport 2008. For evidence from the Nether- 69. The circumstances are assumed to be indepen-
lands, see Broersma and Oosterhaven (2009). dent of abilities of children at birth.
42. Zivin and Neidell 2011. 70. Abras and others 2012 for the World Develop-
43. Henderson, Kuncoro, and Turner 1995; Hen- ment Report 2013.
derson, Lee, and Lee 2001. 71. Hanushek and Woessmann 2008. Lee and New
44. Long and Zhang 2011; Mano and others, forth- house (2012, for the World Development Re-
coming; McCormick 1999; Schmitz and Nadvi port 2013) extend the analysis by Hanushek
1999; Sonobe and Otsuka 2006a. and Woessmann (2008) by conducting a cohort
45. Feenstra 1998; Hummels, Ishii, and Yi 2001; analysis, matching achievement test scores to
Yeats 2001; Yi 2003. employment outcomes.
46. Fernandes 2007. 72. Lee and Newhouse 2012 for the World Devel-
47. Harrison, Martin, and Nataraj 2011. opment Report 2013.
48. Harrison 1994; Levinsohn 1993; Muendler 73. Gennaioli and others 2011.
2004. 74. Welzel 2012 for the World Development Report
49. Aw, Chung, and Roberts 2000; Aw, Roberts, and 2013.
Winston 2007; Blalock and Gertler 2004; De 75. World Development Report 2013 team calcu-
Loecker 2007; Fernandes and Isgut 2007; Ha- lations based on national household surveys.
llward-Driemeier, Larossi, and Sokoloff 2002; Employed are considered overqualified if their
Lileeva 2004; Matthias Arnold and Javorcik education (years of schooling) is one standard
2009; Park and others 2010; Van Biesebroeck deviation above the mean observed for the re-
2005. spective occupation; they are considered under-
50. Aitken, Hanson, and Harrison 1997; Görg qualified if their education is one standard devia-
and Strobl 2005; Javorcik 2012 for the World tion below the mean observed per occupation.
Development Report 2013; Kee 2010; Poole, The two-digit ILO definition of occupations is
forthcoming. used.
51. Alfaro and Chen 2011. 76. This is a comparison of relative constraints. For
52. Unni and Rani 2008. each country, the percentage of firms that rate
53. Bolaky and Freund 2004; Chang, Kaltani, and skills to be a severe or very severe constraint
Loayza 2009; DeJong and Ripoll 2006. is divided by the average of such rating for all
54. Blalock and Gertler 2005; Borensztein, De other obstacles. This allows for a cross-country
Gregorio, and Lee 1998; Glass and Saggi 2002; comparison independent of the level of the sub-
Kinoshita 2000; Kokko, Tansini, and Zejan 1996; jective answers.
Javorcik 2012 for the World Development Re- 77. Estimating the conditional correlation between
port 2013. the relative skill constraint and a number of
55. Hallegatte and others 2011. variables using the World Bank’s enterprise sur-
56. UNEP 2011. veys for 105 countries, one finds a significant
57. This estimate is based on a social cost of a met- correlation with firm size (positive), age (nega-
ric ton of carbon of US$20 in 1995 (Fankhauser tive), exporting activity (positive), innovative
Valuing jobs 181
activity (positive), and manufacturing sector skills, have between 40 and 50 percent of their
(positive). students in the vocational track. In the develop-
78. For country examples in Georgia, the former ing world, the average is about 33 percent based
Yugoslav Republic of Macedonia, Poland, and on UNESCO statistics (http://www.uis.unesco
Ukraine, see Rutkowski (2008); Rutkowski .org/Pages/default.aspx).
(2010); World Bank (2009b); and World Bank 89. See Tan and Nam (2012). For advanced coun-
(2011a). tries, on average, the employability of students
79. Di Gropello, Kruse, and Tandon 2011; Di Gro- graduating from TVE is similar to that of stu-
pello, Tan, and Tandon 2010. dents’ graduating from general tracks, but they
80. Almeida and Filho 2012. earn somewhat lower incomes.
81. Specialized investment climate surveys of un- 90. Indian Planning Commission 2008.
registered firms, conducted by the IFC in Af- 91. Blom and Saeki 2011.
ghanistan, Angola, Botswana, Burkina Faso, 92. World Bank 2012a.
Cameroon, Cape Verde, the Democratic Repub- 93. World Bank 2011b.
lic of Congo, the Arab Republic of Egypt, Mali, 94. WDR 2013 team estimates based on Mincer
and Nepal. Firm owners are asked to single out regressions for 545 household surveys, which
the most important obstacle to operating their include years of education as well as potential
business, with the number of obstacles varying work experience (Montenegro and Patrinos
by survey. The highest percentage is recorded 2012, for the World Development Report 2013).
in Egypt, where 6 percent of firm owners chose 95. McKinsey & Company 2012. Managers were
skills as the most important obstacle of a total of given four choices from which to choose the
21 choices; the lowest was in Afghanistan, where biggest bottleneck to hiring: education (a
5 percent of firm owners named skills among 12 school-leaving certificate or degree); technical
obstacles. Rural investment climate assessments skills (for instance, welding or accounting) not
were made in Benin, Burkina Faso, Ethiopia, necessarily taught at school; social skills (for
Indonesia, Mozambique, Nigeria, Tanzania, Sri instance, attitude, workplace behavior, arriving
Lanka, and the Republic of Yemen and returned on time, trustworthiness); or work experience.
similar results as to the importance of skills 96. ILO 2011b; Nübler 2008. The ILO has also con-
ducted a significant number of school-to-work
(Sawada 2011).
transition surveys that provide insights into the
82. Training funds, set up in many countries and
constraints and options for young people enter-
often financed through payroll taxation, as in
ing the labor market. See, for instance, Matsu-
Brazil, Chile, Mexico, or Singapore, provide fi-
moto and Elder (2010).
nancing for training. Almeida, Behrman, and
97. Biavaschi and others 2012 for the World De-
Robalino, 2012.
velopment Report 2013. Interestingly, for Ger-
83. In Latin America, 10 percent of small firms
many, the initial transition does not hinge on
report that this is their major reason for not
finding employment in the training firm. Even
intensifying in-house training. World Develop-
though training and on-the-job learning takes
ment Report 2013 team calculations based on
place in a specific firm, skills learned a ppear to
enterprise surveys of Latin American countries
be transferable (Winkelmann 1996).
(excluding Brazil). 98. For a literature review, see Biavaschi and oth-
84. Assaad 1997. ers (2012 for the World Development Report
85. See examples for Mediterranean countries in 2013).
Biavaschi and others (2012 for the World De- 99. See Biavaschi and others 2012, for the World
velopment Report 2013). Development Report 2013.
86. Almeida, Behrman, and Robalino 2012. 100. Cunha, Heckman, and Schennach 2010; Hei-
87. Estimates from studies for specific years. In- neck and Anger 2010. In the Dominican Re-
dia (2004 data), Pakistan (2004 data), and Sri public, early results from a life skills training for
Lanka (2002 data): Riboud, Savchenko, and poor youths (16 and 29 years of age who had
Tan (2007); Indonesia (1993, 1997, 2000, 2007 not completed secondary school) show sig-
data): Newhouse and Suryadarma (2011); nificant results. For young female participants,
Rwanda (1999–2001 data): Lassibille and Tan pregnancy rates are down and employment
(2005); and Thailand (1989–95 data): Moen- chances up. For both women and men, job sat-
jak and Worswick (2012). isfaction and aspirations improved markedly
88. No golden rule exists about how many second- (Ibarraran and others 2012).
ary students should be in the vocational branch. 101. Glaeser and Mare 2001; Kimura 2011; Mas and
Most advanced countries, with stronger de- Moretti 2009; Peri 2002. Iranzo and Peri (2009)
mands—and rewards—for specific technical find that in the United States, sizable spill-
182 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
overs exist through jobs whose holders have a ery Mechanisms: Impacts on Routine Preventa-
higher education degree (which is a proxy for tive Health Clinic Visits in Burkina Faso.” Policy
advanced skills). One additional year of college Research Working Paper Series 5958, World
education per worker is associated with a spill- Bank, Washington, DC.
over—in addition to the effect on the student’s Alfaro, Laura, and Maggie Xiaoyang Chen. 2011. “Se-
income and employment chances—of increas- lection, Reallocation, and Knowledge Spillovers:
ing the respective state’s productivity growth by Identifying the Impact of Multinational Activity
6 to 9 percent. See also Ciccone and Peri 2006; on Aggregate Productivity.” Paper presented at
Moretti 2004a; Moretti 2004b; Moretti 2004c; the World Bank Conference on Structural Trans-
and Rosenthal and Strange 2008. formation and Economic Growth, Washington,
102. Foster and Rosenzweig 1996. DC, October 6.
103. Yamauchi 2007. See also for Ghana, Conley and Almeida, Rita, Jere R. Behrman, and David A. Ro-
Udry 2010. balino, eds. 2012. The Right Skill for the Job? Re-
104. Almeida, Behrman, and Robalino 2012. thinking Effective Training Policies for Workers.
105. Lin and Lim 2011; Tan and Nam 2012. Washington, DC: World Bank.
106. World Bank and MIGA 2006. Almeida, Rita, and Jaime Filho. 2012. “Technology
107. World Development Indicators (database), Adoption and the Demand for Skills: Learning
World Bank, Washington, DC. http://data.world from the Time to Fill Job Vacancies in LAC.”
bank.org/data-catalog/world-development- World Bank, Washington, DC. Processed.
indicators. Amjad, Rashid. 2005. “Skills and Competitiveness:
108. Jensen 2010. Can Pakistan Break Out of the Low-Level Skills
109. Jensen, forthcoming. Trap?” Pakistan Development Review 44 (4):
110. For a discussion on low-skill, low-productivity
387–409.
traps, see Acemoglu (1997); Almeida, Behrman,
Anker, Richard. 2003. “Measuring Decent Work with
and Robalino (2012); Amjad (2005); Atal and
Statistical Indicators.” International Labour Re-
others (2010); Munshi (2011); and Snower
view 142 (2): 147–77.
(1994). See also, on the relationship between
Assaad, Ragui. 1997. “The Effects of Public Sector
human capital accumulation, product diversifi-
Hiring and Compensation Policies on the Egyp-
cation, and attraction of FDI in Central Amer-
tian Labor Market.” World Bank Economic Review
ica, Bashir, Gindling, and Oviedo (2012 for the
11 (1): 85–118.
World Development Report 2013).
Atal, Vidya, Kaushik Basu, John Gray, and Travis Lee.
2010. “Literacy Traps: Society-Wide Education
and Individual Skill Premia.” International Jour-
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Chapter
6
Diverse jobs agendas
Countries differ in where the development payoffs from jobs are greatest.
These payoffs depend on the country’s level of development, demography,
endowments, and institutions.
C
ountries face different jobs challenges as Finally, the strength of institutions can define
they move along the development path. a country’s jobs challenge. In conflict-affected
In agrarian economies, most people are countries, institutions are fragile, private invest-
still engaged in agriculture and urbanization has ment is largely out of reach for the time being,
not yet picked up. In urbanizing countries, pro- and restoring social cohesion through jobs takes
ductivity growth in agriculture has risen enough on particular importance.
to free up large numbers of people to work in cit- These criteria are not mutually exclusive. A
ies. Formalizing countries generally have more de- country may be both resource rich and conflict
veloped economies, where the coverage of social affected, or it may belong to the formalizing
protection systems is large enough to envision group and be characterized by high youth un-
extending it to the entire workforce. employment. Still, focusing on the key features
In some countries, the jobs challenge is associated with each type of country situation
shaped by demography with special circum- helps to clarify which jobs would make the
stances affecting particular groups. In coun- greatest contribution to development in a par-
tries with high youth unemployment, prolonged ticular context. This allows for a richer analysis
joblessness and idleness affect large numbers of the potential tradeoffs among living stan-
of young people, with many seeing limited op- dards, productivity, and social cohesion in a
portunities for the future. Aging societies also specific country situation. And it provides clues
face generational issues, but these stem from a about the nature of the obstacles to job creation
decreasing share of the working age population and how they can be removed (question 6).
and increasing costs related to providing and
caring for a growing number of old people.
Natural endowments, including geography, Agrarian economies
can create unique jobs challenges. Resource-
rich countries may have substantial foreign ex- In countries where a majority of the popula-
change earnings, but this wealth often does not tion lives in rural areas, wage employment is not
translate into employment creation beyond the prevalent form of work. For instance, about
the exploitation of the natural resources. Small half of the employed population in Kenya is en-
island nations cannot reap the benefits from gaged in farming, whereas self-employment in
agglomeration and global integration because nonagricultural household businesses and wage
of the size of the population and geographic employment in informal enterprises account for
remoteness. slightly more than one-third.1
Diverse jobs agendas 191
Formal employment, including wage labor- the civil war, the poverty rate remained basically
ers in registered private enterprises and the unchanged between 2003 and 2008, at around
entire public sector, typically accounts for less 55 percent of the total population.6
than 10 percent of total employment in agrarian Agriculture is the locus of much of Mozam-
economies. The share of wage employment in bique’s poverty. Over 80 percent of employment
manufacturing is much smaller. A comparison is in agriculture, yet the sector accounts for only
across several French-speaking Sub-Saharan 30 percent of gross domestic product (GDP).7
African countries puts the fraction at less than 5 Value added per hour worked in agriculture is
percent of total employment even in the capital one-seventh that of services and one-twelfth
cities—less than 3 percent in Cotonou and Lomé that of manufacturing. Yields have been stag-
to 8 percent in Yaoundé; only Antananarivo has nant over the past decade. About 95 percent of
more than 10 percent.2 Across Sub-Saharan Af- agricultural workers work on small plots, the
rica, one-quarter or less of formal sector work- use of modern technology is low, and access to
ers are women; only in Senegal does the fraction extension services is minimal.
exceed one-third.3 If anything, employment in Evidence suggests that growth in agriculture
the formal sector has trended downward over delivers more poverty reduction than other sec-
the past two decades as state-owned enterprises tors in lower-income countries, because poor
have been privatized and foreign trade has been people are concentrated in the sector and be-
liberalized. cause they participate more in the growth in
In this context, the notion of unemployment agriculture than in the growth in other sectors.8
needs to be interpreted with caution. Unem- Since 1700, virtually every example of mass
ployment rates can technically be computed, poverty reduction has actually begun with an
but given the prevalence of poverty in agrarian increase in agricultural productivity.9
economies, a substantive share of the labor force Constraints on agricultural growth vary
is unlikely to remain idle for long. Underem- depending on the availability of land relative
ployment and low earnings, rather than open to the availability of farm labor. Compared
unemployment, are the challenges most people with other areas of the developing world, Sub-
face in agrarian economies. Household survey Saharan Africa was traditionally seen as a conti-
data from Mozambique show that an astound- nent of ample land and scarce labor. While that
ing 81 percent of those at work were living on may still be true in some areas, it no longer ap-
less than US$1.25 a day in 2003, and 95 percent plies to countries in the south and east of the
were living on less than US$2.00 a day.4 continent. In Mozambique, the average farm
In agrarian economies, the main avenues to size is less than 1.5 hectares. As the area under
improving living standards involve increasing cultivation declines relative to the size of the
productivity in farming, creating a dynamic population, producing sufficient food becomes
economic environment in cities, and promot- a major issue unless yield-enhancing technolog-
ing labor reallocation from rural to urban areas, ical changes take place. In many agrarian econo-
thereby sparking a positive spiral of produc- mies in Sub-Saharan Africa, these changes have
tivity growth and improvement in living stan- yet to occur. Unlike many parts of Asia, where
dards. Together, these approaches should lead to the Green Revolution has increased cereal yield
the expansion of off-farm employment oppor- and the poverty incidence has declined, cereal
tunities, which are in turn an important driver yield has remained low and poverty incidence
of poverty reduction. high in these Sub-Saharan countries (figure
Mozambique illustrates the jobs challenges 6.1). Some Asian economies, such as Cambo-
faced by agrarian economies.5 Thanks to im- dia, the Lao People’s Democratic Republic, and
portant mining discoveries and a commodities Myanmar, face similar challenges.
boom, as well as Maputo’s privileged position as Public sector investments are important driv-
one of the ports closest to Johannesburg, Mo- ers of productivity growth and intensification
zambique has had one of the best growth per- of smallholder agriculture. Technology is often
formances in Sub-Saharan Africa over the past a public good. Because farmers can reproduce
decade. Yet, after falling substantially during the improved varieties of rice and wheat, private
1990s, probably as a consequence of the end of seed companies cannot reap the benefit of in-
192 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
East Asia
150 1981 2.84 metric tons per hectare
cereal 2001 4.24 metric tons per hectare
yields
poverty
120 headcount
poverty
cereal yields
headcount South Asia 1981 1.25 metric tons per hectare
50 2001 1.07 metric tons per hectare
poverty
declines
East Asia
troducing new varieties and so tend not to make and Mozambique in particular are compara-
the effort. Hybrid seeds of maize, sorghum, and ble with yields in Asia.12 In such areas, im-
millet cannot be reproduced by farmers, and, proved varieties developed in Asia or crossbred
hence, the private sector supplies seeds. But even with local varieties have been adopted. This
in these cases, basic research is carried out by observation suggests that, as far as lowland rice
the public sector. As a result, public support is is concerned, Asian technology could be di-
necessary to develop biological and chemical rectly transferred to the irrigated areas of Sub-
technologies. Saharan Africa.
These are enduring collaborations between While the intensification of crop-based ag-
advanced agricultural research centers and na- riculture has been associated with a significant
tional programs in Sub-Saharan Africa. They increase in the use of inorganic fertilizer, the
have developed improved varieties of cotton application of fertilizer per hectare is far lower
and cassava in ways that are reminiscent of in Sub-Saharan Africa than in any other re-
the long-term collaboration in rice and wheat gion of the world. One of the major reasons is
research between international agricultural re- the high fertilizer prices relative to grain prices.
search centers and national programs in Asia.10 Fertilizer prices are usually two to three times
The recent surge in the production of high-value higher in Sub-Saharan Africa than in Asia and
crops for export, including in Mozambique, is Latin America because of poor infrastructure
also encouraging.11 Aside from these examples, and trade logistics.13 Another major constraint
however, few improved crops appropriate to the on fertilizer application is the lack of credit for
African climate have been developed. smallholders, given that land ownership titles
Gravity irrigation systems are a local pub- are seldom secured and hence cannot be used
lic good as well. Irrigated land accounts for as collateral.14 Therefore, productivity growth in
only 5 percent of the total cultivated area in agriculture also requires a favorable investment
Sub-Saharan Africa. Lowland rice yields in ir- climate including improved access to infrastruc-
rigated areas in Sub-Saharan Africa in general ture and credit.15
Diverse jobs agendas 193
The job structure in the cities is dominated to take off. This approach focuses on identify-
by self-employment, with petty commerce ing activities that may hold latent comparative
growing quickly. If agriculture matters most for advantage and on removing the constraints
poverty reduction, successful urbanization may that dissuade private firms from taking up these
hold the key to more rapid productivity and in- activities. In fact, there are many informal in-
come growth as well as social cohesion. In most dustrial clusters in urban areas in Sub-Saharan
of Sub-Saharan Africa, however, urbanization Africa. They produce garments, leather shoes,
has failed to create the dynamism observed else- simple metal products, and furniture, among
where in the developing world. Migration from other things, though seldom for export.17 These
rural to urban areas continues, but migrants are clusters have spontaneously developed, suggest-
simply swelling the ranks of the self-employed ing a potential comparative advantage in these
earning subsistence wages. In the absence of dy- industries. Reducing logistics costs, removing
namic cities, migration is driven by despair, and red tape, and addressing coordination issues
not hope. In Mozambique, for example, young could create the necessary conditions to attract
people are moving to urban areas, but few are foreign investors to these clusters, especially at a
moving into regular wage employment. Mean- time when wage increases in coastal China are
while, levels of trust are falling and are lowest encouraging the relocation of some industries
among young workers.16 where low labor costs are a key competitive fac-
Some have argued that the jobs challenge tor (box 6.1).18
in these urban areas can be addressed through Jobs, which start to trigger agglomeration
the creation of greater opportunities for self- effects and make connections to the global
employment. For example, building space for economy, are good jobs for development in
informal markets around bus stops would allow agrarian countries. To create more of these jobs
more rural migrants to make a living. But self- and become centers of economic dynamism,
employment of this sort is unlikely to support cities need to be more functional. But even in
the agglomeration effects and knowledge spill- the most optimistic scenario, it will take time to
overs that make cities thrive elsewhere. complete the urbanization process, so increas-
An alternative approach is to create condi- ing productivity in agriculture is a priority for
tions for labor-intensive light manufacturing reducing the high poverty levels.
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political instability*
electricity*
finance
corruption
transport*
tax rates*
competition*
crime/disorder*
tax administration*
skills*
access to land*
customs
telecoms*
courts*
labor regulation*
licensing*
0 1 2 3
however, the jobs focus can shift from targeted economic activity and violence, and that start
public programs to employment creation in the the long process of economic recovery. In
private sector. But it would be naïve to expect conflict settings, jobs can also have develop-
conflict-affected countries to become dynamic ment payoffs for social cohesion by involving
economies overnight. people in productive activities that strengthen
Tackling the jobs challenge faced by con- self-esteem and give them a sense of identity
flict-affected countries is a formidable task: it and status, by rebuilding networks, and by giv-
requires creating jobs that contribute to peace ing people a sense that opportunities are fairly
and stability, that are an alternative to illegal distributed.
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made garment industry has been an important On the social policy front, both governmen-
part of the jobs story in urbanizing Bangladesh. tal and nongovernmental organizations have es-
About 3 million women are working in this tablished pro-poor, pro-youth, and pro-women
sector, which has a strong export orientation. programs. These have been instrumental in
Construction has been an important employer reducing population growth and encouraging
for men moving out of rural agriculture. Many more effective public and private investments in
low-skilled workers go abroad as well, especially education and health.
to the Gulf countries. Remittances are growing Agricultural modernization, labor migra-
by about 10 percent every year.37 tion, and social policies have altered the jobs
Light manufacturing opens up opportunities landscape of Bangladesh, but these trans
for large numbers of workers in urbanizing econ- formations have not involved a substantial
omies because skill requirements are modest. formalization of the economy. The share of
Firms demand some education but it is generally jobs benefitting from legal protection or so-
limited. In Bangladesh, for instance, 87 percent cial insurance has not increased much over the
of regular urban wage workers in 2005 had some past decade. The booming construction sector
education but only 28 percent had secondary remains largely informal. Corporate social re-
schooling or more.38 These education levels are sponsibility among export-oriented corpora-
considerably higher, though, than the educa- tions in Bangladesh is making some difference
tional attainment of workers in agriculture, so in the ready-made garment sector, but worker
opportunities in the garment industry stimulate unrest has been recurrent. But corporate social
schooling, especially for girls. Urbanization has responsibility is mainly associated with exports
other beneficial effects on women, as well. Grow- to industrial countries and may become less
ing labor earnings increase the opportunity cost relevant if the sector diversifies its exports to
of raising children, which, in turn, may raise the other developing countries. Corporate social
age of marriage and reduce the birth rate. To responsibility is unlikely to be a workable op-
the extent that women’s educational attainment tion in construction. But while formalization
and labor market participation rise, the status of has not advanced, the development of entre-
women in society is enhanced. preneurship has been remarkable, leading to
the creation of thousands of nationally owned
medium and large firms within a mere two de-
cades (box 6.5).
BOX 6.5 The entrepreneurs of Bangladesh are local Bangladesh stands out as an intriguing case
that is important to understand, especially given
The ready-made garment industry in Bangladesh has grown rapidly over the its starting point. The government has provided
past three decades, and the country now ranks among the largest garment
some support, with export processing zones,
exporters in the world. While the early successes have been attributed to an
initial technology transfer from the Republic of Korea, such a one-time infusion
bonded warehouses, and special treatment of
of knowledge alone is insufficient to explain the sustained growth. In this garments at ports. Large infrastructure projects,
respect, the pattern of development in Bangladesh is similar to that in East Asia, such as the Jamuna Bridge linking the prosper-
where investment in human capital and the importation and assimilation of ous eastern and lagging western regions, have
technological and managerial knowledge from advanced countries played a made it easier to move around the country. But
critical role in promoting industrialization. government has not played the leading role in
Primary data collected from knitwear manufacturers and garment traders
the transformation. Corruption is a problem
can be used to explore the process of the continuous learning of advanced
skills and expertise. The data show that the initial infusion of specific human
and the cost of doing business is high. Power fail-
capital attracted highly educated entrepreneurs to the industry, that the divi- ures are frequent, many roads are unpaved, and
sion of labor between manufacturers and traders facilitated the expansion of those that are paved are highly congested. De-
the industry, and that enterprise growth has endured because of the continu- spite these obstacles, agricultural modernization
ous learning from abroad by the highly educated entrepreneurs. These factors, has occurred thanks to the Green Revolution
taken together, account for the high profitability of garment manufacturing in associated with the development and diffusion
Bangladesh.
of high-yielding varieties of rice and access to
finance. Labor has moved out of agriculture
Sources: Mottaleb and Sonobe 2011; Sonobe and Otsuka 2006. through industrialization, and social policies
Diverse jobs agendas 199
have been supportive through family planning Bangladesh.39 The pharmaceutical industry
and social protection. has developed, and the different pattern of de-
Urbanizing countries like Bangladesh have velopment there relative to that of the garment
the potential to exploit several spillovers. But a industry is intriguing. But the high skill levels
key challenge for them is to find a way to move required by the pharmaceutical sector and other
up the value-added chain and diversify manu- higher value-added export sectors are unlikely
facturing exports. Apart from ready-made gar- to make them a source of jobs for the masses of
ments, few sectors have grown substantially in youth with only primary education.
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TA B L E 6 .1 Projects in extractive industries are capital intensive and create few jobs
Project Investment, % Direct employment,
Country
(sector or resource) of 2010 GDP number
LNG Project 9,300 during construction;
Papua New Guinea 237.0
(natural gas) 1,000 afterward
Oyu Tolgoi 14,800 during construction;
Mongolia 74.2
(copper, gold) 3,000 to 4,000 afterward
Jwaneng Cut 8 Project
Botswana 20.2 1,000
(diamonds)
Ramu Mine 5,000 during construction;
Papua New Guinea 19.0
(nickel) 2,000 afterward
Benga Mining currently 150;
Mozambique 13.6
(coal) 4,500 afterward
Mchuchuma
Tanzania 12.2 5,000
(coal)
Husab Mine 5,200 during construction;
Namibia 11.9
(uranium) 1,200 afterward
Lumwana Mine
Zambia 9.3 4,700 during construction
(copper)
Reko Diq Mining 2,500 during construction;
Pakistan 4.0
(copper, gold) 200 afterward
Conga Mine 6,000 during construction;
Peru 2.6
(gold) 1,700 afterward
Source: World Bank Development Report 2013 team based on project information.
Note: GDP = gross domestic product; LNG = liquid natural gas.
tics services. But overall, in the Gulf states, na- resource-rich developing countries find it diffi-
tional citizens have become direct beneficiaries cult to reap the benefits of agglomeration. Spe-
of the oil bonanza through well-paid jobs in the cialization in the production of commodities
public sector. In the larger countries, these jobs (including agricultural products such as cocoa)
are rationed, with some groups, such as women may be an important reason why urbaniza-
and youth, having less access than those with tion has failed to deliver growth in countries in
good connections. Menial jobs are performed Sub-Saharan Africa.40 These wealthy consump-
by immigrants on temporary contracts who re- tion agglomerations are nonetheless attracting
ceive modest pay and benefits. Jobs are a win- rural migrants, thereby fueling local inequal-
dow to rent sharing for some but do not give a ity, discontent, and crime. None of the cities in
stake in society to others. resource-rich developing countries among the
This tension between jobs for productiv- top 50 in the world according to cost of living
ity and jobs for social cohesion may be even is among the top 50 according to quality of life.
more difficult to avoid in developing countries, While extractive industries fail to create
because they lack the institutional strength of many jobs, they do contribute to the local econ-
Norway or the implementation capacity of the omy through other channels. A recent survey
United Arab Emirates. In resource-rich develop- of employees of large-scale mining projects in
ing countries, the concern is not only about los- Papua New Guinea shows that they make re-
ing competitiveness in tradable sectors but also mittances both in kind and in cash to their
about missing out on the benefits of urbaniza- households. Most remittances in kind were for
tion. Indeed, the price of land in major agglom- construction and building materials (41 per-
erations becomes prohibitively high in resource- cent), followed by transport-related items (28
rich developing countries. By one measure, the percent).41 Cash contributions were used most
most expensive city in the world is Luanda (ta- often for school fees (29 percent) and transpor-
ble 6.2). According to this measure, 3 of the top tation-related items (12 percent). Employees
5, and 9 of the top 50 most expensive cities in the also reported accommodating relatives visiting
world are in resource-rich developing countries. from rural areas. Some of their guests helped
Because they do not have the economic den- with housework, and some obtained education
sity of London, New York, or Tokyo, cities in at the host’s expense.42
Diverse jobs agendas 201
Artisanal mining can flourish in parallel with for some: each hard rock miner could earn
major investments and raise the living standards the equivalent of US$50,000–$75,000 a year,
of local communities. In Papua New Guinea, the and each alluvial miner could make around
number of grassroots alluvial miners is two to US$10,000 a year. This income became the
three times greater than the number of people main contribution to the local economy, to-
working in the formal extractive industries sec- gether with remittances sent by those ex-Mis-
tor, even if contractors and temporary workers ima Mines Limited employees who found work
are counted among the latter. Some of the large in large mines elsewhere.44
extractive projects, such as Ok Tedi Mine, hap- And even in mining areas, social impacts are
pen to be in poor areas. Thus, the artisanal min- more mixed than the positive effect on living
ing taking place around them helps spread the standards suggests. The influx of money from
wealth. mining enclaves has enabled men to pay high
But poverty maps show a significant level of prices for brides and marry multiple wives on
spatial dispersion in living standards and a per- an unprecedented scale, which might have
sistence of poverty over the past three decades.43 contributed to a decline in women’s status.
The deepest and most persistent rural poverty Around Porgera Mine, the abandonment of
in Papua New Guinea occurs in areas with no older wives and the increasing number of
known mineral resources. women taken from other tribal groups are con-
When large extractive projects close, arti- sidered factors in the increased incidence of
sanal and small-scale mining can also contrib- domestic violence and tension with neighbor-
ute to the local economy by cushioning the ing groups. In Lihir, when groups of landown-
decline in earnings. For example, in Misima in ers received compensation and royalty pay-
Papua New Guinea, local people had become ments, no women were given authority to
used to making a living around the only large control the accounts.45 In addition, children
mine project, Misima Mines Limited. When the normally help out in artisanal and small-scale
project closed in 2004, the economy of Misima mines. In Misima, because of clear restrictions
ground to a halt, and local residents found it and training by the Wau Small-Scale Mining
hard to make ends meet. Artisanal and small- Center, children are less involved in mining
scale mining provided an avenue for income than before, but child labor remains a con-
202 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
cern.46 Finally, land disputes often take place The challenge of resource-rich economies is
among artisanal miners as people tend to tres- often framed in terms of transparency, which is
pass on other’s land to find minerals.47 certainly important for social cohesion. How-
Beyond local communities, the boom in ex- ever, accounting for the money involved in ex-
tractive industries is affecting jobs in the main tractive industries is only part of the solution.
agricultural sector of Papua New Guinea. Palm Equally important is ensuring that resources
oil exports have been growing steadily in recent flow from booming enclaves and hubs to the
years and now exceed the exports of all other ag- poorer parts of the country, especially in the
ricultural crops combined. Remarkably, the pro- form of basic infrastructure and service deliv-
duction of palm oil fruit involves 18,000 small- ery. Focusing the flow of resources on the de-
holder blocks around the main plantations.48 mand side rather than on the supply side (for
While this sector makes a significant contribu- example, on health insurance rather than pub-
tion to the economy, improving rural livelihoods lic hospitals) may contribute to productivity
and generating employment, the extractive in- rather than to the creation of new windows for
dustries boom is undermining the competitive- rent sharing.
ness of palm oil exports through higher wages Beyond public finance, the concentration
for skilled employees and higher logistics costs. of wealth in mining enclaves and urban hubs
The higher wages paid to skilled workers are requires attention to spatial pricing issues. The
also eroding the effectiveness of the public sec- benefits of agglomeration cannot be reaped if
tor. Entire departments in government and in urban land becomes prohibitively expensive.
education and training institutions have been Active efforts are needed to increase the avail-
depleted because their staff leaves for more at- ability of urban land and keep urban housing
tractive opportunities in the extractive industries affordable. Despite such efforts, the cost of la-
sector. Mining companies complain about the bor is bound to be much higher in mining en-
shortage of skills at the same time as they poach claves and urban hubs. Labor policies need to
people away from the education and training take these disparities into account and avoid
system, where they could help build skills. For making workers too expensive in poorer and
instance, among 181 interviewees in a recent more remote areas through minimum wages
survey on large-scale mining projects, 58 work- or mandated benefits that mimic the wages and
ers (or 32 percent) had at least a university de- benefits available in the booming parts of the
gree.49 Raising salaries in the public sector may country.
be needed, but that would create other problems. The main challenge facing resource-rich
Absenteeism is rife and service delivery is poor. countries is to spread the wealth in ways that do
Without strengthened accountability, higher sal- not undermine productivity growth and social
aries would only transform many public sector cohesion spillovers. Good jobs for development
jobs into a window for rent sharing. in this context are those that generate output (as
An encouraging development has been the opposed to just absorbing it) outside the extrac-
success of some landowner companies around tive industries sector. Incentives for firms to cre-
mining enclaves. These companies may have ate jobs and for people to work are important
built up a good work ethic and developed ef- if the economy is going to diversify its export
fective business practices in places that were far base. The abundance of foreign currency can
removed from the modern economy only a few be a constraint because of exchange rate appre-
years ago. Not all landowner companies have ciation. The experience of some countries, most
been successful, however, and this model may notably Norway, shows how sovereign funds
fail to spread the wealth from extractive indus- that are used for long-run investments can man-
tries beyond the surrounding areas (box 6.6). age this foreign currency problem.
Diverse jobs agendas 203
BOX 6.6 Landowner companies can build capacity while spreading the wealth
Firms linked to local landowner groups in Papua New Guinea are The key to the successes of these companies may be the clear
developing increasingly diversified businesses and are able to separation between their social roles and their business model,
compete regionally, even nationally, thereby generating jobs with which builds on solid corporate governance. The landowner origins
a range of skill levels. The origin of these firms is the communal and commercial focus allow them to partner with landowner groups
ownership of land in Papua New Guinea, which has meant that in other resource project areas, which helps them to build scale and
mining companies have had to pay compensation for land to com- management depth. Expatriates with a genuine interest in develop-
munities rather than to individuals. As a result, some of the land- ment seem to have played an important part in achieving the
owner companies have up to 300,000 shareholders. National proper balance.
agencies negotiate with individual resources projects for local Not all landowner companies have been equally successful. Most
landowning groups to have privileged rights to supply selected exist purely to distribute rents from mines to communities and have
services to the project. no ambitions of building sustainable economic opportunities for
The most successful landowner companies, including Trans their members. Two of four companies established in Central Prov-
Wonderland, Anitua, the iPi Group, National Catering, and Star ince never gained a foothold because the funds that were supposed
Mountain, are locally managed. Their business activities extend to serve as equity vanished. Even the successful landowner compa-
beyond the core job streams of the extractive industries sector in nies may be unsustainable beyond the construction phase of extrac-
exploration, construction, and extraction. For example, they pro- tive industries, during which the demand for support services is
vide logistical services through a franchise truck-ownership struc- exceptionally high. Skeptics wonder whether building work skills
ture and catering services that reach out to all Papua New Guinea through the development of these businesses is really more valu-
including to customers outside the natural resource sectors. able than investing in service delivery through local infrastructure.
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centers, the cost of trading with them may be- with higher income levels among small island
come prohibitive. In the case of Pacific island nations.53
nations, the average GDP-weighted distance Migration is one of the key channels for eco-
to trading partners is about 11,000 kilometers, nomic integration. As workers move to larger
compared with about 8,000 kilometers for small economic centers, they gain access to larger
countries in the Caribbean (figure 6.3).51 Not markets, cheaper inputs, and more investment.
surprisingly, these Pacific island nations also Thus, the labor force is put to more productive
trade less relative to other small countries. use and can earn higher incomes. In turn, re-
Smallness and fragmentation further raise mittances from migrants improve living stan-
the costs of public services and infrastructure. A dards at home. Moving labor to larger markets
road, an energy network, or a government min- also allows workers and entrepreneurs to inter-
istry that serves 100,000 people is likely to have act with more dynamic firms, thus acquiring
a higher cost per user than one serving 10 mil- better and more diversified skills and gaining
lion people. High fixed costs have to be spread exposure to new ideas.
across a smaller number of people, and often Emigrants account for over 20 percent of the
across a larger number of locations, which im- total population in a majority of these countries.
plies higher costs of doing business. On average, remittances are responsible for over
These geographic challenges are fundamen- 8 percent of GDP in Pacific island countries
tal to the economic experience of these small is- and for 5 percent in other small island nations
land nations. Unfortunately, policies cannot al- (figure 6.4). In fact, migration is behind several
ter these disadvantages, but they can be partially success stories. Samoa has a long history of mi-
offset through integration with bigger econo- gration into New Zealand, through a treaty of
mies. Canada’s seasonal agricultural worker friendship in existence for more than 30 years,
program with Caribbean and Latin American and the Cook Islands are in a free association
countries is an example. Several other similar with New Zealand. Both have been able to reg-
bilateral agreements have been introduced.52 ister sustained growth in contrast to the experi-
In fact, tighter political relationships with large ences of other Pacific island nations.54
economic centers are found to be associated It may take time for the benefits from migra-
tion to materialize, as a comparison of Tonga
and Fiji illustrates. Tonga has more than 40 years
of substantial migration and receives large per
capita remittance flows. In Fiji, international
F I G U R E 6 . 3 Small island nations are located migration is a much more recent phenomenon.
far away from economic centers Household surveys show that more than 90
percent of households receive remittances in
14,000 Tonga, compared with 43 percent of households
in Fiji.55
12,000 The different historical paths influence the
GDP-weighted distance (km)
FI G U R E 6.4 Migration matters for small island nations, even more so in the Pacific
a. Migrants are a large share of the population b. Remittances are a large share of income
100
14
90
small island nations, cumulative %
0 0
less than less than less than less than all
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10 20 30 40 islands
emigrants as a share of population, % East Asia and Pacific Latin America and the Caribbean
Sub-Saharan Africa
Source: World Development Report 2013 team calculations based on World Bank migration database and remittances database.
Note: GDP = gross domestic product. Nineteen small island nations are included in panel a on migration and 15 small island nations in panel b on remittances. The variation of
remittances in Pacific Island countries over time is driven by missing data from Samoa.
Migration does not always lead to a win-win capital stock once the migrants return.59 Evi-
situation, however. For example, large remit- dence from Fiji suggests that migration oppor-
tance flows raise the prospect of Dutch dis- tunities increase the probability that household
ease—the appreciation of the real exchange rate members will acquire tertiary education.60 Re-
due to the abundance of foreign currency. Brain sults from qualitative surveys in Fiji also indicate
drain is also a salient feature in these countries, that workers are prompted to acquire special
at least in the short term. Their migrants are skills for migration.61
more educated than their general population. In Viable jobs in small islands are traditionally
12 of 19 small island nations, more than 30 per- associated with the exploitation of natural re-
cent of total emigrants are skilled workers; in 14 sources including fisheries, forestry, mining, and
of them, skilled emigrants represent more than tourism. When niche opportunities exist, low
40 percent of the domestic skilled population.57 business costs become less critical for attract-
While these migrants experience large income ing investment. In Fiji, sugar production and
gains, send substantial remittances back, and do tourism are the largest sources of employment.
transfer knowledge, they do not appear to trade As the most important agribusiness, sugar pro-
with their home countries or invest in them to duction contributes about 8 percent of exports
any large degree.58 In Caribbean countries, the and employs over 10 percent of total popula-
outmigration of health personnel has raised tion. Annually, half a million visitors come to
particular concerns because of its negative im- Fiji, while the local population is less than one
pact on health systems. million. Tourism has become a main source of
On the other hand, migration and remit- employment growth in the formal sector.62
tances can promote human capital accumula- The reliance on natural resources, however,
tion. The possibility to migrate may motivate raises the vulnerability of these countries. These
greater investments in education, and remit- sectors tend to be more susceptible to natu-
tances may finance them. Short-term migration ral shocks—both natural disasters and volatile
can offer workers better training and education rainfall patterns. As with geographical disadvan-
opportunities, which adds to domestic human tages, policies cannot eradicate the vulnerability.
206 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
But jobs exploiting natural resources should not intensive services in tourism, finance, and in-
undermine the fragile ecosystem of the islands. formation communication technologies.64
When conducted in a sustainable manner, tour- Many explanations have been offered for the
ism and fisheries have positive environmental Mauritius miracle. There is no doubt that the
impacts. focus on trade and foreign direct investment,
Ensuring a broad distribution of the rents and on using export processing zones to target
from jobs in the natural resource sectors is light manufacturing industries, has been a criti-
challenging. For example, Vanuatu’s impres- cal element of Mauritius’ success. The country
sive growth has not had an impact on the lives also boasts low corruption levels and a favorable
of most residents. The country’s development regulatory environment, coupled with strong
has been driven by foreign investment in tour- public-private sector cooperation and flexible
ism, financial services, and land development, institutions.65 But the circumstances that al-
and only a relatively small proportion of the lowed Mauritius to embark on this remark-
urban population is reaping the gains. This has able development path were exceptional. They
increased inequality and may lead to disruptive included the quota system that used to govern
social trends.63 garment exports. Other small island nations
A closer look at the Mauritius miracle may not enjoy such opportunities these days.
shows how small island nations might be able Small island nations face unique difficul-
to diversify into activities not based on the ex- ties because they cannot benefit from the gains
ploitation of natural resources. Between 1977 of scale or specialization. These difficulties are
and 2009, real GDP grew at 5.1 percent a year intensified in places such as the Pacific island
in Mauritius, compared with 3.2 percent for countries, which are far from major centers of
Sub-Saharan Africa overall. The World Eco- economic activity. The experience of Mauritius
nomic Forum ranks Mauritius as the second- shows what might be possible with strategic pol-
most-competitive country in the region. This icies, strong institution building, and a dose of
sustained growth has been accompanied by a luck. But for many small island states, establish-
profound structural transformation over time. ing links with nearby economic centers, maxi-
Poor at independence in 1968, Mauritius has mizing the benefits of migration, and exploiting
transitioned from a sugar economy to manu- niche markets while preserving their fragile eco-
facturing textiles and apparel to knowledge- system point the way forward.
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Countries with high youth their transition from school to work. In agrarian
unemployment countries, for example, open unemployment is
low and youth employment difficulties are likely
Young people are much more likely to be un- to manifest themselves in poor job quality and
employed than older adults. In most countries, low earnings. In countries with high youth un-
unemployment rates for youth, defined as 15– employment, job quality may be a problem for
24 years old, are usually between two and three those young people who do find work. In the
times the overall unemployment rate (figure Arab Republic of Egypt, informality is two times
6.5). And the unemployment rate captures only more common among 15- to 24-year-old work-
one aspect of the problems young people face in ers than among 35- to 54-year-olds.66 Highly
Diverse jobs agendas 207
youth unemployment, %
tent of educated youth whose employment op- Algeria
40
portunities are falling short of expectations. 45° line
The Arab Spring may boost transparency and Egypt, Arab Rep. Tunisia
accountability in the region, but if jobs do not 30
Jordan
follow, greater instability may result.68 Youth
employment problems have economic costs, 20
not only in the short run but also in the lon-
ger term. Unemployment among young people 10
can lead to permanent scarring effects in the
form of lower future earnings.69 The lack of 0
job opportunities may also lead to discourage- 0 5 10 15 20 25 30 35
ment. Some of the decline in youth unemploy- overall unemployment, %
ment in the aftermath of the global crisis is ac-
tually driven by young people dropping out of Source: World Development Indicators, World Bank, Washington, DC.
the labor force.70 Note: Unemployment rates are averages for 2000–10.
Many countries with youth unemployment
problems have very large youth cohorts. In
Zimbabwe, where 43 percent of the working-
age population is between 15 and 24, the youth ing people and jobs. A majority of workers in
unemployment rate is three times higher than most Middle Eastern and North African coun-
the overall unemployment rate. The Middle tries have found their jobs through family and
East and North Africa, which has especially high friends.72 Adults tend to have better networks
youth unemployment, is an overwhelmingly than young people going through the transi-
young region. More than 100 million people are tion from education to employment. If a large
between the ages of 15 and 29, making up 30 percentage of a person’s network is unemployed,
percent of the region’s population and about 47 the chances of that person finding a job are low.
percent of the working-age population. Youth A skills mismatch is the other common
cohorts this large are not only likely to face explanation. Close to 40 percent of the firms
higher unemployment rates but also tend to ex- surveyed through investment climate assess-
ert downward pressure on labor earnings.71 ments in the Middle East and North Africa
But demography is far from the whole story. report that the limited availability of skilled
Not all countries with pressing youth employ- labor is a major constraint on business. Lack
ment problems have “youth bulges.” In Sri of formal schooling, which has increased sub-
Lanka, less than one-quarter of the working age stantially in the region, is not the cause. In fact,
population is between 15 and 24, but the youth youth unemployment rates tend to rise with
unemployment rate is more than three times the educational attainment in many countries. In
overall rate. And even where youth cohorts are Morocco, young people with a university edu-
large, young people may encounter other bar- cation had an unemployment rate in 2009 of
riers to employment. Poor information on job 17 percent, 3.7 times the rate for those with
seekers and on employment opportunities is primary education or less. In Tunisia, 23 per-
one reason why young people face more diffi- cent of university-educated youth were unem-
culties than adults in finding jobs. Where private ployed in 2010, compared with 11 percent for
and public agencies and other sources of labor nongraduates.73 In Tunisia, it takes graduates 28
market information are not well developed, months on average to find a job, compared with
personal networks are important for match- 19 months for nongraduates.74 Not only has un-
208 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
FI G U R E 6.6 Having higher education does not bring better employment chances in Tunisia
30 25
25 20
percent
percent
20 15
15 10
10 5
5 0
0 –5
2005 2006 2007 2008 2009 2010 2011 primary basic secondary tertiary
and
vocational
Sources: Angel-Urdinola, Brodmann, and Hilger 2010; Government of Tunisia, L’Institut National de la Statistique.
Note: The employment deficit indicates the difference between predicted annual labor force increase and predicted annual employment increase for the 2010–14 period.
employment been increasing, but the employ- ployment usually build on these two explana-
ment deficit is expected to grow more among tions. The poor flow of information between
university graduates than among people with employers and jobseekers is seen as a justifica-
less education (figure 6.6). tion for active labor market policies that focus
The paradox of high unemployment among on improving the match between labor supply
the highly educated is related to the growth and demand. Counseling can help jobseekers
path of countries in the Middle East and North understand what they have to offer and where
Africa, where the civil service and state-owned the opportunities are. Temporary employment
enterprises have long been the employers of programs may provide a first job and make em-
choice and education systems were built to ployers realize the value of a young worker. As
feed them with staff. Students aspire to public for skills, the contrast between high educational
sector jobs, where benefits are generous and attainment and high unemployment rates is
employment is stable, and focus on obtaining seen as an indication of a disconnect between
academic credentials rather than skills that en- the quality and relevance of schooling and the
hance employability.75 There is a striking dif- actual needs of the labor market. Improving
ference between the preferred educational path youth employment prospects, it is argued, will
of youth in the region and that of youth in the critically depend on restructuring education
high-performing East Asian countries. In 2009, and training systems to produce marketable
one-quarter or less of the university students in skills rather than credentials.78 In the short term,
Algeria, Lebanon, and Saudi Arabia were major- training programs are indeed the most obvious
ing in science, technology, or engineering.76 In response to provide unemployed youth with the
some East Asian countries, such as China, the practical skills employers need.
Republic of Korea, and Malaysia, that share was The potential impact of these prescriptions
more than two-fifths.77 is limited, however. Better information, coun-
Prescriptions on how to address the jobs seling, and temporary employment programs
challenge in countries with high youth unem- can certainly help some jobseekers, but whether
Diverse jobs agendas 209
they would make a major dent in the aggregate ployment rate remained at 14 percent or above,
unemployment rate is unclear. Better matches and the rate for university graduates exceeded
between jobseekers and employment oppor- 30 percent.
tunities would result in large increases in total The key questions are why growth in Tunisia
employment only if there were many unfilled and other countries with high youth unemploy-
vacancies. But that is not the case in the Middle ment has not been more labor intensive and
East and North Africa. Part of the high unem- why the sectors that have expanded the most
ployment rate among graduates stems from rely on unskilled workers. The answers may be
the fact that the demand for skilled labor de- in the product market more than in the labor
rives mainly from public administration, where market. Although many countries in the region
growth is constrained by budgetary issues, and have implemented reforms to reduce red tape
by increasing privatization and deregulation.79 and improve the overall business climate, dis-
Meanwhile, the main sources of private sector cretion, arbitrariness, and unequal treatment
growth (such as construction and low-value- still hinder competition and private sector de-
added services) demand unskilled workers, for velopment, especially in skills-intensive sectors
the most part.80 such as telecommunications. In many countries
The problem is similar with training pro- in the Middle East and North Africa, connec-
grams. Educated youth have the capacity to tions with political power may matter more
learn quickly. If employers wanted it, they could for success than entrepreneurial capacity.82 The
even provide on-the-job training as needed. But perks often extend to the workers in these cos-
training may not change aspirations. seted businesses, under the form of job security
Despite its diminishing absorption capacity, and other benefits, adding to the frustration of
the public sector in the Middle East and North those left out.
Africa region remains the main client of the Firm dynamics provide some evidence of
higher education system and thus shapes stu- the difficulties associated with job creation and
dent expectations and choices. The public sector employment growth in these countries. Rates
still accounts for about one-third of overall em- of new firm registration are low in most coun-
ployment in countries such as the Arab Republic tries in the region.83 And even when they do get
of Egypt, Iraq, Jordan, and the Republic of Ye- started, small firms face barriers in growing into
men.81 In some of these countries, public sector sizable companies. The vast majority of Tuni-
employment has recorded modest growth in sian formal firms are small: 86 percent of them
recent years, but budgetary pressures will inevi- are one-person entities, and only 0.4 percent
tably result in a severe contraction in the future. have 100 workers or more. But these large firms
Aspirations remain, however, and, for many of account for more than one-third of all jobs,
the unemployed youth who have pursued uni- more than all the one-person firms combined.
versity education in the expectation of getting A study of their dynamics over a decade shows
a public sector job, there is a sense of a broken that micro- and small firms hardly ever become
promise. large firms. Moreover, one-person firms only
Information, counseling, and training are very rarely graduate into the small size category,
unlikely to overcome this frustration. Addressing and many are likely to shut down.84
the jobs challenge of countries with high youth While countries with high youth unemploy-
unemployment rates requires a dynamic private ment may face a large youth bulge or education
sector that can create employment opportuni- quality issues, problems are often on the de-
ties commensurate with the education and aspi- mand side, with limited competition reducing
rations of new entrants to the labor market. employment opportunities, especially for highly
Growth alone may not be enough. After all, skilled youth. Many countries in the Middle East
few countries have had a better economic per- and North Africa would have greater scope to
formance than Tunisia, the first country in the generate more jobs for young people if the bar-
Arab world in which jobs discontent erupted riers to firm entry and growth were eased. This
into political turmoil. Between 2000 and 2010, prospect is unlikely to materialize, however, as
its GDP expanded at an average annual rate of long as political connections remain more im-
almost 5 percent; meanwhile, the overall unem- portant than entrepreneurial capacity to enter
210 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
into the modern sector. Ending privilege, more would result in higher living standards by re-
than improving labor market matching or up- ducing the burden protected activities put on
grading skills, is thus the priority for countries others. And it would reinforce a sense of fair-
with high youth unemployment. Dynamism in ness in society—a sense that young people can
more skills-intensive sectors would lead to faster get ahead by what they know rather than who
growth by putting educated youth to work. It they know.
JOBS
LENS
Having at least one member working in the formal sector allows Seguro Popular. Oportunidades covers nearly one-fifth of the total
Mexican families to have a regular source of income, health cover- population and nearly all the rural poor, making it one of the best-
age for all, and, through these, access to the support of social net- targeted poverty reduction programs in the country. Seguro Popu-
works. A case study, based on both ethnographic and statistical lar is the most rapidly growing program, claiming a coverage of
evidence, makes the case that households whose members fail to more than 50 million by April 2012.e But some preliminary research
secure formal jobs are more likely to fall into poverty because of the finds that non-contributory programs in general, and Seguro Popu-
risk of catastrophic health expenses. They are also less likely to lar, in particular, may induce informality or, at least, discourage for-
secure social support from relatives and neighbors.a Formal employ- mal employment.f
ment is thus critical for living standards in Mexico. Meanwhile, the debate about the universalization of health
Despite a GDP per capita around US$14,000 in purchasing insurance is very much alive in Mexico. Academics and policy mak-
power parity terms, Mexico’s informal employment has ranged ers argue over it, and it is also a topic of political controversy. Much
from 50 to 62 percent of total employment depending on the defi- pivots on how much universalization will cost. Estimates vary widely
nition used. This rate is considered high given the country’s devel- from no incremental costs because of efficiency and tax collection
opment level and has not shown consistent signs of decline in gains to relatively large costs when accounting for long-term demo-
nearly two decades. Several studies argue that restrictive labor leg- graphic changes. These differences originate from different meth-
islation is a factor explaining Mexico’s large informal economy.b The odologies, which indicate the complexity of the topic and the diffi-
country has tried unsuccessfully to reform its main labor law, which culty in gauging the full implications of the reform.g
was enacted in 1973 and which is tied to rights enshrined in the Mexico’s debate on formalization needs to be cast in a broader
1917 constitution. context. In recent years, poverty and unemployment have increased
Weak enforcement is another factor behind informality in Mex- while real wages have been stagnant. But other measures of well-
ico. The government announced a doubling of inspectors at the being, such as access to education, health, and social security, have
Ministry of Labor in 2012, from 300 to 600. This number still com- continued to improve.h Average productivity has been growing, but
pares unfavorably with other countries.c Labor courts are also over- slowly, which can be due to an excessive churning of jobs and firms.i
stretched: cases may take between three and six years to reach a Demographic trends still show high fertility rates for a large share of
conclusion.d the population, which leads to a social reproduction of poverty and
This stagnation in the reform of legislation and enforcement informality.j Whether sweeping changes in labor and tax legislation
contrasts with the expansion of a successful cash transfer program, as well as in the organization of social protection would substan-
Oportunidades, and a noncontributory social insurance program, tially reduce informality is still an open question.
that it is business regulations, more than labor Efforts to reduce informality have taken a new
regulations, that help explain changes in infor- twist in recent years. In several Latin American
mality and unemployment.102 countries, sweeping changes in the organization
Addressing the jobs challenge faced by for- of social protection are being implemented or
malizing economies requires extending social proposed. First, transfer programs have esca-
protection and the purview of labor laws with- lated. Brazil and Mexico introduced cash trans-
out choking off economic dynamism. Previous fer programs in the late 1990s that now cover
attempts by Latin American countries to for- nearly one-fifth of their populations.103 Brazil,
malize through heavy-handed regulation, man- Chile, and Mexico have also introduced non-
dated benefits, and ill-designed social insurance contributory programs for senior citizens, and
programs led to populist enthusiasm but also to other countries are following suit. More radi-
lower productivity and eventually to economic cally, policy makers are debating whether to
stagnation and poor quality of social protection. make the coverage of social insurance universal,
Diverse jobs agendas 213
moving away from the current contributory lation, a three-pronged strategy may be war-
systems toward the funding of benefits from ranted.107 For those who clearly work outside
general tax revenue.104 This reform would cer- the purview of regulations, the reach of human
tainly expand the number of beneficiaries, but development and social protection services and
whether it would encourage firms to formalize activation policies should be expanded. For
is a matter of intense debate, especially in Mex- those who work in stunted firms that legally
ico (box 6.7).105 avoid becoming formal, regulations should be
So far, few countries have managed to sub- simplified and their burden eased. Finally, for
stantially reduce informality. Rapid growth and those in firms that evade regulations, enforce-
strengthening institutions in Brazil and Chile ment should be strengthened. For this three-
have made them recent exceptions. In both pronged strategy to have a chance of success,
cases, changes in labor market regulation have workers and employers need to perceive the
had limited effect. Patient accumulation of hu- state as a reliable and fair partner. If the state
man capital and sustained growth have paid off. is not able to generate a sense of trust through
But strengthened rule of law, effective policies, the provision of efficient and good-quality ser-
and a better perception of the role of the state vices, neither regulatory reform nor increased
have also helped. enforcement will succeed in increasing formal-
Those who see informality as the outcome of ization substantially.
a weak social compact argue that the way for- The key is to build formal institutions and
ward involves a combination of enhanced en- programs that are not too costly and that are
forcement of regulations, improved quality of valued by workers. The jobs agenda of formal-
public services, and greater policy coherence.106 izing economies is closely linked, then, to the
If informality is associated with production development of effective regulation and social
units that evade, elude, or stay outside regu- protection systems.
JOBS
LENS
The
F I G U R E 6 . 8 labor force will shrink if age-specific participation rates
remain constant
0
change in labor force, %
–10
–20
–30
–40
ia
va
ia
ba
nd
tia
ia
ic
ia
ic
ia
a
nd
in
in
ni
in
tio
bl
bl
ar
an
tv
rb
en
do
oa
Cu
la
la
ov
Ch
ba
ra
pu
pu
lg
La
Se
ra
m
m
Po
ai
ol
Cr
Uk
eg
Bu
Al
de
Th
Ro
Re
Re
Ar
M
rz
Fe
ak
h
He
ec
n
ov
ia
Cz
d
Sl
ss
an
Ru
ia
sn
Bo
Source: World Development Report 2013 team based on United Nations population statistics.
Note: The simulation assesses the decrease in the total labor force based on the assumption that age-specific labor force participation rates remain constant between 2011 and
2050.
between 1990 and 2010—and by 2050, the its workforce, Poland 28 percent, and China 17
country is projected to have lost almost 40 per- percent (figure 6.8).109
cent of its population compared with its peak in Aging affects jobs through several chan-
the mid-1980s. Other Eastern European coun- nels.110 Lower fertility may imply higher num-
tries, such as Bosnia and Herzegovina, Moldova, bers of women ready to seek and take up jobs,
Romania, and Ukraine, are expected to follow although little evidence of this has been o
bserved
the same pattern; China’s population will be 50 in Eastern Europe over the past 20 years. Smaller
million less in 2050 than it is now. In India and cohorts of young people could reduce innova-
Singapore and in the Southern Cone countries tive capacity. Disability rates increase in older
of Latin America, population growth is slowing age groups and thus further affect the labor
down and will start to decline by the middle of supply in aging populations.111 Understanding
the century. how aggregate savings will be affected is also
If the labor force participation rates of older important, given that savings drive investment,
workers are significant today and if these lev- growth, and job creation. Savings typically de-
els can be maintained, the impact of aging on cline among older age groups. This decline
average income can be cushioned considerably. could be offset if young people were to build up
But that may not be enough. If age-specific par- additional buffers to support their longer life
ticipation rates remain constant, some coun- spans, especially if public retirement schemes
tries, such as Thailand, would be able to limit prove unsustainable or are absent. Expenditure
the absolute decline in its labor force, but many patterns also vary with age. The rapid rise in the
others would not. The impact in many Eastern long-term care industry in high-income coun-
European countries, Cuba, and China would be tries is an example. In the United States, the in-
stark because of the decline in the size of the dustry now counts more than 3 million formal
working age population. Between 2011 and jobs, and an estimated 10 million Americans
2050, Bulgaria would face a 40 percent drop in 50 years or older (roughly one-quarter of this
Diverse jobs agendas 215
ia
ic
ic
ia
ia
nd
in
ni
in
tio
bl
bl
en
ar
an
la
ov
to
ra
not have assistance, financial or otherwise, from
pu
pu
lg
ra
hu
ov
ai
Uk
Es
eg
Bu
de
Th
Re
Re
Sl
Lit
rz
their children.114 The older generation can feel
Fe
ak
h
He
ec
n
ov
ia
Cz
d
not only neglected, but also excluded. In Poland,
Sl
ss
an
Ru
ia
a 55-year old man felt that “age is a great barrier.
sn
Bo
BOX 6.8 In Ukraine, the impact of aging is compounded by migration and declining fertility
Ukraine’s population is shrinking. This country, which stretches from show little integration, as reflected by the high dispersion of unem-
the heavily industrialized Russian-speaking east to the more agricul- ployment rates. In some parts of the country, employers complain
tural and predominantly Ukrainian-speaking west, was home to 52 bitterly about the lack of workers with adequate skills, and at the
million people when the Soviet Union broke apart. Today, there are same time they cannot fill available unskilled jobs. Yet, internal
6 million fewer people; by 2050, the population will have fallen to 35 mobility is low in Ukraine by international standards and has
million. Fertility rates are sharply down, from about 2.0 at the end of declined in recent years. The lack of affordable housing has emerged
the 1990s to below 1.5 today, albeit with an upward tick in recent as major barrier to mobility, also hindering registration for benefits
years. The elderly dependency ratio is 22 percent and will reach in new locations. Rental property is scarce, often expensive, and can
more than 40 percent over the next 30 years. absorb up to 50 percent of household incomes in the big cities.d
The effect of this population aging on jobs is amplified by inter- Eventually, Ukraine may face a vicious jobs circle. A declining
national migration. Between the turbulent transition years and the labor force and a lackluster productivity performance put the social
middle of the last decade, about 2.5 million Ukrainians emigrated, insurance and welfare systems at risk of becoming unsustainable.
mainly to the Russian Federation and Western Europe. Every year, The inability to provide benefits to an aging population, and the
around 80,000 people leave the country,a and recent studies have stress that reforming the system could bring about, could become a
shown that the possible positive impacts of migration through source of social tension. As participants in focus group discussions
remittances, return migration, and diaspora involvement have not mentioned, this tension would be amplified by the perception that
(yet) shown their desired impacts.b People ages 25–29 years, espe- the distribution of jobs is unfair and that jobs in the public sector
cially women, are withdrawing in large numbers from the labor mar- require bribes.e The decline in employment rates could also under-
ket: the female participation rate dropped from 78.1 percent to 70.9 mine civic engagement. Although low, the level of political and
percent between 2001 and 2010.c community participation among the employed is about twice as
Achieving high degrees of efficiency in the labor market is key to high as among the unemployed and 25 percent higher than among
counterbalancing the impact of aging. But regional labor markets the inactive population.f
The development of home-care models for the financing of the welfare system, but not all
elderly can also support the twin objectives of groups have the same life expectancy. Typically,
keeping a high employment rate and containing professional, technical, and skilled workers
social insurance costs. Proactively attracting— can expect to live longer than manual work-
and integrating—migrants and managing to ers, especially those in hazardous occupations.
create virtuous circles with the diaspora prom- Keeping the skilled at work longer is a way to
ises equally large returns. increase average labor productivity and offset
Measures such as raising the retirement age the decline in employment rates.
can contribute to labor force participation and
JOBS
LENS
Creating an investment climate conducive to job range of policy levers: ensuring stability and se-
creation in the private sector is a top policy pri- curity, enhancing financial markets, providing
ority. The question is whether the government infrastructure services, reducing regulatory and
should aim for a level playing field or focus its tax burdens, and improving the quality of the
efforts on the specific areas, types of activities, workforce. The natural inclination is to equate
firm sizes, and sectors with the greatest poten- a targeted investment climate with industrial
tial to create good jobs for development. Jobs policy. If some activities result in large produc-
challenges vary depending on a country’s level tivity spillovers (because of learning-by-doing,
of development, its endowments, its demogra- for instance, or because of greater specialization
phy, and its institutions. Ensuring free entry and and integration), targeting can imply support-
competition across all sectors is a fundamental ing such activities. In recent years, productivity
requisite for growth. But given the often lim- spillovers associated with various activities have
ited fiscal space and administrative capacity of been reexamined from different viewpoints,
developing countries, creating an enabling busi- with both academics and practitioners propos-
ness environment across the entire economy can ing practical approaches for their identification
be challenging, and the relevant question is how (box 6.9).
policy priorities should be set. The targeting of the investment climate
The conventional wisdom views targeting may not necessarily be aimed at industrial sec-
with a skepticism that stems from often disas- tors, however. Targeting can focus on gender, as
trous experiences with industrial policy. While when policies aim to increase labor market par-
targeting was common in Latin America during ticipation by women, or on spatial concerns, as
its import substitution phase, by the 1980s the in urbanization policies or policies for regional
consensus was that interventions favoring spe- development. Or it can focus on firm size, as
cific sectors led to rent seeking, economic stag- when policies support the development of small
nation, and external vulnerability. Slow growth and medium enterprises. Good jobs for devel-
in India until the 1990s was also attributed to opment differ across countries. The jobs agenda
policies that favored local industrial groups and may involve making smallholder farming more
undermined competition. The success of several productive in an agrarian economy, preserving
East Asian countries in industrializing has reig- international competitiveness in a resource-rich
nited the debate on the merits of targeting and country, or fostering competition in activities
the role of the state, but the potential for institu- employing skilled labor in a country with high
tional failures remains the main concern.118 The youth unemployment. In each case, the logic for
dominant view holds that policy makers lack targeting lies in tackling market imperfections
both the information and the capacity to “pick or government failures that are preventing jobs
winners” when they select activities to target. In from contributing more to development.
the absence of a solid information base, and tak- An example is targeting in the agricultural
ing into account the institutional failures com- sector. The underlying logic is based on the
mon in developing countries, a risk exists that notion of public goods. The biggest obstacles
potential beneficiaries from targeted support to agricultural development are the lack of
could unduly influence the decision process. appropriate technologies and adequate infra-
structures. As arable land becomes scarce, the
development of yield-enhancing technologies is
Targeting is not necessarily industrial
indispensable.120 But incentives to generate these
policy
technologies are undermined because they can
The investment climate is the set of public goods be replicated freely.121 Thus, public policy plays
and public policies that shape the opportunities a role by supporting the development and dis-
and incentives for firms to invest productively, semination of such technologies. Because yield-
create jobs, and expand.119 It encompasses a wide enhancing technologies are fertilizer intensive
218 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 6.9 Once again, the debate rages over industrial policy
Industrial policy is an approach to state economic stewardship in A second approach emphasizes the policy process and espe-
which direct support is given to particular sectors in pursuit of cially public-private partnerships. In this view, the dialogue between
national goals. Industrial policy fell out of favor in the 1980s, but the government and businesses can help to overcome coordination
today it is getting recognition again. The emerging views, however, failures and elicit information from the private sector on the most
draw criticism and have led to a new round of debate. relevant productivity spillovers.b
Arguments for industrial policy rest on three types of market For a third school of thought, what matters is not just any coordi-
failures: knowledge spillovers and dynamic scale economies, coor- nation failure or externality, but spillovers of productive knowl-
dination failures, and information externalities. In the first, industrial edge—mastering ways of doing things. Such knowledge is different
policy is derived from the observation that knowledge spillovers from codified, public knowledge and is acquired and accumulated
and dynamic scale economies differ across industries. Coordination through experience. This approach claims that spillovers of produc-
failures arise when markets fail to correctly signal the future payoffs tive knowledge associated with different industries can be sizable.
of investment projects, such as large-scale infrastructure projects, To identify industries worth supporting, the approach proposes to
and the private sector tends to underinvest on its own. Information rank products by how much productive knowledge is embedded in
externalities exist when knowledge on the profitability of invest- them and to focus on products that are similar to what is being pro-
ment opportunities is limited and the risk of free riding discourages duced currently but embody a higher knowledge content.c
investment and innovation. Opponents of industrial policy cast doubts on its alleged ratio-
Building on these rationales, several approaches further develop nales, but above all, they question the practicality of its implemen-
thinking on industrial policy. The New Structural Economics stresses tation. For instance, while admitting the existence of potentially siz-
the shift in comparative advantage that results from changes in able knowledge spillovers and dynamic scale economies in certain
endowments. The large productivity spillovers from infrastructure industries, skeptics question the whether the public sector has the
and associated coordination failures justify a leading role for the capacity to identify these industries. A related concern is the ability
state. To identify the industries to be supported, this approach pro- of the public sector to make industrial policy a dynamic process:
poses to learn from countries with similar endowments but some- applying credible sunset clauses to old industries, and reallocating
what higher income levels. Exports with a solid track record by resources to new industries. More generally, skeptics believe the
these countries indicate which sectors could have a comparative knowledge and skill requirements for successful implementation
advantage as the economy grows.a exceed the capacity of the public sector. d
and sensitive to the availability of water, public port for public-private partnerships. More effi-
investments in infrastructure—including roads cient logistics and public investments in major
and irrigation facilities—are often essential. The infrastructure facilities usually complement the
Brazilian government, for example, viewed in- package of incentives. A recent version of spatial
vestment in adaptive agricultural research as a targeting is the idea of charter cities: to attract
prerequisite for development. It therefore sup- businesses to a country with low credibility in
ported a research corporation (EMBRAPA) that the eyes of foreign investors, sovereignty of a
focused on technology generation and transfer city could be handed over to another country in
and played a critical role in the success of the exchange for the enforcement of a credible set
Brazilian agribusiness sector.122 of rules.123 The objective is to strengthen the in-
The emergence of dynamic cities is another vestment climate in a small part of the country,
case in point. From Dublin to Shanghai, com- potentially providing a demonstration effect for
petitiveness initiatives increasingly involve cit- further reforms, while not threatening the rents
ies, more than countries. This shift is a result of powerful local elites elsewhere.
of agglomeration effects: the level playing field
evokes a flat world, whereas urbanization poli-
The information base for targeting exists
cies correspond to a world with spikes of eco-
nomic activity. Dynamic cities may offer more When there is clarity on the challenges faced
favorable tax treatment, easy access to land, by a country, it is also possible to determine
simplified administrative procedures, and sup- which types of jobs would help address these
Diverse jobs agendas 219
challenges. Thanks to efforts in research and requires the inflow of foreign direct investment,
data collection, the information set for decid- enterprise surveys indicate that foreign compa-
ing whether and how to support the creation of nies are less concerned about finance, but view
more of those good jobs for development is far customs administration, transportation, and
from empty. licensing as more severe impediments to firm
Consider jobs in farming. Among staple activity and growth (figure 6.10b). One coun-
crops, rice, wheat, and maize are more promis- try may choose to focus on microenterprises,
ing than sorghum and millet, but the latter crops because their success contributes to poverty
are grown in drier and harsher conditions where reduction, and another on young and large
farmers are particularly poor.124 Modern cereal firms, because they tend to be the most inno-
varieties are high yielding primarily in favorable vative. In both cases, enterprise surveys can be
rain-fed and irrigated areas.125 Thus, agricul- used to uncover the most relevant constraints
tural policies are bound to affect the well-being (figure 6.10c, 6.10d). For example, shortages of
of the rural population differently in different skilled labor, delays in customs, and stringent
regions. The choice depends on the country’s labor regulations are viewed as more severe con-
natural endowments and societal goals.126 straints by medium and large enterprises than
In nonagricultural sectors, the main obsta- by smaller companies. In contrast, micro- and
cles to job creation can be identified through small enterprises consider access to finance and
quantitative and qualitative assessments of the competition to be more serious obstacles to
constraints faced by enterprises. While these as- their growth. Recently, enterprise surveys have
sessments need to be interpreted with caution, been conducted for household enterprises op-
differences in responses across enterprises reveal erating in rural areas in selected countries. They
patterns that can also be used for developing can serve as additional tools for countries to fos-
targeted policy interventions (box 6.10).127 ter nonagricultural sectors in rural areas.128
If creating competitive cities is a feature of The effects of removing those constraints
a country’s jobs agenda, enterprise surveys can also differ across businesses. Reducing barriers
provide information on how different the con- to entry fosters the growth of industries that ex-
straints faced by businesses are in cities of dif- perience higher natural turnover rates. Improv-
ferent sizes (figure 6.10a). If the jobs agenda ing access to finance stimulates the development
BOX 6.10 Caution is needed when interpreting results from enterprise surveys
Surveys of entrepreneurs and senior managers can provide feed- Any survey that asks subjective questions has to address issues
back on what the private sector sees as significant constraints to of comparability of responses. Where possible, more objective
private sector development. Some care in interpreting their questions are preferable. Thus, instead of asking how constraining
responses is necessary, however. The respondents will give answers the supply of electricity is on a scale of one to five, questions can ask
that reflect constraints on their bottom line—without regard to the for the frequency and length of outages, or the costs of running a
broader societal or welfare implications. Almost every entrepreneur generator. These responses can more easily be compared across
will complain that taxes and interest rates on loans are too high. But respondents and over time.
that does not necessarily mean that taxes should be lowered or that One further complication in interpreting responses from enter-
interest rates are out of line with risks faced by creditors. Constraints prise surveys and linking them to enterprise outcomes is the poten-
to the individual respondents need to be weighed against the tial for a two-way causal relationship between them. It could be that
broader social goals. more onerous conditions are hindering an enterprise’s ability to stay
In addition, enterprise surveys only target incumbent enter- in business. But a firm’s poor performance, perhaps stemming from
prises. The surveys do not reach discouraged entrants and so do not weak management, could also be affecting the degree to which the
ask about the constraints to entry they could not overcome; nor do respondent complains. Performance also affects which dimensions
they reach those who recently closed down to ask why they are no of the investment climate matter the most; for example, the avail-
longer in business. Thus the issues that may have an important role ability of skills may be more constraining to expanding firms,
in shaping who is even asked the questions are unlikely to be whereas labor regulations may be of greater concern to firms that
identified. are contracting and facing the need to shed workers.
a. Large and medium cities versus small cities b. Foreign versus medium and large private local firms
(China, 2005) (104 countries, 2006–10)
access to finance customs
financing costs transport
local protectionism licensing
customs courts
skills
communications
political instability
anticompetitive behaviors corruption
access to information telecoms
unstable policies labor regulation
crime electricity
transport tax administration
water services access to land
tax administration crime/disorder
tax rates
workers’ skills
competition
electricity finance
–0.6 –0.5 –0.4 –0.3 –0.2 –0.1 0 0.1 0.2 0.3 –0.3 –0.2 –0.1 0 0.1 0.2 0.3
difference in constraint rating, relative to small cities difference in constraint rating, foreign relative to
large city medium city medium and large private local firms
c. Large, medium, and small firms versus microenterprises d. Old and mature firms versus young firms
(104 countries, 2006–10) (104 countries, 2006–10)
skills competition
customs corruption
labor regulation courts
transport tax rates
courts labor regulation
tax administration crime/disorder
licensing tax administration
telecoms political instability
political instability customs
crime/disorder telecoms
electricity licensing
tax rates electricity
corruption skills
access to land transport
finance access to land
competition finance
–0.6 –0.5 –0.4 –0.3 –0.2 –0.1 0 0.1 0.2 0.3 0.4 –0.15 –0.1 –0.5 0 0.05 0.1 0.15 0.2 0.25
difference in constraint rating, relative to microfirms difference in constraint rating, relative to young firms
large firms medium firms small firms old firms mature firms
Source: World Development Report 2013 team based on the World Bank’s Enterprise Surveys 2006–10.
Note: The analysis is based on a city-level enterprise survey of China in 2005 for panel a, and surveys of more than 60,000 urban enterprises in 104 countries in 2006–10 for other
panels. The bars indicate differences in the rating of constraints between firms in two groups. Ratings in the surveys range from 1 (no constraint) to 5 (severe); they are net of the
average rating of constraints by each firm, to assess relative severity. The analysis controls for firm age, size, ownership structure, export orientation, industry, and year.
of industries that rely more on external funding. companies are more likely to withdraw from the
The impact of removing constraints also var- market than private local firms.130
ies across firm size, age, ownership, and other
characteristics.129 For example, infrastructure
Not all targeting is vulnerable to capture
bottlenecks tend to stunt the growth of medium
by interest groups
and large businesses but do not affect microen-
terprises significantly. Similarly, when the judi- Capture by vested interests is arguably the most
ciary system is viewed as a hindrance, foreign important concern about targeting. The risk
Diverse jobs agendas 221
that the potential beneficiaries could unduly farmers, urban businesses, and female micro-
influence the decision process is a real one. A entrepreneurs are all bound to benefit from
too-cozy relationship between businesses and targeted policies aimed at their group. But indi-
government can make it extremely difficult to vidually they do not have the power to influence
remove support, even in the event of a blatant such policies, and they may not be able to orga-
failure. Policy capture by vested interest groups nize as effective interest groups.
could undermine the often weak capacity of Targeted government interventions are justi-
governments in many developing countries. fiable only if they are based on a solid under-
Targeted activities that involve a large num- standing of what good jobs for development are
ber of beneficiaries are less subject to capture. in a particular context and only if they can be
For example, support for smallholder farming, designed to be resistant to capture. One example
competitive cities, or female microentrepreneurs is the involvement of the private sector in the
is less likely to be influenced by beneficiaries. design and management of special economic
In every country, thousands, if not millions, of zones (box 6.11).
Special economic zones (SEZs) are demarcated geographic areas For example, in Bangladesh, the SEZ program initially aimed to
within a country’s boundaries where the rules of business are differ- attract high-technology investments, but the government shifted
ent from those that prevail in the national territory. These differen- the focus to garments, where the private sector had shown signs of
tial rules principally deal with investment conditions, international success. The shift proved to be critical for the performance of the
trade, and customs. The zones have a business environment that is SEZ program. Building effective partnerships with the private sector
intended to be more liberal from a policy perspective and more is an important mechanism through which coordination challenges
effective from an administrative perspective. can be overcome. Institutionally, the partnership can be established
Before the 1970s, most SEZs were operated by developed coun- through representation of the private sector on the board of the
tries. Then, starting with East Asia and Latin America, developing SEZ, as in the Dominican Republic and Lesotho.
countries began to use SEZs to attract foreign direct investment, A common element of many successful SEZs is the technical
often as a part of export-led growth strategies. The objectives competency of the bureaucracy responsible for constructing and
broadened over time, as SEZs became instruments of trade, invest- implementing them. While this cautions against targeting when
ment, industrial, spatial, and even broader economic policies. In government capacity is weak, several Latin American countries
1986, there were 176 zones in 47 countries; by 2006, there were have recorded successes by relying on private sector ownership
3,500 of them in 130 countries. and management. In the Dominican Republic, where public and
SEZs have a mixed record. Their rates of return are still a topic of private zones coexist, there are no clear differences in employment,
heated debate among economists. Their performance critically investment, or exports by zone ownership. But the private zones
depends on their design and management. SEZs are more likely to generally offer higher-quality infrastructure and more value-added
be successful when they are an integral component of the country’s services than the government-run ones and, accordingly, charge
development strategy, are aligned with the country’s comparative higher rents.
advantage, are cluster-based, and establish linkages with the rest of
the economy.
Sources: Akinci and Farole 2011; Kingombe and te Velde 2012 for the World Development Report 2013.
Farmers in a pomegranate field in Tajikistan
© Gennadiy Ratushenko / World Bank
stalled transitions. In the Middle East and North 98. Fields 2005; Perry and others 2007. Gunther
Africa context specifically, this includes delayed and Launov (2012) provide an econometric
marriage (Wrigley 2010). The rate of marriage technique for separating the size of these two
has been declining as the age of entry into mar- components using data on Côte d’Ivoire.
riage has increased (Dhillon and Yousef 2009). 99. Petesch 2012 for the World Development Re-
Adequate employment is necessary for a man to port 2013.
be perceived as an eligible marriage partner. 100. Loayza and Rigolini 2011.
69. Bell and Blanchflower 2010; Giles, Newhouse, 101. Djankov and Ramalho 2009; Heckman and
and Witoelar 2010. Pagés 2000, 2004; Kaplan 2009. For a more nu-
70. ILO 2011a. anced view from a developed-country perspec-
71. World Bank 2006b; Wrigley 2010. tive, see Boeri and van Ours (2008).
72. Binzel 2011; Gatti and others 2012; Matsumoto 102. Freund and others 2012; Ulyssea 2010.
and Elder 2010. 103. Fiszbein and others 2009.
73. World Bank 2012a. 104. Anton, Hernandez, and Levy 2012; Perry and
74. Stampini and Verdier-Choucane 2011. These others 2007.
figures are based on data collected in the 2005 105. Fields 2005; Kanbur 2009.
and 2006 Labor Force Surveys. 106. Almeida and Carneiro 2009; Kan and Lin 2007;
75. According to the 2010 Gallup World Poll, the Kanbur 2009, 2011; Scarpetta and Tressel 2004.
proportion of young people preferring to work 107. Chen and Doane 2008; Jütting and de Laiglesia
in the public sector ranged from around 40 to 2009; Kanbur 2011.
70 percent in countries in the Middle East and 108. Demographic statistics, including outmigration
North Africa. Only Libya had a significantly rates, are based on estimates of the United Na-
lower share. tions Population Division.
76. World Bank 2012a. 109. Giles, Wang, and Cai (2011) discuss measures
77. World Bank 2008b. that may facilitate longer working lives as
78. Some call for promoting access to secondary China’s population ages.
and university education among marginalized 110. Chawla, Betcherman, and Banerji 2007.
groups in the region (see Middle East Youth Ini- 111. WHO and World Bank 2011.
tiative 2009). 112. Fiegerman 2011.
79. Boughzala 2004; World Bank 2004a. 113. Boersch-Supran 2003.
80. World Bank 2012a. 114. Cai and others 2012.
81. Gatti and others 2012. 115. World Bank 2011c.
82. World Bank 2009. 116. Cotlear 2011; Reinhardt 2003; Werding and
83. Klapper and Love 2011. McLennan 2011.
84. Freund and others 2012. 117. Schwarz 2009.
85. Centeno and Portes 2006; Mezzadri 2010; 118. See Lin and Monga (2011) and Pack and Saggi
Saavedra and Tommasi 2007. (2006) for reviews. For detailed discussion, see
86. Kanbur 2011. Cimoli, Dosi, and Stiglitz (2009); Harrison and
87. Geertz 1968; North 1991; North 1994; Stiglitz Rodríguez-Clare (2010); Lin (2012); Porter
2000. (1990); Rodrik (2004).
88. Some would argue that poverty begets infor- 119. World Bank 2004b.
mality because of the constraints that the poor 120. Hayami and Ruttan 1985.
face in finding a formal job (Devicenti, Grois- 121. This is not the case for hybrid seeds, which
man, and Poggi 2010). farmers cannot self-produce, or for mechanical
89. Perry and others 2007. technologies.
90. ILO 2011b. 122. The Economist 2010.
91. Taymaz 2009. 123. Levitt and Dubner 2009; Mallaby 2010; Romer
92. Perry and others 2007. 2010.
93. Loayza 1996; Perry and others 2007. 124. Otsuka and Larson, forthcoming.
94. See McKenzie and Seynabou (2010) for recent 125. Byerlee 1996; David and Otsuka 1994.
evidence from Bolivia, and see de Mel, McKen- 126. David and Otsuka 1994; Fan and Hazell 2001;
zie, and Woodruff (2008). Otsuka and Larson, forthcoming.
95. Bosch and Maloney 2010; Maloney 1999. 127. Aterido, Hallward-Driemeier, and Pagés 2007,
96. Fajnzylber, Maloney, and Montes-Rojas 2011. 2009; Beck, Demirgüç-Kunt, and Maksimovic
97. Bernal 2009 for Colombia; Mondragón-Vélez, 2005; Djankov, Freund, and Pham 2010;
Peña, and Wills 2010 for Colombia; World Bank Kaufmann and Kraay 2002; Klapper, Laeven,
2008a for Argentina. and Rajan 2006; McKenzie 2010.
Diverse jobs agendas 225
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Chapter
7
Connected jobs agendas
D
ifferent countries face different jobs Jobs agendas are also connected through
challenges, but their jobs agendas are the international migration of jobs. The splin-
interconnected by two forces—the mi- tering of production tasks has facilitated their
gration of people and the migration of jobs. delocalization and outsourcing to developing
These two flows have consequences for living countries, resulting in greater trade volumes
standards, productivity, and social cohesion in and lower prices of final goods. But it has also
sending and receiving countries. The arrival of led to a global redistribution of jobs in manu-
migrants or the outsourcing of jobs abroad af- facturing, and the same trend is increasingly
fects the living standards of both migrants and visible in services as well. So far, the migration
locals. The availability of foreign workers, the of jobs out of industrial countries has mainly af-
development of migrant networks channeling fected blue-collar workers, but white-collar jobs
savings and ideas, and the arrival of multina- are following. These are not once-and-for-all
tional firms bringing more advanced techniques moves. Growing labor costs in Asia may open
are all bound to increase productivity. But fam- up opportunities for other developing countries
ily structures as well as community life are af- to jump-start industrialization.
fected by the movement of people and jobs. The
potential gains are considerable, but there are
also tradeoffs. Migration of workers
Even if development strategies succeed in
addressing jobs challenges at the country level, Precise figures on the global number of inter-
mismatches between employment opportuni- national migrants are not available, an unsur-
ties at home and abroad are bound to occur, prising fact given that a number of them cross
encouraging people to leave their communities borders illegally or do not return once their visas
and try their chances elsewhere. Almost inevi- and permits expire. That is why estimates tend
tably, the international migration of people will to rely on population censuses and household
be one of the policy levers to consider in South surveys. Even then, differences across countries
Asia and in Sub-Saharan Africa, given the pro- in the way that data are gathered, and in the way
jected rapid growth in the labor force in these legislation defines nationality and migratory
regions over the coming decades. Migration status, make accurate counts difficult.1 The or-
trends will be driven not only by demographic ders of magnitude are relatively uncontroversial,
pressures but also by cultural and geographic however. There are more than 200 million mi-
proximity, as well as economic factors. grants worldwide, and 90 million of them are
Connected jobs agendas 233
workers. Migrants represent between 2.5 and 3 (map 7.1). In a few relatively small recipient
percent of the world’s population and the global countries, the foreign-born population makes
labor force.2 Many are temporary or seasonal up more than 40 percent of the total population.
workers and return to their home country. Israel, Jordan, Kuwait, Qatar, and Singapore are
in this group. Among bigger recipient countries,
those with the largest share of immigrants in
Global patterns of migration
their population are Saudi Arabia (27.8 per-
Global figures hide important differences across cent), Canada (21.3 percent), Australia (21.0
countries. Some countries are mainly recipients, percent), and the United States (13.5 percent).
while others are sources, and yet others neither In absolute numbers, the United States is the
host nor send significant numbers of migrants largest recipient of migrants, with 42.8 million,
M a p 7.1 Only in some countries are migrants a substantial share of the population
Percent
0–1.99
2.00–4.99
5.00–9.99
10.00–14.99
15.00–100
no data
Percent
0–1.99
2.00–4.99
5.00–9.99
10.00–14.99
15.00–100
no data
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
Source: World Development Report 2013 team based on Özden and others 2011 and Artuc and others 2012, using census data from around 2000.
234 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
followed by the Russian Federation (12.3 mil- with at least some tertiary education among im-
lion), and Germany (10.8 million). Among the migrants increased from 15 to 25 percent in the
sending countries, those with the largest num- United Kingdom, and from 25 to 30 percent in
bers of migrants are Mexico (10.1 million), In- the United States. Stark country differences are
dia (9.1 million), and Bangladesh (6.0 million).3 also present in skilled labor migration. Some de-
Russia is so high on the list, because many eth- veloping countries explicitly promote emigra-
nic Russians live in countries that were formerly tion of skilled workers, while others complain
part of the Soviet Union. about “brain drain.” More than 70 percent of
Political turmoil and globalization acceler- citizens with tertiary education in Haiti, Jamaica,
ated migration flows in the first half of the 20th and Trinidad and Tobago live abroad. The share
century. The partition of Bangladesh, India, and of skilled workers among migrants is particu-
Pakistan involved large numbers of people liv- larly high in African countries (map 7.2).6
ing in countries different from their birthplace. Highly skilled migrants fall into a range
The decline of transportation costs, the growth of categories including technology and busi-
of Persian Gulf economies following surges in ness creators, scientists, scholars, students, and
oil prices, and the entry into world markets of health and cultural workers. At 10 percent, their
developing countries with large populations share of total migration is still relatively small,
have all stimulated a surge of migrant workers but 90 percent of them live in industrial coun-
worldwide. tries.7 In some occupations, the concentration
Differences in expected earnings between the of skilled migrants is substantial: 27 percent
country of origin and the country of destination of all physicians in the United States, 21 per-
are an important reason for people to migrate. cent in Australia, and 20 percent in Canada are
Earnings gains, however, are offset to varying foreign-trained.8
degrees by the direct costs of migration (such
as transportation fees and intermediation ser-
Impacts on sending and receiving
vices) as well as by indirect costs associated with
countries
the difficulties of adapting to a different culture
and society and leaving family and friends be- The most direct impact of international migra-
hind. These costs also help explain aggregate tion is on living standards. Through their work
migration flows. For many migrants, physical in receiving countries, and through remittances
and cultural proximity (including a common to sending countries, migrants increase their in-
language, religion, or way of life) are important comes and those of their families. Migrants also
when choosing a host country. Concerns about contribute to global output if their productiv-
employment opportunities and personal safety ity abroad is higher than it was at home, which
in the sending countries are other important, may often be the case. They can even contribute
sometimes crucial, drivers of migration. More to output in the sending country, as networks
than 10 million migrants are refugees, and of migrants and returnees serve as channels for
nearly 2 million are asylum seekers.4 investment, innovation, and expertise. Social ef-
The growth rate in the global number of mi- fects are mixed, however. On the positive side,
grant workers peaked between 2005 and 2008 migration connects people from different cul-
and then decelerated because of the impact of the tures in ways bound to widen their horizons.
global economic crisis. During previous decades, On the negative side, separation from family
the growth in migration flows came primarily and friends can be a source of distress and iso-
from South-North flows; that is, from develop- lation in the recipient country. Large numbers
ing to developed countries. South-South mi- of immigrants can also exacerbate frustration
gration, although numerically larger, remained among vulnerable groups in recipient countries,
stable over that period.5 if foreigners are seen as competitors for jobs and
Skilled workers represent a growing share of public services.
international migration. Developed countries The increase in earnings from migration
increasingly implement policies to attract talent. may amount to tens of thousands of dollars per
Between 1990 and 2000, the share of workers worker per year. After controlling for worker
Connected jobs agendas 235
Percent
0–4.99
5.00–9.99
10.00–19.99
20.00–29.99
30.00–100
no data
Percent
0–4.99
5.00–9.99
10.00–19.99
20.00–29.99
30.00–100
no data
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
Source: World Development Report 2013 team based on Özden and others 2011 and Artuc and others 2012.
Note: Highly-skilled migrants are those with at least some tertiary education.
characteristics, the gain may range from 50 ing migrants a particularly vulnerable group.
percent to more than double the difference in In others, intermediaries are informal agents
income per capita between the host and the who provide market-priced migration services
sending countries.9,10 Transportation costs and in the absence of other formal mechanisms to
rents taken by intermediaries can reduce these address the existence of demand and supply
gains, however. In some cases, these intermedi- for migration.11 Migrants also face psychologi-
aries are part of illegal organizations linked to cal and physical health risks, often without ac-
trafficking of people and criminal abuses, mak- cess to health insurance.12 The persistent flows
236 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
of migration would indicate, though, that the tions for developing countries. Some fear a brain
large gains, actual and expected, more than drain, whereby developing countries would suf-
compensate for the costs. fer from the loss of valuable human resources. 20
Evidence on the impact of migration on la- According to this view, developing countries put
bor outcomes in sending countries is scattered. considerable fiscal resources into the education
If employment opportunities for those who mi- of these workers, with the intention of enhanc-
grate were limited, earnings and employment ing their productivity and creating an elite of in-
would remain unaltered. If they were plentiful, novators, thinkers, and administrators. Thus the
earnings rise and the participation rates of previ- migration of skilled workers not only creates a
ously inactive persons would increase. Studies fiscal and distributive concern in the short term,
for Mexico, Pakistan, and the Philippines show but it also impairs the growth capacities of the
that out-migration did affect wages and unem- country in the long term. In this view, develop-
ployment rates in the sending country, but no ing countries should create incentives for skilled
discernable effects on labor outcomes have been workers to return to their home country, for ex-
found in Bangladesh, India, and Sri Lanka.13 ample, through financial reforms of secondary
The net effects of migration flows on em- and tertiary education.
ployment opportunities and labor earnings de- Others, however, see a “brain gain,” whereby
pend on the skills and the jobs of those who developing countries benefit from networks,
move abroad. A recent study using data for high- return migration, and the incentives for young
and middle-income economies shows that im- people to improve their skills. Returning mi-
migration of high-skill workers has positive ef- grants bring home entrepreneurial and technical
fects on wages of both high- and low-skill local capacities that enhance productivity in sending
workers. On the other hand, emigration of more countries. Experience acquired abroad has been
educated workers is associated with declines in found to induce higher wages among salaried
wages for both low- and high-skill workers who workers and higher productive efficiency among
remain in the country of origin.14 entrepreneurs in several countries.21 Beyond the
Remittances are an important source of in- individual benefits are societal benefits that may
come for households in sending countries, al- extend to the proliferation of a whole industry
though they do not necessarily reach the poorest and the creation of new jobs in an entire local-
of the poor. In different countries, an increase ity. Bangalore and Hyderabad in India illustrate
in international remittances is associated with this point: returning migrants set up informa-
declines in the share of people living in pov- tion technology and communication companies
erty.15 Remittances also increase savings and to take advantage of their previous experience
investment in recipient families.16 And they are and their links with international companies.22
more resilient than is generally believed. Recent The presence of highly qualified Indian engi-
studies show that despite tougher conditions for neers and executives in U.S. corporations paved
migrants during the 2009 recession, remittances the way for the rise of the Indian software indus-
dipped only slightly.17 Results are mixed on the try.23 The activities of migrant networks are not
impact of remittances on income inequality. restricted to skilled migrants or corporate activ-
Some studies find that migrants come from the ities. Networks of Mexican low-skill workers in
middle of the income (or wealth) distribution the United States have worked with the Mexican
and that, in the short term, remittances leave government to redirect and enhance public in-
overall inequality unaltered. Others show that in vestment in infrastructure in their communities
the medium term inequality decreases, because of origin.24
of the higher economic activity in localities with Networks of migrants can also be impor-
migrants.18 Most studies also report that remit- tant sources of foreign direct investment and
tances reduce labor force participation among know-how, both of which promote productivity
migrants’ relatives.19 growth in sending countries. It is estimated that
The growing migration trend among the Chinese migrants contributed more than half
highly skilled raises concerns about the implica- of all foreign direct investment in China.25 The
Connected jobs agendas 237
30
creasing rapidly.38 Therefore, an overall decline
in the manufacturing share of GDP in China
25 might be unavoidable, opening up the oppor-
20
tunity for labor-intensive industrialization in
other developing countries.39
15 The rapid growth of labor productivity in
1991 1995 2000 2005 2008 manufacturing is resulting in the stagnation or
manufacturing share of GDP even the decline of the number of manufactur-
manufacturing share of employment ing jobs worldwide (figure 7.2). Global employ-
ment in manufacturing increased by only 30
percent from 1990 to 2008, with most of the ex-
Source: World Development Report 2013 team estimates based on data from the United Nations Industrial
Development Organization (UNIDO) database and United Nations Statistics Division. pansion taking place in Asia, especially in China.
Note: Japan is not included in panel a. GDP = gross domestic product. Given that manufacturing jobs connect to ex-
Connected jobs agendas 239
150
100
50
0
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
90
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
19
Sources: World Development Report 2013 team based on ILO 2010; Industrial Statistics Database: INDSTAT2-2011 Edition, United Nations Industrial Development Organization,
Vienna, and World Development Indicators.
port markets and global value chains more than ing share of employment and GDP in services,
other jobs and are thus more likely to generate some of which are sold across borders.41 New
productivity externalities, this stagnation or de- ways of delivering services, often broken down
cline raises the prospect of a fierce international into small tasks and driven by information and
competition ahead (question 7). If aggregate communication technology (ICT), are trans-
numbers of manufacturing jobs are bound to forming where service activities can be located
remain relatively stable, successful industrializa- (box 7.2). The world share of developing coun-
tion in one region may come at the expense of tries in global exports of services increased from
industrial employment in another region. 11 percent in 1990 to 21 percent in 2008. Ser-
Manufacturing could take off in South Asia vices are now the main contributor to economic
or Sub-Saharan Africa if technology and man- growth in many developing countries, including
agement knowledge were transferred there. Such India.42
a transfer, however, is not simple: fostering en- The rapid expansion of trade in services is
trepreneurship, nurturing a more skilled work- bound to increase productivity on a global scale.
force, creating a stronger investment climate, But it also is raising fears in developed countries
and establishing a more favorable institutional that service sector jobs will migrate to develop-
environment would be necessary. There is also ing countries through offshoring or interna-
a risk of focusing on industries that are not in tional outsourcing, much the same as manufac-
line with the potential comparative advantage turing jobs did over the past four decades.
of these regions.40 Combined with poor logistics A telltale sign of the potential for offshor-
and weak government capacity, that could mean ing and outsourcing is the substantial number
that few manufacturing jobs would actually mi- of service sector tasks already being performed
grate to these regions. Studies on the locational remotely within industrial countries.43 In the
decisions of multinational corporations show United States, service occupations that are trad-
that many factors come into play (box 7.1). able by nature, such as computer systems design
Services were once regarded largely as non- and management consulting, display a heavy
tradable, but this is no longer the case. Both geographic concentration. This concentration
country-specific and global trends show a grow- results partly from agglomeration economies,
240 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Where multinationals locate provides insights into the critical char- Costs associated with complying with business regulations and with
acteristics in a host country that firms want or need. Traditionally, taxes can also be important, as are the reliability and cost of contract
foreign direct investment (FDI) was categorized either as horizon- enforcement institutions. The literature shows that the relative
tal—multinationals seeking better access to larger markets over- importance of these dimensions often varies by different types of
seas—or vertical—multinationals moving part of their production sectors, the degree of capital intensity, and technological sophisti-
to a lower-cost location. As trade barriers and transportation costs cation. The presence of other firms is also a consideration. Quick and
have fallen and supply chains involve ever more specialized tasks, reliable access to suppliers can reduce costs and delays.
the importance of locating near the final market has diminished. But In addition to the academic literature, a number of consulting
the empirical patterns show that “costs” need to be determined firms provide analysis and rankings of the attractiveness of coun-
over a range of dimensions. tries based on the views of top executives of multinationals. A.T.
The location-decision question has been examined empirically Kearney has published a Foreign Direct Investment Index since
by looking at how the characteristics of host countries predict the 1998. Three dimensions emerge as critical in its analysis: well-
inflow of FDI and entry of multinationals. Significant macroeco- functioning financial markets, a strong business environment, and
nomic instability or conflict disqualifies most locations. Low wages strong labor skills. A separate index for the location of services also
can be attractive, but given that labor is often a small share of over- emphasizes skills, particularly language skills, and the degree of
all manufacturing costs, they are often not the predominant consid- global integration. Labor typically accounts for a larger share of
eration. And labor costs cannot be evaluated separately from the overall costs in services than in manufacturing.
quality of skills; developed countries remain significant destinations The evolution of supply chains into more specialized tasks oper-
of FDI in part because of their highly skilled workforces. Access to ating across more diverse locations can offer opportunities for an
land, particularly in parts of Africa and Asia where land access is increasing number of developing countries. Multinationals are not
more regulated, can be a significant consideration. Poor or inconsis- looking for a strong business environment across the board; they
tent public services, including electricity, security, and transporta- care about inputs and services that are specific to their needs and
tion infrastructure, can quickly raise costs—through delays, lost thus are location-specific.
production, and the expense of privately providing these services.
Sources: World Development Report 2013 team based on Alfaro and Chen 2011, Helpman 2006, and Harrison and Rodríguez-Clare 2009.
BOX 7.2 E-links create job opportunities in developing countries, but the scale is still modest
Internet services are becoming ever more accessible, including in refugee camps in countries, such as Haiti, Pakistan, Uganda, and
the developing world. Crowd sourcing tools help businesses to others. Data workers develop skills in English, computers, and a vari-
break up larger tasks into many smaller discrete steps. These are ety of project-specific tasks. Samasource has reached 1,600 women
then offered to a global online community through competition. and youth over the past three years.
The platform TopCoder, for example, brings together close to Similarly, RuralShores aims to bring rural India into the global
400,000 programmers globally. knowledge world. It provides remote processing of noncritical busi-
A special type of online outsourcing, branded impact sourcing ness transactions such as data entry, simple bookkeeping, expenses
by some, aims to bring employment and supplementary income to handling, and document digitalization and archiving. RuralShores
low-income areas. Impact sourcing is estimated to represent 4 per- runs 10 centers in 7 Indian states, employing about 1,000 people.
cent of the entire business process outsourcing industry, account- The centers, run as for-profit entities, are all located in remote Indian
ing for US$4.5 billion in total revenues and employing around villages. While most employees are high-school graduates, the com-
140,000 people around the globe. Samasource is a nonprofit organi- pany gives preference to people with disabilities and young job-
zation based in San Francisco, working with major technology cli- seekers from poor, agrarian families. Impact sourcing does face
ents. It splits large projects into “micro work”—small tasks that can challenges that include access to clients and contracts, sustainable
be done online using inexpensive computers—and distributes the demand, robust infrastructure, effective recruitment, and identifica-
tasks largely to women working with partner service providers in tion of investors.
the poorest parts of the world, including remote villages, slums, and
Sources: World Development Report 2013 team based on Monitor Inclusive Markets 2011 and Selim 2012 for the World Development Report 2013.
Connected jobs agendas 241
supporting specialization. But simple geo- Some researchers claim that a “revolution” is
graphic imbalances between the local supply under way that is turning services sectors into
and demand for services also contribute to re- the main engine of economic growth in devel-
mote provision. oping countries.53 Others argue that developing
Trade in services can be expected to expand countries such as India and the Philippines are
rapidly in the coming years. Until recently, it was successful in exporting relatively skill-intensive
thought that only labor-intensive tasks would services not because of their comparative ad-
be relocated to developing countries, allowing vantage in such services but because of policies
production in industrial countries to focus on preventing their manufacturing sectors from
capital- or skill-intensive tasks.44 However, de- taking off.54 Given the stagnation of global em-
veloping countries are now exporting not only ployment in manufacturing and the growing
traditional services, such as transportation and trade in services, a relevant question is whether
tourism, but also modern and skill-intensive developing countries can successfully skip the
services, such as financial intermediation, com- industrialization phase of development.
puter and information services, and legal and
technical support.45 Skilled jobs performed by
Winners and losers
accountants, programmers, designers, archi-
tects, medical diagnosticians, and financial and The obvious winners of globalization are the
statistical analysts are increasingly outsourced workers and entrepreneurs in countries to
by firms in industrial countries.46 In India, the which industries and splintered tasks have mi-
number of such skilled white-collar jobs has grated. Outsourcing and offshoring, along with
grown rapidly.47 However, some of the service the attendant transfer of new technologies and
jobs seen as skilled in developing countries are advanced management methods, contributes
considered unskilled in industrial countries.48 to productivity growth and improvements in
India was a developing world pioneer in living standards. The development of more ef-
building a modern export-oriented services sec- ficient industries and services encourage a real-
tor, but other countries—Brazil, Chile, China, location of labor toward more productive uses.
and Malaysia, to name a few—have also seized It also stimulates the subsequent development
the opportunity.49 But outsourcing does not of other interrelated industries and sectors
only happen between industrial and develop- through backward and forward linkages. The
ing countries. In the United States (the largest development of a modern services sector can
offshoring economy), 85 percent of the service lead to greater coordination in value chains and
trade is with other industrial countries.50 Two- make a further subdivision of tasks and the re-
thirds of service sector exports from developing organization of production possible, leading to
countries are actually South-South trade.51 economies of scale.55 Multiple actors—includ-
Developing countries tend to specialize in ing multinationals, civil society organizations
certain activities within the services sector. For and consumers in industrial countries—are
example, Brazil, Costa Rica, and Uruguay are increasingly active in efforts to improve work-
strong in professional and ICT-related services; ing conditions and workers’ rights in developing
Chile in distribution and transportation ser- countries. To the extent that such efforts bear
vices; Mexico in communication and distribu- fruit, enhanced export opportunities improve
tion services; and Sub-Saharan African coun- workers’ well-being.56 In all these ways, signifi-
tries in professional services.52 This diversity in cant trickle-down effects can have widespread
specialization will likely lead to both competi- benefits for recipient countries.
tion and cooperation, involving different seg- The hidden winners from the migration of
ments of the services sector, rather than a head- jobs are consumers at large. The improved in-
on collision between industrial and developing ternational division of labor expands the global
countries. availability of goods and services, improving
This new phase of globalization is bound to living standards around the world.57 This point
influence views and interpretations about struc- can be easily understood by thinking how the
tural transformation and the migration of jobs. world would look if China and India could not
242 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
provide cheap goods and services to the rest of income gap created by the international migra-
the world. tion of jobs. But jobs tend to migrate more eas-
The obvious losers are those who have lost ily than people.
their jobs because of the declining competi-
tiveness of the industries and services where * * *
they used to work. While skilled workers may
easily find similar occupations in other indus- The migration of people and the migration of
tries without a loss in salary, many low-skilled jobs make clear that jobs challenges, despite being
workers are not so fortunate. Low-skilled country specific, can also be global in scope. Both
workers or those with industry- or occupation- sending and recipient countries can benefit from
specific skills that are no longer in demand are these international movements in a variety of
more likely to be forced to accept lower-paying ways, from higher labor earnings to remittances,
jobs in different industries or remain unem- from greater productivity to broader networks.
ployed.58 Job losses could become a serious is- Consumers worldwide also benefit from less ex-
sue not only in industrial countries but also pensive consumer goods. Tensions and costs are
in dynamically growing developing countries, associated with these two migrations, however.
such as China, as their labor costs increase. Migrant workers may suffer discrimination and
There are also hidden losers. These are the segregation or lose their family and cultural con-
workers and entrepreneurs in countries which nections and identity, disrupting not only their
have failed to develop new industries and ser- own sense of well-being but also have an impact
vices connected to world markets and the jobs on communities in origin and host countries.
that go with them.59 Workers in those countries, The migration of people and the migration
however, may not perceive the lost employment of jobs may transform entire communities, cre-
opportunities.60 ating winners and losers. Many see their lives
One way to mitigate the welfare losses from improve, but those who lose their jobs to out-
globalization, both apparent and hidden, is sourcing and offshoring may experience perma-
through the international migration of work- nent declines in well-being, especially if they are
ers. Income differentials across countries, unskilled. These spillovers, positive and nega-
which reflect differences in the growth rates of tive, are powerful motivators for the political
different economies, are important drivers of and social groups that promote or oppose the
this migration. By reallocating workers from migration of people and of jobs. But these spill-
stagnant or slowly growing economies to rap- overs are international in nature, so coping with
idly growing ones, the international migration them only through national policy instruments
of workers contributes to the reduction in the may prove unsatisfactory.
QUESTION
7 Competing for jobs?
Many developing countries face a jobs agenda. determined by the size of the labor force. How-
In some, it involves offering avenues to rural ever, the composition of employment is bound
populations to move out of poverty. In others, to change. The concern is that the share of
it aims at leveraging the gains from urbaniza- good jobs for development may decline in one
tion and from integration in global markets. Yet country and increase in another. Whether that
in others, the goal is to prevent youth from be- happens depends on the nature of good jobs
coming disenfranchised or to reduce the risk of for development and the types of national
conflict. These agendas are addressed through policies being adopted to support job creation.
national policies that stimulate job creation by While the public’s concern is legitimate, not all
the private sector, especially in the areas and measures to support job creation amount to a
activities where development payoffs are high- beggar-thy-neighbor policy.
est. But jobs agendas of individual countries are
connected through globalization: trade in goods
Not a competition for total employment
and services, investment flows, and migration of
but for its composition
workers. This begs the question: if jobs can mi-
grate from one country to another, do policies International trade and investment can be ex-
to support job creation in one country become pected to lead to greater prosperity. Globaliza-
policies affecting jobs in other countries—poli- tion, including firm relocation and outsourcing,
cies competing for jobs globally? may result in job losses at home in the short
Among economists, the conventional wis- term, but the demand for labor should increase
dom is that the number of jobs is not deter- in the longer run, as specialization generates ef-
mined by international trade and investment ficiency gains in both industrial and developing
but by the total number of people in the labor countries.61 Lower prices for goods and services,
force. And in general, openness to international and a growing consumption demand from
trade and foreign direct investment is beneficial emerging countries as they prosper, can only re-
for all the countries involved. Thus, globaliza- inforce the upward trend in the global demand
tion is not a zero-sum game. From this point for labor.
of view, policies to support job creation are not Empirical evidence to a large extent con-
policies competing for jobs, even as they may firms this upbeat assessment. Labor earnings
alter the global flows of trade, investment, and and working conditions improve as countries
workers. grow richer, and global integration has been
The general public seems to have a less san- good for growth. Across developing countries,
guine view of the situation. Representative pub- a 1 percent increase in a country’s openness,
lic opinion polls show that firm relocation and measured as the share of its foreign trade in its
tasks outsourced abroad are seen as a threat to output, has been associated with a 1 percent in-
employment in industrial countries (box 7.3). crease in GDP per capita.62 Gains may reach up
Globalization is perceived as a head-to-head to 1.5 percentage points on average in the case of
competition in which employment gains in one openness in financial services and telecommu-
country can be achieved only at the expense of nications.63 Even in Sub-Saharan Africa, where
jobs in other countries. trade liberalization was viewed with skepticism,
There is merit to both views. Past the short- the increase in output growth rates could be in
term impact of outsourcing and delocalization, the range of 0.5 to 0.8 percent.64 Evidence also
the total number of jobs in one country should shows that firms engaged in global markets pay
not be substantially affected by policy decisions higher wages. This is true of exporting firms
in other countries. Some firms may close or start from Colombia to Morocco and from Mexico
activities, others may expand or contract their to Korea. It is also true of foreign-owned com-
business, but total employment will be roughly panies, whether they operate in Cameroon or
244 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Across European countries, popular perceptions can be inferred global crisis and the European debt crisis, when concerns about un-
from the Eurobarometer surveys. One of its questions is the follow- employment were not exacerbated, about one-third to one-half of
ing: “What comes first to mind when you hear the word ‘globaliza- respondents see globalization as a relocation of companies abroad.
tion’?” The options for answering this question are opportunities for The survey also asked: “Which of the following two propositions is the
domestic companies in terms of new outlets; foreign investments one which is closest to your opinion with regard to globalization?”
in the country; relocation of some companies to countries where Possible answers included good opportunity for domestic companies;
labor is cheaper; increased competition for the country; and other. threat to employment and companies; and “do not know.” With the
The third option reflects perceived job insecurity. Even before the exception of Denmark, where only a small minority chose the second
70
60
50
respondents, %
40
30
20
10
0
nd
ey
ia
ia
tia
ly
ic
en
nd
ce
ria
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ai
an
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an
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an
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ed
la
la
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Gr
Fr
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Bu
Fi
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Cz
Note: The figure is based on the following question and answer: Question: “There are multiple consequences of the globalization of trade. When you
hear the word ‘globalization,’ what comes first to mind?”; and Answer: “Relocation of some companies to countries where labor is cheaper.” Data are from
surveys conducted in 2008.
option, between one-third and three-quarters of the respondents saw world—what would suddenly create worldwide peace, global well-
globalization as a threat to jobs. being, and the next extraordinary advancements in human develop-
Based on opinion polls, policies for jobs are often perceived as a ment, I would say the immediate appearance of 1.8 billion jobs—for-
zero-sum game in which gains for one country can be achieved only at mal jobs.” In his view, “this raises an important distinction—not only do
the expense of others. The chairman and CEO (Chief Executive Officer) we need to create more jobs, we need to increase the number of good
of Gallup put it as follows: “If you were to ask me, from all the world jobs. And we can’t see that quest for good jobs as an internal skirmish
polling Gallup has done for more than 75 years, what would fix the between warring political ideologies. It’s an international war.”a
Sources: Clifton 2011; Eurobarometer Surveys (database) 2010, European Commission, Brussels.
a. Interview given in connection with the book launch.
Connected jobs agendas 245
República Bolivariana de Venezuela, Indonesia of more sophisticated goods. In the 1970s and
or Zambia.65 1980s, Japan not only began exporting steel,
Admittedly, the dispersion of earnings semiconductors, and automobiles but turned
within countries has also increased, for instance into a leading supplier. As the major exporter of
in the form of higher returns to education, and these products, the United States suffered from
it is tempting to attribute this trend to global- Japan’s expansion.67 The United States had been
ization. Low-skill jobs in industrial countries characterized by its fluid labor markets. Yet, the
are often high-skill jobs from the perspective of potential welfare loss from the decline of Pitts-
developing countries, and exporting itself is a burgh, Detroit, and other industrial centers
skill-intensive activity. Therefore, international could be substantial, even if labor was reallo-
trade and offshore outsourcing can be expected cated smoothly.68 This competition was resolved
to increase the relative demand for skills at both by “voluntary export restraints”—a special form
ends, favoring better-off workers. The empiri- of quota that actually granted all quota rents to
cal results on this possible effect vary widely, Japan but prevented a complete decline of such
however.66 For sure, all policies create winners employment in the United States, indicating the
and losers, and the distribution of labor earn- importance attributed to these industries.69
ings has widened in parallel with globalization, Concerns are similar for developing countries
but a causal relationship is difficult to establish. nowadays. Consider the opportunities opened by
Overall, widening disparities may have more to the increase in labor earnings in the coastal areas
do with technological progress and financial lib- of China.70 Some labor-intensive manufactur-
eralization than with globalization. ing jobs connected with global value chains will
A different perspective arises when consid- migrate out of China in search of lower produc-
ering the composition of employment, rather tion costs. Given rapid technological progress,
than the level or dispersion of labor earnings. the global number of jobs in light manufactur-
Globalization provides developing countries ing is unlikely to increase much. Low-income
with the opportunity to connect to world mar- countries in both Sub-Saharan Africa and South
kets and derive productivity spillovers boosting Asia aspire to attract some of those jobs, so a
their economic growth. Manufacturing jobs in- competition is involved. Tension is not limited
tegrated in global value chains, as well as jobs to labor-intensive manufacturing jobs. A simi-
in technologically advanced services and in fi- lar logic underlies government efforts to attract
nance, are often seen as tickets to rapid devel- high-tech companies, as Costa Rica successfully
opment. However, rapid technological progress did with Intel.71 This is also the logic behind
and economies of scale may mean the global government efforts to foster services exports,
number of some of these jobs will not increase exemplified by the success of Brazil, Chile, India,
much. For jobs in manufacturing, the experi- Malaysia, and the Philippines.72
ence of the last few decades has shown a relative Because technological progress and global-
stability of their global numbers together with a ization connect markets to an unprecedented
dramatic change in their spatial distribution. If level, they also result in competition over other
so, policies for job creation could lead to a com- types of jobs with high development payoffs.
petition not for the level of employment but for Jobs located in a global hub can generate large
the jobs with the highest development payoffs. productivity spillovers. London stands as one
The experience of Japan and the United of the most economically vibrant cities in Eu-
States illustrates the point. In the 1950s, Japan rope largely because it serves as an international
exported cheap labor-intensive products in financial center. The financial industry entails
exchange for goods embedded with more ad- scale economies and is supported by density.
vanced knowledge and technology. This strat- Therefore, the number of global financial cen-
egy generated much needed revenue for Japan’s ters is limited, and their formation is shaped by
post–World War II recovery. More importantly, location, history, and national policies. Similar
it contributed to Japan’s productivity growth logic applies to international transportation
and built the foundation for the production hubs such as Singapore, clusters of information
246 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
and computer technology–related industries or an adverse effect on the social welfare of an-
such as Silicon Valley and Bangalore, and so on. other country.
A key question to ask is what purpose poli-
cies serve (figure 7.3). For instance, policies
Policies for jobs: Different degrees of
for jobs may aim to improve compliance with
competition
rights, prosecuting forced labor and harmful
Even if globalization may result in a competition forms of child labor. Because fundamental la-
for good jobs for development, not all efforts bor rights and principles have been endorsed
to support job creation amount to beggar-thy- by most countries, promoting compliance with
neighbor policies. Whether they do so depends rights amounts to providing a global public
on the type of instruments used and the nature good. Thus, interventions against human traf-
of the spillovers from jobs.73 ficking or child prostitution in one country are
Because globalization involves international unlikely to have adverse effects in other coun-
trade and foreign direct investment, it is natural tries and do not lead to a competition for jobs.
to first consider trade- and investment-related In the absence of a global public good di-
instruments. Some of them, such as import tar- mension, the second question is what market
iffs, export subsidies, and local content require- imperfection or institutional failure is being
ments, are ruled out by multilateral trade agree- addressed by the policy intervention. Tackling
ments; others, such as improving access to credit the institutional failures that lead to conflict,
for private exporters and identifying and remov- discrimination, or lack of voice might have an
ing specific constraints faced by foreign inves- effect on the international flows of goods, ser-
tors, are not. But in reality these are just a nar- vices, and finance, but only indirectly. The risk
row subset of policies for jobs. When bidding to that government interventions in these areas
attract foreign direct investment, governments will result in a competition for jobs with other
can compete directly through tax holidays or countries is limited. The risk is also limited in
through dedicated physical infrastructure and the case of interventions aimed at providing
human resources. They can also compete indi- jobs opportunities for the poor. In all of these
rectly, as when they take actions that appeal to cases, there should be gains in well-being in the
both local entrepreneurs and foreign investors. developing country, and no substantial loss in
For example, they can contain increases in the well-being in other countries. Therefore, jobs
cost of labor by keeping mandated benefits af- policies focused on strengthening social cohe-
fordable. Or they can improve the availability sion and improving living standards should be
and quality of factors of production, such as acceptable as well.
worker skills and public infrastructure. In South The answer is less clear when government in-
Asia, for example, the quality of physical infra- terventions aim at enhancing productivity spill-
structure and the education of the workforce are overs from jobs. These interventions typically
the strongest predictors of entry of new firms.74 include urban development policies, invest-
When considering good jobs for development ments in infrastructure and skills, or the pro-
more generally, and not just jobs connected to motion of entrepreneurship. Because these in-
world markets, the set of policy options is even terventions are likely to affect the international
broader. Urban policies are another important flows of goods, services, and finance, the range
instrument to stimulate job creation by the pri- of possible outcomes is broader. While no gen-
vate sector. Given the potential agglomeration eral rule is available, interventions that under-
of economies, relatively small interventions can mine an open trading system most likely reduce
have large effects.75 In low-income countries, aggregate well-being—probably more at home
enhancing extension services may have a large than abroad. On the other hand, interventions
impact on farm productivity and, thus, on pov- aligned with a country’s dynamic comparative
erty reduction. Whether this broader set of poli- advantage could result in mutual gains. Admit-
cies leads to a competition for jobs depends on tedly, assessing what “aligned” means in practice
whether policies in one country have a positive is bound to involve an element of judgment.76
Connected jobs agendas 247
Policies
F I G U R E 7. 3 for jobs may or may not harm other countries
policies
for jobs
But the East Asian experience, with jobs in man- countries followed their dynamic compara-
ufacturing migrating from Japan to Korea and tive advantage under the “flying geese” pattern
Taiwan, China, and subsequently to China, and of development, there were few instances of an
then to Vietnam, provides some hints. As these open competition for jobs between them.
© Piotr Malecki / Panos Pictures
Employees at a call center in Poland
Connected jobs agendas 249
38. Rozelle and Huang 2012 for the World Develop- farmer and Sztajerowska (2012); Rama (2003);
ment Report 2013. and Robertson and others (2009).
39. See, in particular, Dinh and others 2012. 67. See, for example, McKinnon and Ohno 1997.
40. Lin 2012; Lin and others 2010. 68. Gomory and Baumol 2001.
41. Measuring the net effect of offshoring is complex, 69. See, for example, Feenstra 1984 and Hymans and
and different methodologies have been proposed. Stafford 1995.
From a theoretical point of view, the net effect in 70. Lin 2012.
a given country is ambiguous because offshor- 71. Rodríguez-Clare 2001.
ing may reduce employment in the short term, 72 Goswami, Mattoo, and Sáez 2011.
but the resulting specialization can induce pro- 73. Levy 2012 for the World Development Report
ductivity gains that increase employment in the 2013.
long term, although with a change in the share of 74. Ghani, Kerr, and O’Connell 2011.
different types of labor and occupations within 75. Glaeser and Gottlieb 2008.
the total. The Organisation for Economic Co- 76. Lin (2012) proposes to use as a reference the trade
operation and Development (OECD 2007) and patterns of countries whose endowments are sim-
the United Nations Conference on Trade and ilar but whose income per capita is moderately
Development (UNCTAD 2004) indicate that higher than in the country under consideration.
offshoring is not necessarily a zero-sum game
and that short-term job losses may be more than
compensated for by job gains, although with
variations across industries and sectors.
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PART
3
Policies through
the jobs lens
Introduction to Part 3
M
ost jobs are created by the private sec-
tor. While public works and targeted
employment programs are justified
in certain situations, the primary role of govern-
ment is not to directly provide employment. It is
to set the conditions for job creation by the pri-
vate sector, and especially to remove the obsta- PRIORITIES
cles to the creation of more of the jobs with the
highest development payoffs, given the circum-
stances of the country.
LABOR POLICIES
When faced with jobs challenges, policy
makers tend to look first at labor policies as ei-
ther the solution or the problem. It is important,
then, to understand the role and the impacts of FUNDAMENTALS
policies and institutions like labor market regu-
lation, collective bargaining, active labor market
programs, and social insurance. But the main
constraints to the job creation often lie outside
the labor market, and a clear approach is needed
to support appropriate policy responses.
Source: World Development Report 2013 team.
• Fundamentals are necessary for growth and
are a precondition for strong job creation by
the private sector. Macroeconomic stability,
an enabling business environment, human ensure voice and social protection, especially
capital, and the rule of law, including the for the most vulnerable.
progressive realization of rights, are the key
policy fundamentals. • Policy priorities have to be established in sup-
port of good jobs for development. Ideally,
• Labor policies need to be adequate for growth policies should aim at removing the market
to translate into jobs. Policies should seek imperfections and institutional failures pre-
to avoid the distortive interventions that venting the private sector from creating more
stifle labor reallocation and undermine the of those jobs. If the constraints cannot be
creation of jobs in functional cities and easily singled out or are difficult to remove,
global value chains. But policies should also offsetting policies may be considered.
257
Chapter
8
Labor policies revisited
L
abor markets have imperfections in the country’s legal traditions, politics, and social
form of inadequate information, uneven norms and values.
bargaining power, limited ability to en- The impact of labor policies is often the sub-
force long-term commitments, and insufficient ject of heated debates. In the past decade, im-
insurance mechanisms against employment- proved data and methods have generated a great
related risks. Imperfections like these create gaps deal of new information not only in industrial
between the individual and the social value of countries but increasingly in developing coun-
jobs. They can thus result in a level and compo- tries as well. The analyses of these data have led
sition of employment that are not optimal from to fresh insights. Estimated effects prove to be
a social point of view. relatively modest in most cases—certainly more
Labor policies and institutions—regulations, modest than the intensity of the debate would
collective representation, active labor market suggest. Excessive or insufficient interventions
programs, and unemployment insurance—can can certainly have detrimental effects on pro-
in principle be used to address these imperfec- ductivity. But in between these extremes lies a
tions. Other policies, such as pensions and other “plateau” where effects enhancing and under-
forms of social insurance, address imperfections mining efficiency can be found side by side and
elsewhere in the economy but can have impor- most of the impact is redistributive. Overall,
tant implications for the functioning of the labor labor policies and institutions are neither the
market. major obstacle nor the magic bullet for creating
Labor policies and institutions are bundled good jobs for development in most countries.
in different ways in different countries (fig-
ure 8.1).1 Their configuration tends to vary by
level of development, with policies and insti-
tutions generally more developed in industrial
countries. This is especially so for institutions PRIORITIES
providing a vehicle for collective voice, such as
bargaining between employers and employees, LABOR
POLICIES
and for social insurance. But the nature of the
labor policies and institutions in any country is
affected by more than just the level of develop- FUNDAMENTALS
ment and must be seen in the context of the
Labor policies revisited 259
The
F I G U R E 8 .1 mix of labor policies and institutions varies across countries
labor
regulation
social active
insurance labor market
programs
OECD collective
representation
agrarian conflict-affected
economies countries
urbanizing resource-rich
countries countries
countries with
small island
high youth
nations
unemployment
formalizing aging
countries societies
Sources: World Development Report 2013 team estimates based on Eurostat Public Expenditure on Labour Market Policy (LMP) Interventions (database), European Commission;
InstitutionaI Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts (ICTWSS) (database), Amsterdam Institute for Advanced Labour Studies, Amsterdam;
Pallares-Miralles, Romero, and Whitehouse 2012; Public Expenditure and Participant Stocks on Labour Market Programmes (database), Organisation for Economic Co-operation and
Development, Paris; Robalino, Newhouse, and Rother, forthcoming; and World Bank, forthcoming.
Note: OECD = Organisation for Economic Co-operation and Development. Figures are averages across OECD member countries. Labor regulation indicates the ratio of minimum
to average wage. Active labor market programs is the share of gross domestic product spent on them. Collective representation is the coverage of collective bargaining agreements
divided by the labor force. Social insurance indicates workers contributing toward old-age pensions as a percentage of the labor force. Countries were classified in the eight groups
by the World Development Report 2013 team. One country can belong to several groups. The figure shows unweighted averages across countries.
260 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 8.1 Employment protection legislation covers more than firing rules
Employment protection legislation, or EPL, can be classified into Other types of labor policies can also have implications for job
two main groups of rules, one pertaining to hiring, the other to security. Some regulations set specific conditions for the employ-
termination. Rules on hiring dictate what types of labor contracts ment of women and young workers. They include maternity leave,
are permissible under what conditions—for instance, open-ended, the need for child care facilities, first-contract waivers, or reduced
fixed-term, part-time, and apprenticeship contracts. Rules on ter- minimum wage for apprentices. The aim of these policies is to facili-
mination govern the ending of contracts including causes (volun- tate the p
articipation of more vulnerable population groups and to
tary and involuntary, justified or unfair), end-of-service compen protect them once they are employed. Antidiscrimination regula-
sation (severance pay), and procedures (for instance, third-party tions address socially unaccepted differences in the treatment of
notification or approval, advance notice, and vesting periods). The workers, with the goal to reduce inequality and enhance social
mix and stringency of these rules result in a continuum of regula- cohesion and fairness in employment.
tion across countries, which has been subject to different measure-
ment efforts. a
TA B L E 8 . 2 The impacts of minimum wages are a favorite research topic in labor economics
Dimension Indicator Findings Comments
Living standards Aggregate employment Either no impact or modest negative impact Both industrial and developing countries
Some studies show positive employment effect.
Employment for particular Negative employment impacts concentrated on Some studies show positive employment effect.
groups youth and low-skilled
Wages Positive effect Effect strongest around minimum wage
Some evidence of positive effect in informal
sector
Wage distribution Reduces wage inequality
Poverty Reduces poverty Some studies find no effect.
Productivity Labor and total factor No consistent conclusion Rarely analyzed
productivity
Social cohesion Fairness Provides “decent” wage Depends on enforcement and coverage
Source: Betcherman 2012 for the World Development Report 2013 based on a review of empirical studies of minimum wages.
jority of minimum wage studies do find nega- In many developing countries with large
tive employment effects, especially on young informal sectors, the generally modest impacts
workers. But magnitudes tend to be small and of EPL and minimum wages may stem in part
a number of studies report no effect, or in some from poor coverage and weak enforcement. In
cases, even positive effects.15 EPL and minimum Brazil, employment effects of strong job secu-
wages can shift employment away from young rity provisions were negative in municipalities
people, women, and the less-skilled and toward where enforcement was strong.22 Mechanisms
prime-age men and the better educated.16 Their for voice and representation and the capacity
effects can vary within a country. In Indonesia, of government to effectively administer regu-
increasing minimum wages during the 1990s lations influence the effectiveness of enforce-
had a negative effect on employment among ment. Certainly, poor rules coupled with weak
small firms but not on large firms.17 Across enforcement are not a desirable combination to
countries, both EPL and minimum wages are address labor market imperfections.
associated with a reduction in wage inequality.18 But many countries appear to set EPL and
EPL has clear dynamic effects, reducing labor minimum wages in a range where impacts on
market flows and increasing durations in both employment or productivity are modest. Within
employment and unemployment.19 In this way, that range, or “plateau,” effects enhancing and
strong job security rules slow down labor real- undermining efficiency can be found side by
location and limit the efficiency gains from cre- side, and most of the impact is redistributive.
ative destruction. Studies on the overall impact The distributional effects tend to be equalizing
of EPL on productivity are mixed, however, with among those who are covered by these regula-
some finding negative productivity impacts and tions, but divisions can be accentuated between
others finding positive or no significant effects.20 those covered and those who are not. With ef-
This mix of findings may be caused by other in- ficiency effects relatively modest on the plateau,
fluences of job security rules, such as incentives countries can choose where they want to be
to invest in training, which can counteract the depending on their normative preferences for
lower rates of labor reallocation. Some coun- redistribution.
tries have tried to reduce EPL by implementing
partial (“dual-track”) reforms that increase the
. . . but cliffs at the edge of the plateau
scope for nonpermanent employment. How-
ever, unless accompanied by reductions in the However, when the edge of the plateau is
protection of permanent jobs, this approach reached (either on the too-strict or too-loose
seems to result in the more vulnerable groups side), impacts are more negative. Some studies
ending up in more precarious employment.21 have found that Indian states with more restric-
Labor policies revisited 263
tive EPL have significantly lower employment the business that would be relevant and useful
and output, and this effect is strongest where for workers. Information sharing can gener-
dispute resolution is ineffective or costly.23 Large ate additional efficiency gains by providing a
increases in the minimum wage in Colombia mechanism for resolving conflicts and reducing
in the late 1990s led to significant employment wasteful turnover.
losses, exacerbated by weak labor demand at the Collective representation and bargaining can
time.24 At this edge of the plateau, which can also address problems of uneven market power
vary according to the country situation, labor whereby firms may be able to impose lower
regulations can slow down job creation in cities, wages or inferior working conditions on indi-
or in global value chains, and can cause coun- vidual workers than would be the case under
tries to miss out on jobs supporting agglomera- competitive conditions.
tion effects and knowledge spillovers. Forgoing
the development payoffs from urbanization and
Bargaining between firms and workers
global integration would be one way to fall off
the cliff. The coverage of unions and collective bargain-
It does not follow that minimal regulation is ing varies considerably around the world (fig-
the answer. If rules are too weak, or not enforced, ure 8.2). Coverage rates are generally low in
the problems of poor information, unequal bar- developing countries, where few workers out of
gaining power, or inadequate risk management the civil service or protected sectors belong to
remain unaddressed. This cliff may be less vis- a trade union. In most countries where regular
ible than excessive labor market rigidity, but it data are available, the coverage of collective bar-
is no less real. gaining agreements has declined during the past
The main challenge is to set EPL and mini- two decades.27 The shift of employment toward
mum wages so that they address the imperfec- the services sector, globalization, technological
tions in the labor market without falling off the progress, evolving social values, and legislative
plateau. The edges of the plateau vary across changes have all been advanced as causes of this
countries and even within countries over time, decline.28
as conditions change. In Brazil, for example, The vast majority of the evidence confirms
minimum wages had negative impacts on em- the existence of a wage premium in favor of
ployment in the 1990s but not over the past union members and other workers covered by
decade, even though they were increasing rela- collective agreements. Estimates of the adjusted
tive to average wages.25 It is important, then, to union wage effect (controlling for other factors)
monitor impacts closely and reflect on the de- range from around 5 percent in Japan and the
sign and implementation of regulations and Republic of Korea, up to 15 percent in countries
their interaction with other institutions.26 Al- as varied as Brazil, Canada, Germany, Malaysia,
though EPL and minimum wages may not ad- Mexico, and the United States.29 South Africa
dress labor market imperfections effectively, in stands at the upper end, although there is con-
most countries good jobs for development are troversy on how high the union wage effect ac-
lacking for other reasons. tually is (box 8.2). Wage effects tend to be stron-
gest for women and in countries where union
membership is high. It is also clear that unions
Collective representation: and collective bargaining have an equalizing ef-
New forms of voice fect on earnings distributions by compressing
wage differentials. Research has shown that wage
Collective bargaining and other forms of “voice” inequality falls during periods when union den-
can address information failures at the work- sity is increasing and rises when union member-
place in ways that enhance productivity as well ship is in decline.30 Little evidence exists on the
as employment security and earnings. For in- impact of unions on poverty.
stance, workers may have knowledge about the One relevant question is whether union wage
details of production and operations that those gains come at the expense of reduced employ-
making decisions do not have. Employers are ment. Unfortunately, few studies have addressed
likely to be informed about certain aspects of this question in developing countries. In in-
264 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
100
90
covered workers, % (around 2005)
80
70
60
50
40
30
20
10
0
s
do ia
M sia
hu o
Es nia
La ia
B a
lg l
Ca ria
Hu da
So Po ry
Af d
Re nd
Gr lic
Lu Por ce
b l
rm g
y
No ly
nm y
er in
Ice ds
Fi nd
Fr nd
Sw ce
Be den
Au m
Sl ria
ia
Ne S rk
ec Ire ica
Bu razi
m ga
ne
an
De wa
i
Lit xic
Ge our
ut lan
Ita
In Ind
n
tv
en
th pa
a
iu
b
ee
an
n
a
st
na
ne
h la
la
a
a
to
xe tu
ng
r
pi
pu
la
nl
e
lg
r
e
ov
ilip
h
Ph
Cz
Sources: World Development Report 2013 team based on ICTWSS database, Visser 2011, and World Bank 2011b.
Note: The reported variable is either union membership or collective bargaining coverage as a share of total employment.
dustrial countries, studies are divided between ter. The evidence collected on productivity in
those finding that unions reduce employment the United States and Europe is not conclusive.32
(or increase unemployment) and those finding In developing countries, effects are positive in
no significant effect. Where negative impacts are Malaysia, Mexico, and Uruguay, but negative in
found, the magnitude is modest. The most re- Brazil.33 Findings suggest that unionized firms
cent estimates by the Organisation for Economic undertake more training than nonunionized
Co-operation and Development (OECD) find firms. But differences in the introduction of new
that a 10 percentage point decline in union cov- technologies are not significant.
erage is associated with an increase in employ- The institutional structure for collective bar-
ment of 0.8 percentage points.31 gaining can differ considerably across countries,
especially in the degree of centralization and co-
ordination. Arrangements vary from firm-level
Industrial relations and productivity
bargaining with no influence on other firms to
The impact of collective bargaining on pro- industry-based bargaining to centralized bar-
ductivity reflects the balance of two opposing gaining with national coverage. Prior to the
forces. On the one hand, voice may lead to bet- 1990s, researchers found that both centralized
ter information sharing, while higher labor costs and decentralized bargaining led to better em-
under unionization may encourage manage- ployment performance. Analysis has been less
ment to invest more on training and technol- conclusive since then, however.34
ogy, leading to higher productivity. On the other With policy changes, some developing coun-
hand, unions may also be able to negotiate re- tries and emerging economies have extended
strictions in hours worked and pay rules that worker representation and are seeing new forms
reduce effort, hindering productivity. The net of collective bargaining. In China, for example,
effect of these forces is then an empirical mat- a number of legislative reforms appear to have
Labor policies revisited 265
BOX 8.2 Are bargaining councils the cause of unemployment in South Africa?
With unemployment rates well above 20 percent, the South African cant but more in line with union wage d ifferentials observed in
labor market is very different from that of other developing coun- other countries. Evidence also suggests that bargaining council
tries, usually characterized by low or moderate levels of open unem- extensions do have effects as well, adding around 10 percent to the
ployment. Diverse explanations have been put forward, including wages of nonunion workers within the bargaining council system.d
growth concentrated in low-labor-intensity sectors, skills deficits, These results imply that the South Africa’s wage-setting institu-
work disincentives created by social benefits, and various legacies of tions do have some employment effects, especially among small
apartheid. South Africa’s distinct collective bargaining arrangements firms, whose contribution to total job creation is small by interna-
are also frequently mentioned as a possible explanation for the lack tional standards. Bargaining councils are estimated to be associated
of jobs. with 8–13 percent lower employment in the firms they cover directly
Since the 1920s, bargaining over wages and working conditions and with 7–16 percent lower employment in small firms.e
in most of South Africa’s manufacturing sector has taken place While these effects are not trivial, bargaining councils can
through industrial councils, now known as bargaining councils. explain only a small part of South Africa’s unusually high unemploy-
Bargaining councils can request that agreements be extended to ment rates. Given the number of workers employed in industries
their entire sector, including to employers and workers who did not covered by collective agreements, eliminating the employment
participate in the negotiations. Extensions are common but vary effect of bargaining councils would reduce the unemployment rate
considerably across sectors and areas. Firm-level bargaining also by 1.5 percentage points, at the most.f So the main constraints to
occurs. It has been argued that sectorwide extensions of bargaining job creation may lie elsewhere.
council agreements impose a heavy labor cost burden on small One clue is the relatively small size of the informal sector com-
firms, undermining employment creation.a pared to other countries at a similar development level. South Africa
Estimates of wage premiums as high as 60 percent for union is different from these countries in other ways, too. During the
members appeared to provide some credence to this argument.b A apartheid period, slum clearance, harsh licensing, and strict zoning
substantial part of this wage effect was associated with industries regulations rid cities of black-dominated informal sector niches.
that could possibly reflect the influence of the councils. Subsequent Two decades after the end of apartheid, spatial segregation remains,
research using more recent data and better methodologies has con- and investment in black-dominated areas is low.g The legacy of sep-
cluded that early studies overestimated the real wage effect of the aration also results in high transportation costs for the unemployed,
bargaining council agreements. The latest research suggests the who tend to live far from where the jobs are. So South Africa’s job
wage premium is in the 10–20 percent range.c This level is signifi- creation problems may stem primarily from urban issues.
opened the door to a proliferation of unions Solidarność, a Polish trade union federation,
and collective bargaining agreements (box 8.3). was prominent in the fight against Communist
rule, while the Confederation of South African
Trade Unions played a leading role in the fight
Voice beyond the firm
against apartheid.
Employers’ organizations and unions also play In some countries, especially developing
roles as social and political agents. They may in- countries, the political involvement of unions
fluence the laws that regulate labor markets and can overshadow their activities at the work-
even policies beyond the sphere of labor rela- place.35 Because their membership is strong in
tions. The nature of such involvement depends the civil service and in protected sectors, unions
on the norms and institutional framework in have often opposed reforms involving fiscal
the society in which they operate. Historically, consolidation, privatization, or liberalization. A
labor unions have contributed to the establish- comparison of economic performances in times
ment of social and labor rights, as well as to po- of reform shows that developing countries with
litical change, in many countries. For instance, higher union membership and higher shares of
266 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Since the turn of the century, China has undergone important based bargaining has emerged where industries cluster around a
changes in labor policies, including enactment of new laws regard- district or village. By the end of 2010, this form of bargaining cov-
ing trade unions (in 2001) and employment promotion, labor con- ered over 5 million workers through 73,000 agreements.d
tracts, and labor dispute mediation and arbitration (in 2007). These The spread of local, sectoral collective bargaining agreements
changes have been accompanied by rapid growth in the number of has occurred against the backdrop of a vibrant private sector
unionized workers and workers covered by wage or collective increasingly facing labor shortages and an inadequately regulated
agreements (more than 150 million at present). In addition to the labor market that has led to many disruptive labor disputes. In
spread of unionization and c ollective agreements, the International some cases, these agreements appear to protect workers’ rights
Labour Organization (ILO) has documented the gradual spread in more effectively.e At the same time, the private sector can also ben-
the direct election of union representatives by workers. Such efit from a more stable relationship with workers, a more reliable
changes reflect a policy shift that “is intended to bring better pro- supply of labor, and more regular and transparent changes in labor
tection of workers’ rights, to create a new balance between flexibil- costs.
ity and security and to facilitate a dialogue between employers and The forms of collective representation in China are diversifying,
workers on issues of mutual concern.”a with government encouragement. Although evidence is only grad-
Another notable change over the past decade has been the ually emerging about the consequences of these changes, some
introduction of local, sectoral-based collective bargaining agree- research suggests that sectoral bargaining at the district or local
ments. The first of these agreements was negotiated in 2003 in the level holds the most promise.f Centralized “top-down” efforts have
wool-sweater manufacturing industry in the Xinhe district of Wen- been made to spur the proliferation of these agreements, with lim-
ling in Zhejiang province.b This is a district known as an example of ited success. But the spontaneous spread of this spatial organization
transparency and local democracy. Since then, these agreements of collective bargaining suggests that it matches well the interest of
have been most prominent in Zhejiang, but have also spread to the private sector in coordinating the operation of industrial clus-
some other coastal provinces.c For the most part, local, sectoral- ters with the interest of workers to have voice in the workplace.
employment in the public sector (where most tions and institutional failures they address do
unionized workers are) experienced deeper de- not involve conventional employer-employee
clines in economic activity before the adoption relationships or workplace-based production
of major reforms and slower recoveries after- structures. They are often organized to represent
ward.36 This finding is consistent with the re- members’ interests with a particular municipal
forms being adopted late, and their implemen- authority or local government.
tation being watered-down. On the other hand, Associations of self-employed workers are
the level of minimum wages and social security emerging as a vehicle to demand and protect
benefits did not affect performance, suggesting their members’ rights and improve their work-
that trade unions made a difference because of ing conditions. Some of them have drawn their
their political activities, more than because of inspiration from India’s Self Employed Wom-
their impact on labor costs. en’s Association (SEWA), which was created 40
Trade unions organized around the employer- years ago. In many cases, groups such as street
employee relationship are less suited to provid- vendors in Lima, Peru, or garbage collectors in
ing voice to those who do not work for a wage. Pune, India, may not only negotiate with gov-
The high incidence of self-employment in most ernment authorities but also resort to litigation
developing countries, and the persistence of in- in the courts. Waste pickers in Bogotá, Colom-
formality more generally, have created impetus bia, organized to defend their right to provide
for innovative institutions for collective repre- services to municipalities (box 8.4). Street ven-
sentation. These institutions are different from dors associations in Durban, South Africa, filed
traditional unions because the market imperfec- cases in court against the construction of malls
Labor policies revisited 267
BOX 8.4 Recicladores forced changes in Bogotá’s solid waste management policies
Waste pickers, or recicladores, in Colombia’s capital earn a living need preferential treatment and judicial affirmative action in the
by recycling metals, cardboard, paper, plastic, and glass and sell- tendering and bidding process for government contracts to man-
ing them through intermediaries. Efficiency considerations aside, age waste.
their experience shows how associations of informal workers can In 2003, the Constitutional Court ruled that the municipal gov-
use legal frameworks to access rights. ernment’s tendering process for sanitation services had violated the
When reforms for the tendering of public services allowed basic rights of waste pickers. Subsequent cases have referred to
municipal governments to give exclusive contracts to private com- constitutional provisions including the “right to survival” as an
panies for collecting, transporting, and disposing waste and recy- expression of the “right to life.” Article 11 of the constitution was
clables, the recicladores organized and filed legal claims. Organiza- invoked to argue the right to pursue waste picking as a livelihood
tions such as the Asociación de Recicladores de Bogotá (ARB), an and the “right to pursue business and trade.” Article 333 was invoked
umbrella association of groups representing more than 25,000 to argue that cooperatives of waste pickers, not just corporations,
waste pickers, played a key role in aggregating claims and taking can compete in waste recycling markets. The most recent case in
cases forward. In making its case, the ARB appealed to the constitu- December 2011 halted a US$1.37 billion contract for the collection
tion’s provision of the “right to equality,” arguing that waste pickers and removal of waste in the city.
Source: Chen and others 2012 for the World Development Report 2013.
and against harassment and confiscation of their works programs such as the Mahatma Gan-
inventories of goods by municipal authorities.37 dhi National Rural Employment Guarantee
These nontraditional workers’ organizations Act (MGNREGA), offering work to millions in
are increasingly participating in global institu- rural India, to tailor-made life-skill courses for
tions such as the ILO. For instance, the Interna- small groups of young participants in the Do-
tional Domestic Workers Network attended the minican Republic. All ALMPs strive to foster
International Labour Conference in 2009 in or- new job opportunities, often for those with the
der to prepare for discussion and vote on a new fewest chances in the labor market.
ILO convention on domestic work at the Inter-
national Labour Conferences in 2010 and 2011.38
A panorama of programs
Job search assistance. These are services provid-
Active labor market programs: ing information on job vacancies and jobseekers
Effective within limits and offering counseling and placement support.
Evaluations indicate that job search assistance
Active labor market programs (ALMPs) can can improve employment and earnings at a low
improve the efficiency of job matching by cost—but only when job vacancies exist. By pro-
transmitting information on job openings viding information and making the labor mar-
and worker characteristics between employ- ket more meritocratic, more effective matching
ers and jobseekers. They can fill the gap when can have positive productivity effects. But job
employers or workers underinvest in training search assistance is less relevant in countries
because of various market failures, and they where a majority of the workers are farmers and
can mitigate the impacts of economic down- self-employed.
turns by providing workers with temporary In many high-income and some middle-
employment or creating incentives for employ- income countries with largely formal labor mar-
ers to hire. ALMPs are politically attractive for kets, job search services have been overhauled in
governments eager to do something about job the past 10 years. Although public financing re-
creation. mains the norm, private provision of services has
The most common active labor market become more common. Performance contracts
programs are job search assistance, wage sub- are being used to create incentives for provid-
sidies, training, and public works.39 In terms ers. These contracts must ensure that providers
of size, interventions range from huge public reach those in most need and do not concen-
268 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
trate only on those who are easy to place.40 Job to demonstrate their skills, or the long-term
search support is increasingly being integrated unemployed who are at risk of suffering “scar-
with a range of complementary services such ring” effects.43 But many studies show that they
as profiling to assess opportunities, life skills, or often do not have their intended effect of creat-
other training. “Activation” strategies requiring ing new jobs in a cost-effective fashion.44
job seekers to be brisk, are also becoming more The real costs of wage subsidies are often hard
common. Ultimately, the success of job search to calculate; the direct toll on the public purse
services depends on the capacity of providers to is only part of the story. To access the subsidies,
reach out to employers’ needs.41 firms might replace ineligible workers with
Potentially game-changing technological in- eligible ones or dismiss and then hire the same
novations are now extending the reach of tra- worker under the subsidy program. If firms
ditional intermediation.42 Mobile phones and would have hired anyway, the employment ef-
the Internet have opened up possibilities for fect of a subsidy is zero. Design can help increase
inclusive information access, connecting un- cost-effectiveness. Improvements in the target-
registered firms and hard-to-reach youth. New ing and other features of a subsidy program in
actors, including both businesses and nonprofit Turkey reduced this “deadweight loss,” although
organizations, have emerged and run services in somewhere between 25 and 50 percent of all
various country settings (box 8.5). subsidized jobs would have still been created
without the subsidy.45 Proper cost accounting
Wage subsidies. These are direct transfers to can reduce the estimated employment impact of
employers or reductions in their taxes or so- wage subsidies by up to 90 percent.46 Aggregate
cial contributions to encourage them to hire employment effects are hence low at best. Alter-
new workers or to keep employees who might native designs, especially to reach the young and
otherwise be laid off. Wage subsidies work best low-skilled, can include a wage subsidy linked
when they are targeted to particular groups, to other active labor market programs such as
such as young people who need an opportunity training.47 The Jóvenes programs and similar in-
New technologies are revolutionizing how people connect with market, focusing on sectors such as construction and facility
jobs. Mobile phones have spread widely and have penetrated management.
low-income households around the world. Over 4 billion people While these companies and organizations have been successful,
have cell phone access, and 1.5 billion have regular access to the others such as Konbit in Haiti and PULS in Pakistan had to overcome
Internet. significant difficulties. Challenges have included attracting sufficient
Text messaging, voice, and mobile applications give jobseekers numbers of jobseekers and employers, building trust among users,
and employers access to information and job counseling services and ensuring adequate assurance on the quality of jobseekers. In
that improve résumés and interview skills and establish networks. response, Konbit has tried to increase the number of users by part-
Voice-based services are particularly important for illiterate job- nering with a locally famous radio disk jockey and mobile phone pro-
seekers. Companies or nonprofit organizations such as Souktel, vider to advertise its service. Through these efforts, the company
Assured Labor, Babajob, and Labournet, operating in places as was successful in attracting 10,000 jobseekers in one month.
diverse as Latin America, India, and the Middle East, have estab- The Internet also brings together jobseekers and employers
lished thriving job matching networks. Souktel, for example, has through online platforms. The large and fast growing oDesk con-
17,000 jobseekers and 600 companies registered in West Bank and nects about 350,000 companies (mainly small and medium enter-
Gaza alone. Sixty percent of registered employers reported they prises) with individual contractors worldwide. From April to June
had cut recruiting time and costs by more than 50 percent. 2012, oDesk posted online close to 450,000 jobs and more than
Some organizations, such as Assured Labor, specifically focus on 280,000 job applications. Jobs range from typing, web research, and
services for middle- to low-wage workers, most without college translation to software development and back-office legal services.
degrees. Currently, Assured Labor has 150,000 registered jobseekers Wages range from US$1 to several hundred US$ per hour. While this
and 2,000 employers in Mexico. Similarly, Babajob and Labournet in new phenomenon has the potential to create many new jobs and
India serve 200,000 and 100,000 jobseekers who can search for generate substantial new wealth, online platforms generally serve
employment in databases containing 40,000 and 45,000 employers, people with specialized and technical skills, and as such, reach few of
respectively. Labournet is unique in that it serves the informal labor the most vulnerable.
Sources: Based on Selim 2012 for the World Development Report 2013 and Monitor Inclusive Markets 2011.
Labor policies revisited 269
success indicator
ing former participants in large public works 0.05
programs. These workers exerted more effort
in searching for jobs and were perceived as 0
more trustworthy than other similar workers.
–0.05
That was true especially for women and young
participants.50 But the narrower the focus, the
–0.10
higher the potential stigma effects. In Poland,
men eligible for the wage subsidies were actually –0.15
less likely to be employed.51 in-class workplace in-class training in-class and
training only training only and workplace workplace
training training combined
Training for jobseekers. Training is the most combined plus other services
widely used active labor market program. The
growing body of impact evaluations underlines Source: Fares and Puerto 2009.
the importance of aligning the skills taught with Note: The figure shows the correlation coefficient between type of training and reported success of a
program, with success defined as improving employment or earnings and being cost-effective.
labor demand. These evaluations show that
positive benefits are not guaranteed and pro-
gram costs can be substantial. When programs organizations allows, public training funds can
are well conceived and implemented, however, be directed to private and nonprofit providers in
they can benefit those furthest from jobs the competitive terms. Performance-based tender-
most. In Latin American countries, and in tran- ing can create incentives for more relevant train-
sition economies such as Romania, youth and ing, while contracting can be designed so that
women record significantly higher success rates the toughest-to-reach groups do not lose out. In
from training than do middle-aged men.52 Bulgaria, Hungary, Romania, Serbia, and Slove-
Some design features are critical for suc- nia, public employment services purchase train-
cess. Integrated programs that include both on- ing programs from various providers through
the-job and classroom components pay off. public tenders.
Especially in developed and Latin American Research shows that at least some training
countries, training for job seekers now often programs help build trust and civic engage-
follows this integrated model, sometimes with ment, but information about how that happens
complementary services such as life skills train- is scant. In Tunisia, the inclusion of entrepre-
ing and counseling. Such combinations increase neurship training in education curricula reform
success rates (figure 8.3).53 The Jóvenes pro- improved participants’ optimism about the
grams in Latin America, which combine life- future.55 In the Dominican Republic, partici-
skills and technical training with work experi- pants in the Juventud y Empleo program were
ence, are a case in point. In Colombia, Jóvenes more likely to have higher expectations for the
en Acción has increased employability of train- future, higher job satisfaction, and more inten-
ees, with an estimated rate of return of 13.5–25 sive search attitudes.56 In northern Uganda, par-
percent for female participants.54 ticipation in a comprehensive intervention that
In addition, providers need incentives to en- combined grants, vocational training, life skills,
sure that the training they offer is relevant for and psychosocial counseling was successful in
the needs of employers. Public training agencies increasing community participation.57
often respond too slowly to changing demands
from firms and jobseekers alike. Where a coun- Public works. These programs offer short-term
try’s institutional capacity and supply of training employment for wages or food. The evidence
270 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
from impact evaluations shows that public many others have not succeeded in improv-
works programs can be useful as a safety net, ing outcomes for participants. Moreover, while
especially when targeted toward those in the some programs are affordable, others are expen-
greatest need.58 Careful setting of the wage level sive. Outcomes for ALMPs depend on their de-
can be a self-targeting tool as has been done in sign but also on the institutional capacity of the
Colombia’s Empleo en Acción and Argentina’s country to provide services on a national scale
Trabajar programs. A similar targeting approach and on a continuous basis.
is being used in India’s MGNREGA program, Program and policy design has been re-
which is notable not only for its scale and cost vamped in many countries in recent years to
but also for its rights-based approach in guaran- achieve better performance. Public funds in-
teeing employment (box 8.6). creasingly finance private or nonprofit provi
But seldom are public works a springboard sion. In aging and formalizing countries, a forth-
for better jobs in the future. There is little evi- coming attitude by jobseekers is increasingly
dence that they help participants get a job after required for them to remain eligible for unem-
they leave the program.59 Compared with other ployment and other social benefits. Such activa-
ALMPs, public works programs have the lowest tion measures create incentives for job search
placement rates after completion and the high- through participation in training or education
est costs per placement (figure 8.4). In Poland courses, counseling and other employment ser-
and Romania, public works have even adversely vices, or public works.
affected employability.60 Their productivity im- Many industrial countries are implement-
pact, hence, tends to be very low at best. ing such policies through “one-stop shops” for
To become a jobs ladder, public works pro- the administration of both social benefits and
grams need to go beyond poverty relief—a ALMPs. Germany’s Jobcenter and the United
route some countries already are taking. In El Kingdom’s JobCentre Plus are examples. This
Salvador and Papua New Guinea, participants integrated approach can in principle help work-
in public works programs obtain additional ers maintain or create links in society, albeit evi-
technical and life-skills support. In Sierra Leone, dence here is scant.63 The one-stop-shop model
the package comes with compulsory literacy is gaining momentum in a number of develop-
and numeracy training, and in Liberia with life- ing countries as varied as Argentina, Azerbaijan,
skills training. In Bangladesh, the beneficiaries and Bulgaria.
of a rural employment scheme were referred to Another important delivery reform is the
microfinance institutions; three years after the growing investment in identifying the employ-
program closed, almost 80 percent were still ment constraints faced by jobseekers. Obstacles
self-employed in microenterprise activities.61 to finding jobs may range from inadequate skills
But overall, very few public works programs to health issues to difficulties balancing family
succeed in improving the long-run employabil- responsibilities with work. Statistical profiling,
ity of participants. where individual characteristics of beneficiaries
Public works have the potential to contribute are linked with likely constraints and appropri-
to social cohesion though, especially in conflict- ate remedies, has become an important tool,
affected countries. Soon after the conflict ended especially in countries with significant institu-
in Sierra Leone, a workfare program was launched tional capacity.64 Comprehensive programs like
to help rebuild infrastructure and provide short- Chile Solidario invest heavily in linking ben-
term employment opportunities to the poor and eficiaries to the most appropriate programs de-
ex-combatants. Public works programs have also pending on their constraints.
been launched and scaled up in Guinea, Guinea- In sum, ALMPs can make a difference, but
Bissau, Liberia, and the Republic of Yemen. they need to be well aligned to the needs of the
In Serbia, participants felt socially more included labor market and designed to address the mar-
as a result of a public works program.62 ket imperfections and institutional failures that
hinder desired employment outcomes. Overall,
evaluations of programs with youth partici-
Striving to deliver better outcomes
pants show that developing countries have bet-
While many programs have met expectations ter results than industrial countries in fostering
in countries with very different job challenges, employability. 65 The time horizon also matters:
Labor policies revisited 271
BOX 8.6 he Mahatma Gandhi National Rural Employment Guarantee Act launched the biggest public
T
works program in the world
Public works programs have been actively used in India since the During the program’s first phase in 2006–07, the budget outlay
1950s. Yet no scheme has had a scope or budget on the scale of was US$2.49 billion. The program issued 37 million job cards and
the Mahatma Gandhi National Rural Employment Guarantee Act provided on average 43 person-days of work to 21 million house-
(MGNREGA). Launched in 2006 and implemented in three rollout holds, totaling 0.9 billion person-days of work. Since then, the pro-
phases, this program guarantees jobs to all districts with rural popu- gram has expanded substantially in its coverage and budget. Dur-
lations. The program aims to provide wage employment, improve ing fiscal year 2010–11, 55 million households were provided an
the purchasing power of the rural poor, create assets for the com- average of 47 person-days of work, totaling 2.5 billion person-days
munity, strengthen natural resource management, and foster social at a cost of US$8.7 billion (0.51 percent of GDP).f That makes MGN-
and gender equality.a REGA the largest workfare program in the world. Participation of the
The program guarantees up to 100 days of employment a year to poor and vulnerable has been quite significant according to admin-
rural households with adult members willing to do unskilled work at istrative data.
a wage that is roughly the state statutory minimum wage.b Rural Critics argue that MGNREGA may be affecting the functioning of
households wanting to participate in the program are required to rural labor markets. By setting the wage paid by the program at
register with their respective village council (gram panchayats) and roughly Rs 100 (US$1.80) a day, it may help to enforce a sort of mini-
are issued a free job card with photographs of all members living in mum wage for all casual rural work. If that is above the normal wage
it. A job card holder may apply for employment and the government offered, the program may be altering the supply of casual labor and
must provide it within 15 days. If the government fails to do so, in crowding out private employers.g It may also be constraining the
principle a daily unemployment allowance must be given to the process of labor reallocation out of agriculture and into more pro-
applicant. Each household decides how to distribute employment ductive sectors.
among its members. Daily wages are based on the amount of work The program has received considerable media attention be
done and are paid directly into post office or bank accounts. The cause of alleged corruption, leakage, inadequate implementation,
program includes some provision for adequate worksite facilities, and the like. But few studies have attempted to assess its impact on
including access to safe drinking water, shade, a first aid kit in case of rural households, rural labor markets, and productivity in a system-
accident, and crèches for women to leave their children. The pro- atic way. Among the emerging evidence, a striking finding is that
gram encourages the participation of women through a mandate participation rates in areas where the program is most needed are
that they should account for 33 percent of employed workers. In not the highest.h Household surveys show evidence of rationing
addition, wages have to be equal for men and women, work has to and unmet demand, limiting the poverty alleviation impact of the
be provided within five kilometers of the applicant’s village, and program. Yet, despite the rationing, the program is reaching poor
gender discrimination of any type is forbidden.c people and attracting women and disadvantaged castes into the
Most of the public works carried out under MGNREGA are labor workforce.i One study in the state of Andhra Pradesh suggests the
intensive; contractors and machines are not allowed on work sites. program increases expenditure on food and nonfood goods.j Evi-
Projects are meant to be chosen in open village meetings (gram sab- dence of effects on wage levels in rural labor markets and on labor
has) to reflect village priorities, and local councils play a substantive reallocation is still inconclusive. Studies on non-labor-market effects
role in planning, implementing, and monitoring them. The projects of the program are scant.
mainly focus on developing and maintaining community assets Several challenges face the MGNREGA program. Addressing
such as water conservation and water harvesting, irrigation chan- leakage and transparency is one. The government has taken this
nels, and rural roads. Drought proofing, flood control, and land challenge seriously, for example, through the adoption of
development are also supported by the program. The central gov- biometric-unique identification cards. Improving the quality and
ernment bears 90 percent of the total cost, covering participants’ relevance of the communal assets to generate wider and long-term
wages in full and 75 percent of materials and administrative effects is another challenge. But the biggest one is ensuring that
expenses.d State governments pay for 25 percent of materials and demand for work is met, and that wages are paid fully and on time.
administrative costs, the daily unemployment allowance, and the Also, if the program’s objective is to lift the poorest, the program
expenses of the state employment guarantee council. The act also should accommodate those whose physical conditions do not allow
calls for accountability through the use of information and commu- them to perform hard manual work.k
nication technology, social audits, and third-party monitoring.e
Source: World Development Report 2013 team. f. World Bank 2011b. In terms of budget as a percent of GDP, the MGNREGA is com
Notes: GDP = gross domestic product. parable to the largest cash transfers programs such as PROGRESA/Oportunidades
a. Ministry of Rural Development 2012; World Bank 2011d. (0.4 percent GDP in Mexico) or Bolsa Família (0.36 percent GDP in Brazil). Yet in
b. Ministry of Rural Development 2012. Initially, the statutory minimum wage varied terms of household coverage, the massive scale of the MGNREGA stands out.
across states. But in 2009, the central government delinked MGNREGA wages from g. Basu 2011; Basu, Chau, and Kanbur 2009; Dutta and others 2012; World Bank 2011b.
the state-level statutory minimum and established a uniform daily wage of Rs. 100, h. Dutta and others 2012.
which is adjustable for state-specific inflation. i. Dutta and others 2012.
c. Ministry of Rural Development 2008; World Bank 2011d. j. Ravi and Engler 2009.
d. World Bank 2011b. k. World Bank 2011d.
e. Ministry of Rural Development 2008.
272 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
contributory cash transfers and public works insurance-based programs. But insurance sav-
programs, can be critically important to cope ings accounts do not allow for risk pooling, so
with adverse shocks.67 that young workers and workers with frequent
However, when wage employment is more unemployment spells may not have adequate
prevalent, unemployment insurance may be a savings. To address this concern, some plans
higher priority. Unemployment insurance can have a redistribution feature. For example,
provide income support to workers who lose Chile’s program includes a Solidarity Fund to
their jobs and prevent individuals and house- support workers whose account balances are
holds from falling into poverty. By supporting too low to provide adequate income support
a job search, it can result in better matches and during unemployment.
efficiency gains. Effective coverage is far from In all countries, disability is an important la-
complete, however; according to the ILO, only 15 bor market risk. According to recent estimates,
percent of the unemployed worldwide received the prevalence of disability is about 15 percent
benefits during the recent financial crisis.68 An- of the adult population. Rates are higher in low-
other concern with unemployment benefit sys- income countries and in aging societies.73 Al-
tems is that they may reduce incentives to keep though many people with disabilities do work,
jobs, look for jobs, or accept a job offer. Most of inactivity rates among them are significantly
the evidence on the incentive effects of unem- higher than for the overall population. In in-
ployment benefits comes from industrial coun- dustrial countries, the inactivity rate for persons
tries and is mixed. Some studies find that more with disabilities is about 2.5 times higher than it
generous benefits—either through higher bene- is for those without disability.74
fit levels, or longer duration of benefits—can in- Disability benefits can provide important
crease either the length of unemployment or the income protection, but costs have mounted in
unemployment rate.69 Exits from unemploy- some countries and the benefits can create work
ment typically increase when benefits expire.70 disincentives among the general population.
Over the past decade, unemployment insur- Accommodation of workplaces to persons with
ance eligibility and benefits have been reformed disabilities is an important strategy to encour-
in a number of countries to reduce job search age them to seek employment. Benefit systems
disincentives. While some disincentive effects can be adjusted to this end as well. In-work
are inherent in any unemployment insurance payments, time-limited benefits, and working
system, recent studies for Denmark, France, Ger- tax credits are all being tested in the European
many, Ireland, Italy, and Spain found that even if Union.75 Countries without disability benefits
workers remain unemployed for a longer period need to emphasize accommodation and rely on
of time, they are eventually able to find more sta- social safety nets where disability is associated
ble jobs.71 Studies of unemployment insurance with poverty.
in Brazil found that benefits did not affect the
duration of unemployment, except when work-
Financing social insurance
ers were moving from unemployment to self-
employment. In this case the transition period A salient feature of social insurance programs
was shorter, suggesting that benefits may have in developing countries is their low coverage.76
made it possible to start a new business.72 Across the world only 30 percent of workers
Concerns about job search disincentives and have access to social insurance; in Africa and
hidden redistribution have led to some interest Asia, the share is less than 25 percent (map 8.1).
in unemployment insurance savings accounts. On average, coverage rates are highest in aging
While the design can vary, workers make con- societies and formalizing countries and low-
tributions to the accounts and can draw money est in conflict-affected countries and agrarian
from them during unemployment spells. Any economies, where less than 10 percent of the
remaining balance is paid out when the worker working population is enrolled in pension pro-
retires and can be used as a pension top-up. grams. In general, low-income workers are the
Some countries, mainly in Latin America but least likely to be covered. In most countries in
also Austria and Jordan, have adopted these Latin America, coverage rates are below 10 per-
savings accounts as an alternative approach to cent in the bottom income quintile but above 50
274 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Percent
0–19.99
20.00–39.99
40.00–59.99
60.00–79.99
80.00–100
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
Source: World Development Report team based on Pallares-Miralles and others 2012, and administrative data from Canada.
Note: Coverage refers to number of people who have contributed (at least for one month in the reference year) to an earnings-related mandatory pension scheme, measured as a
percentage of the labor force.
percent in the top quintile.77 Even if workers are of financing social insurance in most coun-
covered on paper by social insurance, they may tries. But whether payroll taxes are the optimal
not necessarily receive benefits. Effective cover- model, especially for developing countries, is in-
age can be reduced by fiscal pressures and low creasingly being questioned.79 Financing social
implementation capacity. insurance through payroll taxes may exacerbate
Coverage is low for multiple reasons, includ- the coverage problem by creating disincentives
ing limited fiscal space to finance programs, low for the creation of formal sector jobs.
institutional capacity to manage the admin- Studies in countries such as Colombia, Tur-
istration and delivery of benefits, fragmented key, and some transition countries in Eastern
schemes that cover certain groups and not oth- Europe and Central Asia have found that in-
ers, and program design providing weak incen- creases in the levels of social insurance contribu-
tives to participate. In many developing coun- tions decreased formal employment, by varying
tries, workers and firms in the informal sector amounts.80 By contributing to the “tax wedge”
generally fall outside the scope of programs. (the gap between total labor costs and take-
Reaching the self-employed, farmers, and mi- home pay), payroll taxes to fund social insurance
grants is particularly difficult. Social insurance can discourage both labor demand and the will-
laws in many countries do not cover micro- and ingness to work. The size of this tax wedge varies
small enterprises, or these firms and farms opt considerably across countries. It is most signifi-
out because they cannot afford minimum con- cant in industrial countries, aging societies, and
tribution costs.78 Weak enforcement capacity formalizing countries (figure 8.5).
also contributes to low coverage. However, a complete assessment needs to
Payroll taxes (including contributions for so- take into account the value that workers place
cial programs) have been the dominant means on access to social insurance. Social contribu-
Labor policies revisited 275
25
earnings respondents would
BOX 8.7 Modern technology can reduce social protection costs, leakage, and corruption
Innovative technology-based approaches are transforming the million people. Applications such as mobile phones with fingerprint
ways in which insurance and other cash benefits are provided. readers that would allow online verification of identity acceptable
India’s new health insurance scheme for the poor uses biometric to service providers are now being piloted.
smart cards both to verify that households are eligible and to keep Less glamorous, but just as important, is the “back-end” part of
track of hospital procedures not involving cash payments. Almost social protection systems, which allows tracking of transactions on a
30 million households now hold these smart cards. According to a regular basis and generation of key indicators and reports. The Man-
recent report from the U.K. Department for International Develop- agement Information Systems (MIS) are arguably even more impor-
ment, “evidence from South Africa, India, Kenya, and Liberia has tant for complex social insurance programs, especially as popula-
demonstrated that electronic payment systems involving smart tions age and noncommunicable diseases become more prevalent.
cards or mobile phones can significantly reduce costs and leakage.”a Keeping track of work histories allows for a better alignment of pen-
Another report, by the Consultative Group to Assist the Poor, finds sion benefits and social security contributions. Databases of medi-
significant reductions in transaction costs through electronic pay- cal histories support a more efficient design of health protocols and
ments in Brazil and Colombia. These “front-end” applications help payments to health care providers.
overcome several problems that have plagued service delivery in Information is no longer the sole domain of those administering
the past, including the need for beneficiaries to go long distances to the program, however. One of the applications of modern technol-
obtain benefits and for middlemen to fill out forms. ogy with the most potential impact is citizen reporting of acts of
Many developing countries lack robust systems for identifying corruption and negligence through social media. Massive mobile
people, allowing fraud of various kinds, and preventing many phone penetration has been an especially empowering tool.
among the poor from accessing social programs. In the Dominican Technology is not a panacea, however, and failed projects are
Republic, for example, one-quarter of eligible beneficiaries for a common. In most cases, the technology is not matched with a
poverty program could not participate because they lacked proper reengineering of the processes involved. Other common problems
documents. Poor identification also hampers efforts to coordinate include poor planning and procurement practices, asymmetric
across government and donor-sponsored programs and leads to information between government and vendors, and lack of trained
duplication of costs. To confront this challenge, a growing number personnel to operate the systems after they are in place. Despite
of countries is moving to biometric technology. India’s unique iden- these problems, the future of social protection will inevitably
tification program, known as Aadhaar, is the most ambitious so far, include creative ways of applying new technology.
having collected digital fingerprints and iris scans for close to 200
Sources: World Development Report 2013 team based on Bold, Porteous, and Rotman 2012; Devereux and others 2007; DFID 2011; Gelb and Decker 2011; Palacios, Das, and
Sun 2011.
a. DFID 2011, 9.
extent by differentiating the level of benefits be- Well-designed social insurance and social
tween the two systems and financing the parallel protection systems have the potential to en-
system on at least a partially contributory basis.83 hance the three transformations. Mitigating
Another approach is to partially subsidize labor market distortions and covering priority
participation by farmers and the self-employed risks can compensate for lost income; it can also
in general social insurance programs. In Viet- contribute to subjective well-being by reduc-
nam, those classified as poor get their health ing uncertainty. Portability of benefits from
insurance cards fully paid by the budget, while one job to another and the capacity of systems
the “near poor” get a 50 percent subsidy.84 This to manage transitions can help workers move
second approach may look similar to the previ- to higher-productivity jobs and encourage risk
ous one, as funding relies on general tax revenue taking. And extending coverage can contribute
too. But it has the advantage of not discourag- to social cohesion through its role in building an
ing formalization. From a social cohesion point encompassing social contract.85
of view it also allows building universal systems,
rather than two-tier systems.
WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3 Labor policies revisited
8
277 277
Policies that protect people are usually hailed as where jobs have important productivity spill-
being better than policies that protect jobs. Pro- overs, the aggregate loss of output is then more
viding income support prevents large drops in than the sum of the losses in individual earn-
consumption and mitigates the risk of poverty ings. Massive job losses can then lead to ghost
among households affected by unemployment, towns and depressed regions, and this prospect
underemployment, or loss of labor earnings. suggests that the conventional wisdom may not
Relying on transitional income support and, always be right.
in some cases retraining programs, rather than
measures to protect jobs allows for the realloca-
Turnover versus decoupling
tion of labor, keeping up the process of creative
destruction. Resources are thus allocated more Every day, jobs are created and destroyed. Work-
efficiently and economic growth is enhanced. ers are hired and dismissed, or they quit their
Preserving jobs that are no longer economi- jobs and start their own businesses; meanwhile
cally viable through government transfers and some firms close and others are born. In indus-
employment protection legislation prolongs an trial countries, this process of creative destruc-
inefficient allocation of resources. tion affects around 15 percent of all jobs every
Moreover, job protection also entails a high year.86 In normal times, the probability of job
risk of capture. It runs the danger of becom- loss for an individual is largely independent of
ing permanent rather than temporary, creating the probability of job loss for another. And the
enduringly unproductive, subsidized jobs. The probability of landing another job is also inde-
development experience is full of examples in pendent of what happens to other workers. The
which explicit job protection has led to little employment shock is then what economists call
other than large rents for business owners and “idiosyncratic.”
workers in the sectors that benefited from it, sti- But there are exceptional times, when em-
fling technological advance, structural change, ployment shocks are systemic. Then, a sustained
and growth. decoupling of the normal process of job cre-
The conventional wisdom, then, argues ation and job destruction occurs: jobs are lost
against the protection of jobs. But in times in large numbers but not created at the same
when many jobs are lost or threatened at once pace. This is what occurs in times of severe eco-
and few are being created, such conventional nomic crises, when a decline in economic activ-
wisdom needs to be revisited. The productivity ity affects a broad swath of firms and industries.
of a protected job can still be higher than that Job destruction accelerates, often sharply, and
of the alternative jobs the displaced worker may job creation levels off or even decreases (figure
find. And the productivity gap may exceed the 8.7). This decoupling leads to unemployment in
costs of keeping the job alive. This is likely to be formalized economies and under-employment
the case when the alternative after displacement in less formalized ones.87 In many countries,
is to be jobless for a long period of time. In this droughts, floods, or other natural disasters can
case, in addition to the immediate loss in out- have a similar impact. After the sources of the
put, prolonged unemployment can depreciate crisis dissipate, job creation picks up and unem-
skills and undermine social cohesion. ployment or underemployment declines. The
Importantly, it is the overall productivity of longer it takes for job creation to recover, the
the job that needs to be considered, including its longer unemployment or under employment
possible spillovers on the productivity of others. lasts.
When people work together, or when they are Decoupling can also occur in times of mas-
connected through broader value chains, the sive structural change brought about by rapid
loss of a large number of jobs may have ripple technical progress (for example, the introduc-
effects on productivity. In areas or activities tion of computers) or policy reforms (for exam-
278 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Decoupling
F I G U R E 8 . 7 between job creation and job destruction was massive in the United
States during recessions
10
recession period
9
% of employment
5
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
job creation job destruction
address the cyclical or structural causes of the In some circumstances, then, job protection
employment shock. Income support through can be considered. What is meant by that is not
unemployment benefits and public transfers permanent restrictions on hiring and firing
may suffer from inadequate funds or seriously through employment protection legislation, but
affect fiscal accounts. Only sustained job cre- rather time-bound policy measures that miti-
ation can deal with the effects of decoupling, gate job destruction. In other words, these are
but even under the best of circumstances it may selectively used active labor market policies that
take several years to offset the employment de- promote job creation or sustain existing jobs.
cline from a systemic shock. The question then Several countries adopted policies of this sort
is whether providing income support on a large during the recent recession; Germany, which has
scale for long periods of time is preferable to a long tradition with such policies, averted job
temporarily supporting employment, while job losses through a coordinated reduction of hours
creation picks up. of work (box 8.8). The United States also took
The long-term consequences and costs of de- measures to protect jobs during the recent reces-
coupling can be higher than is usually thought. sion, most notably by salvaging its auto indus-
During periods of massive structural change, try. But the United States relied mostly on ag-
the reallocation of workers out of declining gregate demand stimulation and on extensions
industries can lead to large output losses be- of unemployment insurance to protect workers,
cause little alternative employment is available. rather than on measures to protect jobs. In rela-
The productivity of jobs in declining indus- tive terms, changes in employment and unem-
tries may be low, but it can still be higher than ployment in the United States were much larger
the alternatives. Similarly, during crises, firms than in Germany.94
might not be insolvent but rather illiquid. Death
of inherently solvent firms could cause loss of
The pitfalls of protecting jobs
firm-specific human capital and intangible as-
sets, disruption of value chains, and damage There are examples in developing countries
to surrounding communities. While the provi- as well. Chile and Mexico introduced work-
sion of credit would be the preferred solution, sharing policies and compensatory subsidies
identifying insolvent firms might not always be to moderate the impact of the crisis. But these
feasible and could be marred by transparency policies had a limited impact in their case. Given
problems. Temporary job protection policies their novelty, they required new procedures that
can be a workable alternative to provide a life- were difficult to implement quickly, resulting in
line for struggling, but inherently solvent, firms. very low take-up rates. More important, these
Long-term unemployment can also erode policies are not well suited to countries where a
skills and workforce attachment. Aptitudes and large share of employment is informal, because
attitudes to perform a given occupation can be they fail to reach the vast majority of employers.
lost.90 “Scarring” can occur, with long-run con- The experiences of Chile and Mexico, two coun-
sequences for finding employment with similar tries with relatively high administrative capacity
earnings.91 Human capital and skills depreciate. that have made progress in formalization, sug-
Regardless of whether decoupling is the result of gest that the usefulness of work-sharing policies
severe downturns or major structural changes, is limited in developing “countries.”
workers may enter a spiral of unappealing jobs There are positive examples as well. The dif-
and lower living standards. The potential costs ferent ways in which China and many Latin
might be particularly disruptive to social cohe- American countries handled the restructur-
sion. Social networks can be undone in ways ing of their economies through the 1980s and
that make it more difficult for the dislocated 1990s are telling. At the beginning of its reform
to reengage in work and even in other forms of process, China had hundreds of thousands of
social activity.92 Prolonged periods of high un- uncompetitive state-owned enterprises (SOEs).
employment are of particular concern because But large-scale labor retrenchment would have
they can affect young people’s transition from pushed workers into even less productive jobs
school to work, and may lead to disenfranchise- until the private sector developed sufficiently
ment from society.93 to absorb them. China thus supported its ail-
280 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 8.8 Kurzarbeit has become a new word in labor market policies
Kurzarbeit (which translates to “short work” or “reduced working affected employees.c It is estimated that more than 1 percent of per-
hours”) has been used in Germany for a century. Under this pro- manent jobs were saved in Germany through kurzarbeit.d In 2009,
gram, employees in participating firms can be asked to cut down on more than 3 percent of the labor force was covered by the
working hours with a commensurate reduction in compensation. program.
The German government, through the Federal Employment The program is touted as beneficial in that it is less expensive for
Agency, covers a percentage of the ensuing wage loss. Participation government to contribute funds toward paying the lost hours of
of the firm is tied to the consent of the workers affected.a Thus there work to the employee than to pay unemployment benefits. From
is an emphasis on social dialogue in the implementation of the pro- the point of view of the employer, it helps retain skilled staff and
gram. During economic downturns, German employers tend to reduces churning and retraining costs, thus maintaining firm pro-
respond by reducing the number of hours worked, thereby mitigat- ductivity. From the perspective of the employee, the scheme pre-
ing the loss in jobs. vents unemployment and the problems that come with it such as
More than a dozen countries have adopted programs for loss of income, depreciation of skills, decrease in life satisfaction,
reduced working hours based on the general kurzarbeit model but and insecurity. From the societal perspective, it cushions the impact
involving a variety of designs and regulations.b The countries of the economic downturn and spreads it more evenly across the
where these programs were in place before the global economic labor force.
crisis experienced substantial increases in take-up rates during the However, work-share programs only benefit formal sector
2008–09 period. employees, and not even all of them. The kurzarbeit is effective in
As a response to the crisis, several countries implementing a saving permanent jobs but has no significant impact on temporary
work-share program increased the percentage of wages covered, employment or on the hours worked by temporary workers.e Work-
extended benefit duration, and relaxed the criteria for qualifying for share programs are also more effective in countries with less flexible
the program. In Germany, the period during which firms could labor market regulations, where take-up rates are higher.f Further-
request subsidies was extended from 6 to 24 months; the govern- more, long-term reliance on this type of program can lead to signifi-
ment coverage of social insurance costs was increased to 50 per- cant delays in necessary labor reallocation and therefore could hin-
cent; temporary help workers were made eligible; and the program der growth and productivity in the medium term.
was allowed to cover up to 67 percent of wage losses incurred by
ing SOEs through access to banking credit while industries that can coordinate to engage in rent
rapidly modernizing its economy, preventing seeking to secure permanent government sup-
social disruptions in the process.95 Latin Ameri- port. If such policies are adopted, it is necessary
can countries also embarked on the dismantling to establish and enforce trigger rules and sun-
of inefficient industries that had developed un- set clauses that define the extent and size of the
der import substitution policies. But they did so protection. If the institutional prerequisites to
more abruptly. Sudden downsizing may have ensure that support is temporary do not exist,
caused a more durable rise in informality and or are not credible, job protection policies can
led to slower productivity growth.96 be dangerous indeed. And they should not be
The risk with job protection policies is that considered at all if job losses do not result from
they can create permanent inefficiency, espe- a systemic employment shock, involving a large
cially in countries with weak institutions. Job decoupling of job creation and job destruction.
protection policies involve firms or even whole
Labor policies revisited 281
for the United States). Employment of women employment do not. All of these studies are based
has been found to fall in several cases as a result on data from industrial countries. In a study of
of minimum wage increases (for example, Feli- developed and developing countries, Micco and
ciano 1998 for Mexico and Arango and Pachón Pagés (2006) conclude that labor regulations do
2004 for Colombia), although Pagés and Mon- not robustly affect labor productivity. In a study
tenegro (2007) identified a shift in employment of Asian and Latin American countries, DeFreitas
toward women in Chile. Where researchers have and Marshall (1998) find that job security pro-
looked at employment effects of minimum tections have a positive productivity effect in
wage increases on the less skilled, they typically some situations and a negative effect in others.
find negative effects (for example, Arango and Bassanini and Venn (2007) find a positive effect
Pachón 2004; Kertesi and Kollo 2003; Montene- of minimum wages on productivity in OECD
gro and Pagés 2004; and SMERU Research In- countries.
stitute 2001). In general, workers in small firms 21. Blanchard and Landier 2002; Dolado, García-
are most likely to be affected by employment Serrano, and Jimeno 2002; OECD 2004.
losses caused by increases in the minimum wage 22. Almeida and Carneiro 2009.
(Kertesi and Kollo 2003; Rama 2001). Regard- 23. Ahsan and Pagés 2009; World Bank 2011b.
ing EPL, Montenegro and Pagés (2004) found 24. Kucera and Roncolato 2008.
that the introduction of more protective rules 25. Berg 2011; Fajnzylber 2001; Foguel, Ramos, and
in Chile had adverse effects for women rela- Carneiro 2001; Lemos 2004; Neumark, Cunning-
tive to men, for youth relative to the more ex- ham, and Siga 2006.
perienced, and for the skilled relative to the less 26. For an analytical discussion on the need for
skilled. Similarly, cross-country analysis by the joint design of labor market institutions, see
Organisation for Economic Co-operation and Blanchard and Tirole (2008). For a discussion of
Development (OECD 2004) identified negative the design of labor market institutions in a devel-
impacts of EPL on women and youth. oping country setting, see Blanchard (2005).
17. Alatas and Cameron 2003; Rama 2001. 27. The share of workers covered by a collective
18. For minimum wages, a number of studies in agreement is generally larger than the union
Latin America find increased wage equality (for membership rates. The reason is that agreements
example, Fajnzylber 2001 for Brazil; Gindling and negotiated between unions and employers are
Terrell 1995 for Costa Rica; and Bosch and Mana- sometimes extended to other workplaces not in-
corda 2010 for Mexico). OECD (2011) identifies volved in the bargaining.
declining real minimum wages and less restric- 28. Hayter 2011. Recent changes in legislation are
tive EPL as factors behind increasing inequality summarized in ILO and International Institute
in many countries. for Labour Studies (2012).
19. See Messina and Vallanti (2007) for European 29. For summaries of the evidence on the union
countries; Eslava and others (2004) for Colombia; wage effect, see Aidt and Tzannatos (2002) and
Haltiwanger, Scarpetta, and Schweiger (2008) for Freeman (2009).
OECD and Latin American countries; Bentolila 30. DiNardo, Fortin, and Lemieux 1996.
and others (2011) for OECD countries; and Ca- 31. This is based on regressions using panel data for
ballero (2004) for 60 developing and developed 22 OECD countries from 1985 to 2007. For de-
countries. Eichhorst and others (2010), however, tails, see OECD (2011).
found no systematic difference in adjustment 32. Aidt and Tzannatos 2002.
to shocks by EPL differences for a sample of 20 33. Freeman 2009.
OECD countries. 34. Aidt and Tzannatos 2002.
20. Belot, Boone, and van Ours (2007) find positive 35. Betcherman 2012 for the World Development
effects, but only in environments where workers Report 2013.
invested in firm-specific skills. Koeniger (2005) 36. Forteza and Rama 2006.
and Nickell and Layard (1999) find positive 37. Chen and others 2012 for the World Develop-
productivity effects, but results depended on ment Report 2013.
estimation specifications. Autor, Kerr, and Ku- 38. Chen and others 2012 for the World Develop-
gler (2007) find that increases in employment ment Report 2013.
protection had a negative effect on total factor 39. Small-business development and microcredit
productivity but a positive one on labor pro- generally do not fall under this category because
ductivity. In contrast, Bassanini and Venn (2008) they aim to foster entrepreneurship.
and Cingano and others (2010) find negative im- 40. Almeida and others 2012.
pacts. Bassanini, Nunziata, and Venn (2009) find 41. Kuddo 2009.
that dismissal regulations have a depressing effect 42. Information provision can help bring people
on labor but restrictions on the use of temporary to available jobs. Information will not solve the
Labor policies revisited 283
signaling insufficiency of the market, however, if 67. Grosh, del Ninno, and Ouerghi 2008.
employers cannot judge the full capabilities and 68. ILO 2010b.
abilities of applicants. 69. Boeri and van Ours 2008; Holmlund 1998; Mar-
43. Bell and Blanchflower 2010. golis, Navarro, and Robalino 2011; Olinto and
44. Betcherman, Olivas, and Dar (2004) find that others 2007; Vodopivec, Worgotter, and Raju 2005.
most evaluated wage subsidies do not improve 70. van Ours and Vodopivec 2006.
employment or earnings of participants. 71. Tatsiramos 2009.
45. Betcherman, Daysal, and Pagés 2010. 72. Ribe, Robalino, and Walker 2011.
46. Calmfors 1994; Martin and Grubb 2001. 73. WHO and World Bank 2011.
47. For evidence on the positive impact of these 74. OECD 2010.
combined programs, see Cockx, van der Linden, 75. OECD 2010.
and Karaa (1998) and Katz (1996). Robalino and 76. Dorfman and Palacios 2012; Holzmann, Ro-
Sanchez-Puerta (2008) also provide a review. balino, and Takayama 2009; ILO 2010b; Robalino
48. Almeida and others 2012. and others 2012.
49. World Bank 2011c. 77. Ribe, Robalino, and Walker 2011.
50. Galasso, Ravallion, and Salvia 2004. 78. Cho and others 2012; Rutkowski and others
51. Kluve, Lehmann, and Schmidt 1999; Kluve, 2005.
Lehmann, and Schmidt 2008. 79. Bird and Smart 2012; Levy 2008.
52. Rodriguez-Planas and Benus 2010. 80. Betcherman, Daysal, and Pagés 2010; Kugler and
53. Almeida, Behrman, and Robalino 2012. For Kugler 2003; Rutkowski and others 2005.
OECD countries, see Almeida and Carneiro 81. These observations are based on the FAFO sur-
(2009); Heckman, Stixrud, and Urzua (2006); vey conducted for the World Development Re-
and Holzer and Lerman (2009). port 2013.
54. Attanasio, Kugler, and Meghir 2008. 82. Bärnighausen and others (2007) provide corrob-
55. Premand and others 2011. orating evidence for China, finding that infor-
56. Acevedo Alameda, Garcia, and Martinez 2011; mal sector workers were willing to pay nearly 5
World Bank 2008. percent of their income for access to basic health
insurance.
57. Blattman, Fiala, and Martinez 2011.
83. Some examples of these sorts of approaches are
58. del Ninno, Subbarao, and Milazzo 2009.
being implemented in South Asian countries. See
59. The evidence on the ineffectiveness of public
World Bank 2011d.
works has been widely documented; see, for ex-
84. Lieberman and Wagstaff 2009.
ample, Betcherman, Olivas, and Dar (2004) and
85. Babajanian 2012; Almeida and others 2012 for
Martin and Grubb (2001) for reviews, and Card,
the World Development Report 2013.
Kluve, and Weber (2010) and Kluve (2010) for
86. Cahuc and Zylberberg 2006 for France; Davis,
metastudies. Carling and Richardson (2004) and
Haltiwanger, and Schuh 1996 for the United
Sianesi (2008) conclude that the closer a policy
States. There are similar rates for Mexico although
is to regular work, the better its longer-term em-
with much more churning, reported by Kaplan,
ployability effects on participants.
Martínez González, and Robertson (2007).
60. Kluve, Lehmann, and Schmidt 2008 for Poland;
87. See Bosch, Goni, and Maloney (2007) for Bra-
Rodriguez-Planas 2010 for Romania. zil, and Bosch and Maloney (2006) and Kaplan,
61. Hashemi and Rosenberg 2006. Martínez González, and Robertson (2007) for
62. Bonin and Rinne 2006. The Beautiful Serbia pro- Mexico.
gram combined vocational training and public 88. Haltiwanger 2012; Haltiwanger, Jarmin, and Mi-
works in the construction sector for disadvan- randa 2011; Herkenhoff and Ohanian 2011.
taged unemployed in Serbia and Montenegro 89. Stiglitz 2009; Gatti and others 2011.
in 2004 and 2005. The positive effect of this 90. Pissarides 1992.
program was much stronger for subjective well- 91. “Scarring” refers to an increasing probability of
being than for labor market outcomes—the latter unemployment and lower earnings among those
were insignificant. who have suffered unemployment previously. It
63. Almeida and others 2012; de Koning, Kotzeva, implies that the negative effects of unemploy-
and Tsvetkov 2007. ment extend beyond the period of unemploy-
64. Almeida and others 2012 for the World Develop- ment; see Arulampalam, Gregg, and Gregory
ment Report 2013. (2001). The term is also used to describe the psy-
65. Kluve and others, forthcoming. chological impacts of unemployment and its du-
66. Card, Kluve, and Weber 2010; Hotz, Imbens, and ration even after unemployment spells conclude;
Klerman 2006; Lechner, Miquel, and Wunsch see Clark, Georgellis, and Safney (2001); Knabe
2005. and Ratzel (2009).
284 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
92. Biewen and Steffes (2010), Bramoullé and Saint- Lucian Pop, Maria Laura Sanchez-Puerta, and Mi-
Paul (2010), and Calvó-Armengol and Jackson chael Weber. 2012. “Improving Access to Jobs and
(2004) are modern accounts of the role of be- Earnings Opportunities: The Role of Activation
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Wahba and Zenou (2005) find evidence of net- tries.” Social Protection and Labor Discussion
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Fougère, Kramarz, and Pouget 2009; World Bank Almeida, Rita, and Pedro Carneiro. 2009. “Enforce-
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Arango, Carlos, and Angelica Pachón. 2004. “Mini-
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Chapter
9
Beyond labor policies
A
prerequisite for improved living stan- economies, or to generate enough employment
dards is a policy environment conducive opportunities for young men in conflict-affected
to private-sector-led job creation. Macro- countries.
economic stability, an enabling business envi- An active role of government, however, needs
ronment, human capital, and the rule of law are to be carefully considered. Jobs are mainly cre-
all necessary ingredients. Adequate macroeco- ated by the private sector with government
nomic policies mitigate aggregate fluctuations intervention justified when individual incen-
and keep key relative prices aligned. The busi- tives are misaligned with social goals—when,
ness environment provides the basic public for example, employment is not rewarding for
goods needed for the private sector to operate: women, when young people are “queuing” to
infrastructure, access to finance, and sound reg- be civil servants, when cities are too congested
ulation. Human capital is formed through good to productively absorb more rural migrants, or
nutrition, health, and education that builds hu- when logistics costs are too high for domestic
man skills. The rule of law ensures the enforce- firms to engage in international trade. In these
ment of contracts; it also includes the progressive cases, government policy should aim to remove
realization of rights to avoid a situation where the constraints that prevent individuals, farms,
growth coexists with unacceptable forms of work. and firms from making the best choices for so-
These are the fundamentals on which policies for ciety. If constraints cannot be precisely identi-
jobs rest (figure 9.1). fied, or reforms are not politically feasible, poli-
Fundamentals alone may not be enough cies can aim at offsetting the constraints rather
to facilitate job creation and address the jobs than relieving them directly. In most cases, the
challenges faced by many developing countries. policies to create good jobs for development lie
Labor policies need to be set within a sensible outside of the labor market.
range—a plateau that avoids two cliffs: one is Domestic policies for jobs are part of the so-
the misguided intervention that clogs the cre- lution, but there is also scope for international
ation of jobs in cities and in global value chains; coordination. Rights are a global public good—
the other, the lack of voice and social protection their violation in one country harms the world.
especially for the most vulnerable. But policies for job creation in one country can
Markets might work without much friction affect employment and earnings in another,
but that may not be sufficient to make small- positively or negatively, while migration policies
holder farming more productive in agrarian can generate opportunities abroad or shut them
Beyond labor policies 293
down. Labor standards, rules for international on the composition of employment. Economic
trade and foreign direct investment (FDI), and downturns lead to transitions to informal em-
migration agreements are among the instru- ployment or to household-based activities, and
ments available to manage these international not necessarily to joblessness. Hence, research
spillovers. International organizations have a role focuses on how macroeconomic fluctuations af-
to play in coordinating the important global proj- fect the share of informal employment, rather
ect of p
roducing and using high-quality data on than the unemployment rate.3 Country case
jobs, on which sound policy making must rest. studies of the impact of the global crisis have
confirmed the resilience of employment in de-
veloping countries. But macroeconomic sta-
bility is not less relevant there: while aggregate
fluctuations do not greatly affect the number of
PRIORITIES workers employed, they do affect the earnings
of those at work as well as their access to basic
LABOR
POLICIES social protection instruments.4
Macroeconomic instability is often the out-
come of unsustainable budget deficits and lax
FUNDAMENTALS monetary policy. In the 1980s, Brazil plunged
into a debt and high-inflation crisis that slashed
its economic growth and halved the share of ex-
Establishing the fundamentals ports in its GDP. Triggered by high international
interest rates in the late 1970s, the crisis then
A vast majority of jobs are created by the pri- was compounded by the difficulty of keeping
vate sector—in formal sector firms as well as in spending by subnational governments in check.
microenterprises and farms. The relevant condi- Tight budgets and rigid monetary policy rules
tions for private sector investment and job cre- may not be a magic wand, however. Budget defi-
ation are macroeconomic stability, an enabling cits are more or less worrisome depending on
business environment, human capital, and the how quickly an economy is growing, whereas
rule of law.
Three
F I G U R E 9.1 distinct layers of policies are needed
Macroeconomic stability
In its assessment of the policy ingredients of
growth strategies across 13 successful develop-
ing countries, the Commission on Employment
and Growth noted: “No economy can flour- Know your jobs challenge
ish in the midst of macroeconomic instability. PRIORITIES Remove or offset the constraints
Wild fluctuations in the price level, the exchange
rate, the interest rate, or the tax burden serve
as a major deterrent to private investment, the
proximate driver of growth.”1 Macroeconomic Stay on the efficiency plateau
Avoid misguided interventions
instability also affects employment and earnings Provide voice and extend protection
LABOR POLICIES
in the short run. According to a recent estimate,
a 1 percent decline in gross domestic product
(GDP) is associated with an increase in the
unemployment rate of 0.19 percentage point Macroeconomic stability
in Japan, 0.45 in the United States, and 0.85 in An enabling business environment
Spain.2 Human capital
In developing countries, where income sup- FUNDAMENTALS Rule of law and respect for rights
port mechanisms are more limited, the short-
term impact of macroeconomic instability is of-
ten not so much on open unemployment as it is Source: World Development Report 2013 team.
294 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
the independence of central banks needs to tional markets and global value chains.10 A case
be weighed against the overall coherence of a has even been made in favor of currency under-
development strategy. An assessment of the valuation, on the grounds that the export sec-
soundness of macroeconomic management re- tors of developing countries suffer dispropor-
quires taking account of the impact of fiscal and tionately from institutional failures and market
monetary policies on economic growth.5 imperfections.11 However, not all countries in
Not all macroeconomic instability is self- the world can simultaneously have an under-
inflicted, however. Turbulence may result from valued currency. And while the argument that
shocks over which countries have little con- jobs integrated with world markets have posi-
trol, from natural disasters to crises originating tive growth spillovers is sensible, these jobs are
abroad. Precautionary policies can be adopted not necessarily the ones with the highest devel-
to cushion those shocks if and when they oc- opment payoffs. Different countries have dif-
cur. But most often there is a need to respond ferent jobs agendas, from creating employment
with short-term stimulus or adjustment pack- opportunities for women to supporting the de-
ages. The effectiveness of these responses is a velopment of jobs in cities. The exchange rate is
matter of controversy. A recent study based on only one instrument and would seldom be able
the experience of 29 aid-dependent countries to deliver on such diverse agendas.
estimates that GDP increases by close to 0.5
percentage points for every percentage point of
An enabling business environment
GDP in additional government spending. This
so-called multiplier effect is substantially lower Across firms and countries at varying levels of
than in the United States, where a range between development, the most important constraints
0.8 and 1.5 is considered plausible.6 on formal private sector businesses are remark-
Wild fluctuations are only one way in which ably consistent: access to finance, infrastructure,
the macroeconomic context can adversely affect and aspects of regulation including taxation and
employment and earnings. The misalignment of unfair competition (figure 9.2). Skills shortages
key relative prices is another. Surges in a coun- are also key, but mainly in the case of large firms
try’s foreign exchange earnings often lead to an and especially in richer countries.
overvaluation of its currency, making imports Access to finance provides firms with the
more affordable and exports less competitive. ability to expand, to invest in new technologies,
Resource-rich countries in the developing world or to smooth cash flow over time.12 Financial
face similar currency appreciation pressures.7 markets also play an important role in the al-
The commodity booms of the last few years location of resources toward more productive
have only strengthened these pressures. Cur- uses.13 Transparency within the financial sector
rency overvaluation can also happen in coun- avoids resources being channeled to those with
tries where large volumes of foreign assistance political connections or economic power, and
are needed to jump-start development, cope it also supports financial inclusion. Expanded
with natural disasters, or facilitate recovery af- credit registries keeping track of positive as well
ter a conflict. In Afghanistan, for instance, civil- as negative episodes in debtors’ histories help
ian aid from multilateral and bilateral donors people demonstrate that they are creditworthy.
was estimated at around 40 percent of GDP in But regulatory oversight is needed to ensure
2010/11.8 Currency overvaluation is a concern transparency and competition in the alloca-
for many other countries where foreign aid does tion of funds. The financial crisis of 2008 has
not reach the levels in Afghanistan but still funds reopened heated debates about the appropriate
a significant fraction of the budget. An analysis of level of regulation of the financial sector and the
83 developing countries between 1970 and 2004 need to balance prudence and stability with in-
confirms that aid fosters growth (albeit with de- novation and inclusion.
creasing returns) but induces overvaluation and Access to affordable infrastructure of reason-
has a negative impact on export diversification.9 able quality is, often, another top constraint to
Avoiding exchange rate misalignment is nec- firm growth and job creation. Electricity en-
essary to sustain a vibrant export sector and ables the use of more sophisticated technology.
hence create jobs that are connected to interna- It also frees up time from domestic chores; in
Beyond labor policies 295
figure 9. 2 Finance and electricity are among the top constraints faced by formal private enterprises
Firm size Income level
Constraint Small Medium Large Low Lower middle Upper middle High All
Access to finance
Power shortage
Lack of skills
Informal competition
Tax rates
rural areas, it can significantly increase women’s terms and in time needed to comply. Steps taken
employment.14 Telecommunications allows for to meet requirements or to pay fees are a burden
better information flows among suppliers, pro- to businesses, as are delays in receiving permits
ducers, and customers, and the Internet and or licenses. The time it takes to comply with
mobile technology facilitate the spread of new regulations or to receive permits varies greatly
ideas. Roads provide greater access to markets, across firms in the same location, suggesting
as do ports and airports.15 discretionary power and corruption.19 Beyond
In many low-income countries, poor-quality these broader cost measures, regulations affect
infrastructure is an especially severe challenge. the types of opportunities that are available and
Part of the problem stems from how infrastruc- how widely they are available. Regulations can
ture services are regulated, however, and not relieve or exacerbate uncertainty and corrup-
only from insufficient resources to build ad- tion, but they can also have a deeper influence
ditional facilities and roads. By one estimate, on the degree of competition and thus the struc-
improved infrastructure was responsible for ture of industries in the economy.
more than half of Sub-Saharan Africa’s recent Because business regulations affect the de-
growth.16 But efficiency improvements stem- gree of competition, they shape the pressures to
ming from better management of spending and innovate and increase productivity. Competi-
maintenance, pricing policies, and regulations tion contributes to the reallocation of resources
would be needed to close a significant portion of from inefficient activities to more productive
the remaining gap in infrastructure services. In ones. Regulations that serve to protect an in-
many countries and infrastructure sub-sectors, dustry or deter new entrants can be particularly
monopolies—based on political connections— costly in terms of forgone output and employ-
have resulted in lower quantities of services be- ment growth.20 Across countries, regulations
ing provided, at higher prices and of lower qual- on business entry are inversely correlated with
ity than in areas where competition has been productivity and firm creation, with stronger
allowed to thrive.17 effects in sectors that tend to have higher turn-
Regulation is another area that influences over rates.21 Easing entry requirements helped
the opportunities for businesses to grow. Some increase business registration and employ-
regulations determine the rules of the game, en- ment and drove down prices for consumers in
couraging—or discouraging—certain activities. Mexico. The effect was achieved largely through
Others affect firms at various stages of their life creation of new firms rather than formalization
cycle, from getting started, to enforcing con- of existing informal firms.22 Combining relaxed
tracts, to closing down.18 Regulations impact entry requirements with other regulatory re-
on the cost of doing business, both in monetary forms, such as investment promotion and trade
296 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
logistics, tends to be more effective than simply stimulation through a nurturing environment
easing entry.23 from the womb through the first years of life
raises significantly the returns to later educa-
tion investments.30 Supporting young children
Human capital
born into poverty during these crucial develop-
Good nutrition, health, and education outcomes ment phases can significantly improve equal-
are development goals in themselves, because ity of opportunities. The later the support, the
they directly improve people’s lives. But they more difficult and costly it is to put that child
also equip people for productive employment back on a normal developmental trajectory. In
and open job opportunities—and through this Romania, during the early transition years, the
employment channel, human capital drives eco- cognitive performance of orphans was lower
nomic and social advances. According to the the older they were when they left state orphan-
Commission on Growth and Development, “ev- ages. Social, emotional, and cognitive isolation
ery country that sustained high growth for long was common in these facilities.31
periods put substantial efforts into schooling its While foundations are laid early on, hu-
citizens and deepening its human capital.”24 man capital and skills continue to be formed
Connections between human capital and throughout childhood, young adulthood, and
jobs are manifold. There is robust evidence working life. Schooling is fundamental for the
from around the world that each additional year further development of cognitive and social
of schooling raises labor earnings substantially, skills until the end of adolescence, but learning
and that this earnings premium reflects the abilities continue to be shaped by physical and
higher productivity of more educated workers.25 mental health. Social skills remain malleable
Together, nutrition, health, and education form through adolescence and early adult years.32
skills and abilities that have been clearly linked Young adults can continue into more special-
to productivity growth and poverty reduction ized skill-building, including at tertiary levels,
in the medium to longer run.26 Better health but their success depends on whether they have
also brings, directly, higher labor productivity. acquired the generic skills needed to learn and
For example, where malaria is endemic, work- adapt to different tasks and problem-solving en-
ers can expect to suffer an average of two bouts vironments. These abilities are especially impor-
of fever each year, losing 5 to 10 working days tant in more dynamic economies.
each time.27 In rural Ethiopia, onchocercal skin Unfortunately, the evidence shows that many
disease lowers the earnings of affected workers countries are falling short in building up the
by 10 to 15 percent.28 As such, human capital human capital of their children and youth. The
becomes a fundamental ingredient for desirable quality of delivery systems has often failed to
job outcomes. keep pace with the expansion of access to basic
Human capital formation is cumulative. It is social services. In education, for example, by
a life-cycle process that proceeds in consecutive 2010, the net primary school enrollment rate in
stages, each of them building on the previous low-income countries had reached 80 percent,
one. Of crucial importance are adequate health primary school completion was at 68 percent,
and nutrition during the first 1,000 days of life, and gross lower secondary school enrollment
from inception to two years of age. Brain devel- exceeded 50 percent.33 But learning outcomes
opment in this period affects physical health, were clearly lagging behind. In a large major-
learning abilities, and social behavior through- ity of developing countries that took part in
out life.29 In the early years, a child develops the Programme for International Student As-
all the basic brain and physiological structures sessment (PISA) in 2009, at least 20 percent of
upon which later growth and learning depend. 15-year-old students were functionally illiterate.
Stunting in early childhood has been proven to For a number of countries, including Indonesia,
have a significant negative effect on cognitive the Kyrgyz Republic, Panama, Peru, Qatar, Tuni-
development; iodine deficiency can lead to poor sia, and the two Indian states that participated in
brain development; and insufficient cognitive the PISA, more than 60 percent of 15-year-old
stimulation reduces learning abilities. Ensur- students failed to reach this level. Similarly, early
ing adequate nutrition, health, and cognitive reading tests taken at the end of second grade
Beyond labor policies 297
Ensuring that rights and standards are up- phy, endowments, and institutions. In some
held requires a focus not only on implement- circumstances, there are no constraints to the
ing acquired rights but also on expanding their emergence of good jobs for development and
reach to workers in jobs that fall outside of for- no specific policy is needed. In others, govern-
mal laws and regulations. Associations of infor- ments can support the private sector in creating
mal workers can play a key role in informing more of these jobs. Sometimes removing exist-
them, helping them access legal mechanisms, ing constraints that impede the creation of jobs
and offering them collective voice. But often, with high development payoffs is possible. In
information alone is not enough: garment other cases, policies may need to circumvent the
workers in the Lao People’s Democratic Repub- constraints.
lic reported that they were told about their basic A simple approach to setting policy priori-
conditions of employment, but they did not al- ties follows a series of steps. First, the country
ways understand the details, nor how to enforce context must be assessed and the particular jobs
their rights.46 Not only can organizations of challenge or challenges it faces must be identi-
informal workers support workers in learning fied. The second step is examining whether the
about and accessing rights and standards, but jobs with the highest development payoffs are
they can also bring cases to court on behalf of really the most attractive to individuals or the
individuals and groups.47 most profitable for firms. When incentives are
The quality of institutions for accountability aligned—with the individual and social value
affects the extent to which labor rights are en- of jobs equal—there should be no shortage of
forced in practice.48 Because court proceedings good jobs for development and intervention
are often lengthy and costly, alternative mecha- is not needed. The third step is determining
nisms for resolving disputes, including concilia- whether the institutional failures and market
tion, mediation, and arbitration prior to court imperfections leading to misaligned incentives
hearings can expand access to justice and griev- can be pinpointed or not. The fourth step is un-
ance redress.49 These alternative mechanisms derstanding whether politically feasible reforms
are especially valuable to workers who cannot can remove or correct those failures and imper-
access the court system due to high costs or fections. If not, the last step involves assessing
other barriers. whether incentives should be realigned through
other policies (figure 9.4).
No
intervention
is needed.
Remove
the
Step 4 constraints.
Step 1
Are there enough YES Can the constraints YES Can the constraints YES
of these jobs? be identified? be offset? Design
NO NO NO engagement
strategy.
Step 2 Step 3 Step 5
might materialize. If so, it is difficult to justify footprint and pollution created by various types
government interventions beyond establishing of jobs. And analysis of values surveys can dis-
the fundamentals and adopting adequate labor cover which types of jobs link to networks and
policies. provide social identity.
Misaligned incentives exist when good jobs
for development are not rewarding enough to Step three: Can the constraints be identified?
individuals or profitable enough to farms and Understanding why the individual and social
firms. Data and analysis can be used to identify values of specific types of jobs differ is next.
gaps between the individual and the social value Gaps of this sort indicate the presence of unex-
of jobs. Arguably, many key areas in develop- ploited spillovers from jobs. The gaps typically
ment economics deal with these gaps. For in- arise from market imperfections and institu-
stance, the tools of public finance can be applied tional failures that cause people to work in jobs
to measure the tax burden on capital and labor that are suboptimal from a social point of view,
and to assess the extent of cross-subsidization lead firms to create jobs that are not as good for
between individuals or firms. Labor economics development as they could be, or connect peo-
methods can be used to uncover gaps between ple less through jobs than would be socially de-
the actual earnings of specific groups of work- sirable. But identifying where those constraints
ers and their potential earnings. Poverty analy- are is not always easy. For instance, a broad set
ses help in identifying the kinds of jobs that are of cultural, social, and economic forces may
more likely to provide opportunities to the poor, result in insufficient employment opportuni-
or the locations where job creation would have a ties for women. Similarly, it may be difficult to
greater impact on poverty reduction. Productiv- pinpoint whether the key obstacles to making
ity studies can help quantify the spillovers from cities functional lie in the land market, or in the
employment in FDI companies, in firms con- institutional arrangements to coordinate urban
nected to global markets, or in functional cities. development, or in the ability to raise revenue to
Environmental studies shed light on the carbon finance infrastructure.
300 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Step four: Can the restraints be removed? If the and physical infrastructure (box 9.1). Simi-
institutional failures and market imperfections larly, if politically charged regulations slow the
leading to misaligned incentives can be identi- reallocation of labor toward more productive
fied, reforms should be considered. It is a good activities, urban infrastructure and logistics
economic principle to target reforms to the could enhance the attractiveness of jobs in cit-
failures and imperfections at the root of the ies and jobs connected to world markets (ques-
problem. Where reforms are technically and po- tion 9). But there are cases when constraints can
litically feasible, policy makers should directly neither be removed nor offset. An engagement
tackle the major constraints hindering the cre- strategy involving a deeper analysis of the op-
ation of more good jobs for development. tions and buy-in by key stakeholders is needed
then.
Step five: Can the constraints be offset? Reforms Policy making to remove or offset constraints
might not be feasible, technically or politi- has to be selective and supported by good public
cally. Or perhaps the constraints for jobs are finance principles. The costs and benefits of pol-
not identifiable. An alternative is to enact off- icy options need to be assessed, but the calcula-
setting policies that can restore the incentives tions are different when the overall development
for job creation. For instance, if a diffuse but impact is the guiding objective. But they are also
entrenched set of priors and beliefs makes it more difficult. For instance, an employment
difficult for women to work, efforts could aim program for ex-combatants in a conflict-affected
at increasing their employability through tar- country could be assessed in terms of whether
geted investments and interventions in social the earnings gains of participants justify the pro-
Some developing countries have experienced important increases returns to their earnings. These investments and interventions can
in women’s labor force participation over a relatively short period of be categorized into three groups. They can address shortages in
time. Nowhere has the change been faster than in Latin America. the availability of services (such as lack of electricity or daycare
Since the 1980s, more than 70 million women have entered the labor facilities) that force women to allocate large amounts of time to
force, raising the women’s labor participation rate from 36 percent home production. They can make it easier for women to accumu-
to 43 percent. In Colombia, the rate increased from 47 percent in late productive assets, such as education, capital, and land, facili-
1984 to 65 percent in 2006. By contrast, in the Middle East and North tating their entry into high-productivity market activities. And they
Africa, women’s labor force participation has only grown by 0.17 per- can remove norms or regulations that imply biased or even discrim-
centage points per year over the last three decades. inatory practices, preventing women from having equal employ-
Recent research attributes this rapid transformation to increases ment opportunities.
in labor force participation among married or cohabiting women There are successful experiences with targeted investments
with children, rather than to demographics, education or business and interventions of these three sorts. Public provision or subsidi-
cycles. Changes in social attitudes contributed to the transforma- zation of child care can reduce the costs women incur at home
tion, but this is a complex area with limited scope—and justifica- when they engage in market work. Examples include Estancias
tion—for direct policy intervention. For instance, women’s partici- Infantiles in Mexico, Hogares Comunitarios in Colombia, and similar
pation rates are very low in the West Bank and Gaza, particularly programs in Argentina and Brazil. Improvements in infrastructure
among married women. But this cannot be mechanically attributed services—especially in water and electricity—can free up women’s
to religion, as countries like Indonesia have high participation rates. time spent on domestic and care work. Electrification in rural South
Other social norms and regulations prevent women from participat- Africa, for instance, has increased women’s labor force participa-
ing, despite their willingness and capacity to do so. tion by about 9 percent. Correcting biases in service delivery insti-
While the scope to influence social attitudes is limited, evidence tutions, such as the workings of government land distribution and
suggests that public policies and programs in other areas have an registration schemes, allows women to own and inherit assets.
important role to play. It also suggests that a combination of tar- Finally, the use of active labor market policies, the promotion of
geted investments and interventions in social and physical infra- networks, and the removal of discriminatory regulations, are
structure can modify women’s labor force participation and the important to make work more rewarding for women.
Source: World Development Report 2013 team based on Amador and others 2011, Chioda 2012, and World Bank 2011i.
Beyond labor policies 301
gram costs. But a full accounting would need to and famine was not a distant possibility.51 Two
incorporate the potentially positive effects on decades later, Vietnam is the world’s second-
peace building. In the Democratic Republic of largest exporter of rice after Thailand; the
Congo, the cost of a reintegration program for ex- second-largest exporter of coffee after Brazil; the
combatants was about US$800 per beneficiary.50 largest exporter of pepper; and a top exporter
Such a program would likely be judged as cost of rubber, cashew nuts, and seafood products.
inefficient by traditional standards. Whether or The poverty rate declined to 16 percent by 2006,
not it is still worth implementing depends on the fastest reduction in poverty ever recorded.
the implicit value policy makers attach to its These two decades of accelerated progress took
social cohesion benefits. These spillovers from Vietnam out of the least-developed-country
jobs may not be measured precisely, but at least category and made it a lower-middle-income
they should be stated, for policy decisions to be economy with upbeat growth prospects.
transparent. Vietnam’s transformation from an inef-
ficient agrarian economy into an export pow-
erhouse started with land reform. In the late
Diverse jobs agendas, 1980s and early 1990s, the country abandoned
diverse policy priorities collectivization by initially allowing local au-
thorities to reallocate communal land to indi-
Following a protocol to identify constraints to vidual households and subsequently extend-
the creation of good jobs for development, and ing land-use rights to them. The devolution
then remove or offset them, may sound abstract. of land to rural households was remarkably
But some countries have successfully done this egalitarian, especially in the north.52 By 1993,
in practice, and it is possible to learn directly land-use rights could be legally transferred and
from their experiences (box 9.2). The stories of exchanged, mortgaged, and inherited. Land re-
Vietnam, Rwanda, Chile, and Slovenia, show form was part of a broader package of reforms,
that policy can effectively support the creation or Doi Moi, which took Vietnam from central
of jobs with high development payoffs. Each of planning to a market economy with a socialist
these countries faced a different jobs challenge, orientation.53 The package included the gradual
so their policy choices are relevant for other removal of barriers to entry in most sectors, in-
countries confronted with similar jobs agen- cluding the commercialization of agricultural
das. Getting the fundamentals right by ensuring products. Competition brought farmgate prices
macroeconomic stability, improving the busi- much closer to international prices. Combined
ness environment, and adhering to the rule of with a strong emphasis on agricultural exten-
law, featured prominently in all four cases. All sion, land reform and deregulation led to rap-
four countries also embraced labor policies and idly growing agricultural productivity on very
institutions within a reasonable range. But it is small farm plots.
telling that the main constraints they targeted In parallel, policies aimed to create em-
were not in the labor market. ployment opportunities outside agriculture.
Vietnam opened to foreign investors, first in
selected sectors such as natural resource ex-
Agrarian economies: Vietnam
ploitation and light manufacturing, and then
Increasing productivity in agriculture, thereby more broadly in the context of its accession to
freeing up labor to work in rural off-farm em- the World Trade Organization (WTO) in 2007.
ployment and to eventually migrate to cities, is Registered FDI increased fourfold in just two
the main challenge facing agrarian economies. years, from 1992 to 1994; by 2007, FDI inflows
At the beginning of its economic reform pro- were consistently exceeding 8 percent of GDP.54
cess, in the late 1980s and early 1990s, Vietnam Initially investors partnered with state-owned
was a clear illustration of this challenge. In 1993, enterprises (SOEs), because of the complexity
the first year for which reliable data exist, over of a legal system still in transition. But SOEs
70 percent of employment was in agriculture, had gradually been given the flexibility to make
58 percent of the population lived in poverty, their own business decisions, and many were
302 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 9.2 There have been successes in tackling jobs challenges around the world
The Republic of Korea effectively used policies to bring out the process.c Benefiting from a booming global commodities market
agglomeration and integration benefits of an urbanizing country.a and a competitive exchange rate, its economy was growing at
Almost three-quarters of the population was rural in 1960, but by around 5 percent a year before the 2008 financial crisis. But unlike
2000, four-fifths were urban. Seoul, which has grown to more than other rapidly growing countries, Brazil’s job creation in the formal
10 million people today, was a motor for the country’s overall sector was three times as high as in the informal sector. Just in the
growth, especially from the late 1980s until the mid-1990s. Many five years leading up to the crisis, the formal share of total employ-
industrial clusters were established in close proximity to the capital ment increased by about 5 percentage points. In some ways, Brazil
city. Carefully designed and phased urban development policies is an unlikely “formalizer”—it has a heavily regulated business sec-
accompanied the transition from jobs in agriculture to jobs in light tor and a costly labor system. Although its rapid formalization is too
manufacturing and then to jobs in industries with higher value recent to be fully explained yet, it appears efforts to simplify and
added. Land development programs were established first, fol- extend the reach of programs and regulations have been contrib-
lowed by a land-use regulation system, and then by comprehen- uting factors. The government has expanded the coverage of its
sive urban planning. Housing and transportation policies held social protection system through noncontributory programs. It has
the diseconomies of urbanization in check. The global integration also simplified tax rules for small businesses, increased incentives
of Korea’s urban hubs was a core driver of its growth dynamic. for firms to formalize their workers, and improved enforcement of
The country invested massively in skills to support its structural tax and labor regulations.
transformation. The mean years of education of the adult popula- In aging societies the increase in the old-age dependency ratio
tion increased from 4.3 in 1960 to 11.8 in 2010. International test reduces the average productivity per person, while the growing costs
scores now place Korea at the top of Organization of Economic of caring for the elderly undermine living standards. But the reforms
Cooperation and Development (OECD) countries in reading, math- needed to address these challenges are politically difficult to imple-
ematics, and science outcomes for 15-year-olds. ment and often involve hard tradeoffs. Poland is an example of a
Small island nations are characterized by their size, isolation, and country that has taken several successful steps.d By the turn of the
exposure to climatic risks. In these circumstances, reaping the pro- century, labor force participation rates were declining due to the
ductivity gains from agglomeration and global integration is espe- growing incidence of early retirement and disability pensions. But
cially challenging. Tonga is using migration as an active instrument several reforms that reduced the inflows of new beneficiaries led to
to connect to the world economy.b Approximately 100,000 Tongans an increase in the employment-to-population ratio from 60 percent
live abroad, almost as many as at home. Remittances account for an in 2006 to 65 percent in 2009. Changes in the application of eligibility
estimated 32 percent of GDP and reach 80 percent of households, rules of disability pensions, enacted in 2005, sharply reduced the
raising the education levels and productive investments. Migration intake of new beneficiaries. In 2009, a pension reform tackled early
agreements also reach poorer and less-skilled workers. In 2007, New retirement options. This reform is such that old-age pension benefits
Zealand launched the Recognized Seasonal Employer (RSE) pro- adjust downward as life expectancy increases. Hence, the country is
gram, which provides temporary opportunities for seasonal workers expected to have a fiscally sustainable pension system in the long
from the Pacific to work in horticulture and viticulture. For the house- run. That sustainability came at a cost: benefits as a percentage of
holds of participants, the program has led to income gains of up earnings at retirement became significantly lower than the average in
to 38 percent, more purchases of durable goods, and a broader the European Union. In 2012, a new wave of pension reforms raised
improvement in well-being. In addition to income, RSE workers the retirement age to 67 for men and women from the current 65 for
brought home their newly acquired knowledge of agricultural tech- men and 60 for women. This increase should help to raise the benefit
niques, computer literacy, and English-language skills. level without adversely affecting fiscal sustainability. Policies and pro-
Formalizing countries can envision increasing the coverage of grams to ease labor market entry for the inactive and unemployed of
their social protection systems to levels typical of industrial coun- all ages remain modest, however, and their impact still needs to be
tries. But costs are high, as is the risk of distoring incentives and determined. Also, long-term health care continues to rely largely on
undermining productivity. Brazil is one country that has been able informal arrangements, but reforms are now publicly debated.
to not only grow quickly but expand the formal sector in the
totally or partially sold to private investors. By by now a rapidly urbanizing economy, which is
the turn of the century, greenfield FDI invest- a testimony to its success.
ments had become the norm, especially in sec-
tors such as garments, footwear, appliances,
Conflict-affected countries: Rwanda
and consumer electronics.55 Firms in these sec-
tors are employing workers in large numbers. Rwanda today seems far removed from the war
Important challenges remain, but Vietnam is and genocide of the mid-1990s, and jobs contrib-
Beyond labor policies 303
uted to such a remarkable turnaround. The con- help.65 But the economic reintegration and so-
flict has had a severe impact on society and the cial cohesion through jobs have established a
economy, with massive loss of life, destruction of basis for future progress.66
infrastructure, a crisis of state institutions, and
a drop in GDP that exceeded 50 percent.56 The
Resource-rich countries: Chile
cessation of conflict and an aggressive package of
reforms allowed Rwanda’s economy to rebound While many countries rich in resources seem
to pre-crisis levels by 2000.57 Growth has contin- unable to diversify and are beset by poor gov-
ued, reaching an estimated 8.8 percent in 2011, ernance, Chile’s savvy management of its cop-
and the poverty rate fell by 12 percentage points per riches makes it a notable exception. In 2010,
between 2005 and 2010.58 Chile was home to 28 percent of the world’s
A precondition for sustainable job creation copper reserves and about one-third of world
in countries emerging from conflict is securing copper production; for the past two decades,
peace and reducing risks of recurring violence.59 it has accounted for 17 percent of world cop-
In the wake of the conflict, the Rwandan gov- per exports.67 But despite the prominence of
ernment supported the reintegration and demo- copper in its economy, Chile has been able to
bilization of more than 54,000 former combat- diversify its exports and its economy while ef-
ants. Ex-combatants received a combination of fectively managing resource-related risks such
cash assistance, counseling, vocational training, as currency appreciation and macroeconomic
education, support for income-generating ac- turbulence. Nonmineral exports increased sig-
tivities, and social reintegration activities involv- nificantly as a share of total exports after the
ing community members.60 More than a decade 1980s, before retreating somewhat during the
after the end of conflict, most former combat- global commodities boom after 2007 (figure
ants were participating in vocational training or 9.5). Employment in the nonmining sectors
working, mainly in subsistence agriculture and has grown strongly at more than 2 percent an-
self-employment, similar to the rest of Rwanda’s nually over the past two decades.68 The unem-
population.61 Although many ex-combatants ployment rate has averaged around 8 percent
continued to experience social and psychological over the past decade, a far cry from the record
hardships, their relations with their neighbors 20 percent of the early 1980s.69
were reportedly good, and trust was improving. A set of macroeconomic, institutional, ex-
In 2012, 73 percent of ex-combatants expressed port-diversification, and skill-building policies
satisfaction with their social integration, and 85 contributed to this broad-based job creation
percent of community members felt that there path. Chile combines the use of a resource sta-
was trust between the two groups.62 bilization mechanism (since 1987, with the
While the number of ex-combatants only current framework adopted in 2006) with a
represents a small share of Rwanda’s total popu- transparent fiscal rule (since 1999) that jointly
lation of 10 million, reintegration through jobs regulate how copper extraction rents are used.70
had social cohesion payoffs, which established a A structural surplus target is the anchor for de-
basis for the country to move forward. Rwanda termining inflows and outflows into two funds,
has built on this start by rejuvenating the private one for pensions and other long-term govern-
sector through reforms to institutions and busi- ment liabilities, the other for short-term sta-
ness regulations.63 A good example of the gov- bilization purposes. The funds are authorized
ernment’s private sector development strategy to invest their portfolio fully abroad, relieving
was its decision to revitalize its coffee industry pressures on the exchange rate.71 In parallel,
through deregulation and investments in new governance reforms over the past decades in all
technology, a decision that has led to new job areas of public sector management have led to
creation.64 Rwanda still faces serious jobs chal- significant success: Chile climbed 5 percentiles
lenges. More than 80 percent of the population in its voice and accountability rating between
works in subsistence agriculture and house- 1996 and 2009 and also improved its political
hold enterprises, where productivity needs to stability and control of corruption ratings.72
be improved. Also, opportunities for off-farm Further, Chile adopted an active export-
employment need to expand, and growth in oriented growth policy, opening up to trade
the currently small manufacturing sector would and welcoming direct foreign investment,
304 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Chile
F I G U R E 9. 5 reduced its dependence on mineral exports
70
mineral exports in total exports, %
65
60
55
50
45
40
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Source: World Development Report 2013 team, based on export values data from Chile’s Central Bank and copper price index from IMF’s International Financial Statistics database.
Note: The figure shows the share of mineral exports in total exports, measured at constant 1990 prices. Total exports and mineral export values were deflated using the export price
index and the copper price index, respectively.
thereby enhancing the productivity spillovers young people, European Commission President
from global integration. An ambitious inno- José Manuel Barroso recently highlighted Slove-
vation strategy to raise competitiveness was nia as an example of best practice in the employ-
developed.73 Public funds were used specifi- ment of youth.79
cally to boost education expenditures, which Slovenia’s relative success in reducing youth
almost doubled in real terms between 1990 unemployment does not strictly follow tradi-
and 2009.74 While quality as well as equity in tional recipes. Its spending on active labor mar-
the education system are much debated today, ket policies is about average for transition coun-
the share of low-skilled workers declined in all tries. Although some reforms have been made to
economic sectors.75 liberalize the rules for contract and temporary
work, Slovenia’s labor regulations remain more
restrictive than the Organisation for Economic
Countries with high youth unemployment:
Co-operation and Development (OECD) aver
Slovenia
age, a policy stance that is usually associated
Slovenia has made inroads into the problem with reduced job opportunities for young peo-
of high youth unemployment (figure 9.6). ple. Minimum wages—also frequently cited as a
Throughout the first decade after the breakup of barrier for youth employment—are on the high
the former Yugoslavia, young people were three side. But potential distortions from these poli-
times as likely as adults to be unemployed. By cies seem to be somewhat offset by a model of
2010, this ratio had fallen to two to one.76 The consensus-based decision making. In Slovenia,
youth employment rate, which was 10 percent- trade unions and employers’ organizations, both
age points above the European Union (EU) with broad coverage, set wages that respond well
average in 2000, was lower than the EU average to macroeconomic trends and sectoral produc-
in 2010.77 By then, the share of Slovenia’s youth tivity patterns.80
not in education, employment, or training was Sustained growth supported by increased
just 7.5 percent among the 15- to 24-year age competition in product markets, is ultimately
group, well below the EU average of 11.2 per- responsible for much of Slovenia’s decrease
cent.78 While the crisis has certainly been felt by in youth unemployment. Taking advantage of
Beyond labor policies 305
percent
the labor market, such as removing the incen-
15
tives created by employment protection laws
that tilt job creation for youth toward contract 10
and temporary work. But others are outside the
labor market, such as introducing measures to 5
encourage more FDI.81
0
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Connected jobs agendas: Global
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
partnerships for jobs youth unemployment rate, % unemployment rate, %
Trade agreements have also been used with vironmental concerns into their operations.90
the intent of supporting workers rights. Some of While some develop their own codes of con-
them incorporate incentives to improve work- duct, collective initiatives are increasingly im-
ing conditions and access to voice. For instance, portant for improving working conditions
the 1999 bilateral trade agreement between in global supply chains. Shared codes enable
Cambodia and the United States included pro- companies to collaborate with other businesses
visions to increase Cambodia’s quota for gar- in industry-led platforms, and with trade
ment imports into the United States market if unions and nongovernmental organizations in
regular reviews showed improvements in work- multistakeholder initiatives (sometimes with
ing conditions. government observers).91
Whether labor clauses actually lead to better Almost all such initiatives have defined stan-
outcomes for workers on either side of a trade dards of practice, but they differ substantially in
agreement is the subject of a running debate. their governance structures, in their procedures
Skeptics point out that the agreements, on their for implementation, monitoring, and verifica-
own, can be weak instruments for improving tion, and in whether they involve certification
rights and working conditions and cannot sub- and labeling.92 CSR initiatives focused on labor
stitute for adequate enforcement of domestic la- issues are generally concentrated in sectors rely-
bor laws.84 There are also concerns about politi- ing on global supply chains that are exposed to
cal capture and pressures from interest groups reputational risk, such as garments, sportswear,
and uneven bargaining power between treaty food and, increasingly, electronics.93 Codes of
parties.85 Labor clauses could be used as a pro- conduct are most frequently adopted by com-
tectionist tool, undermining trade and employ- panies based in the European Union and North
ment opportunities in developing countries. America, which then make compliance with
Supporters claim that labor clauses in trade labor standards a condition for doing business
agreements not only improve the enforcement with them. A small number of voluntary initia-
of existing labor and employment standards tives have also emerged in developing countries,
but also lead to increased FDI to developing although these are generally a response to exter-
countries, thus benefiting workers in developing nal pressure more than a reaction to campaign-
countries in both direct and indirect ways.86 ing by local consumers.94
Linking rights to trade agreements may have There is limited evidence to demonstrate
an impact on working conditions if comple- how far CSR initiatives go beyond good inten-
mented by investments in capacity for enforce- tions to result in tangible and sustainable im-
ment and compliance at the country level. Af- provements in rights and working conditions.
ter it signed the Central America Free Trade The clearest impacts are found in the area of
Agreement, the Dominican Republic increased health and safety and, to a lesser extent, in regu-
the number of labor inspectors and invested larization of working hours. Improvements on
in capacity building.87 And after it entered the freedom of association and discrimination are
bilateral trade agreement with Cambodia, the much less likely. Overall, the benefits are more
United States funded two ILO projects there. pronounced for permanent workers than for
One of them, Better Factories Cambodia, in- migrants, agency workers, and seasonal and
volved building capacity for compliance and temporary workers.95 Codes do not operate in
monitoring of working conditions in garment a vacuum, so the capacity of local actors and
factories. The other supported an arbitration the quality of domestic laws and institutions are
council to resolve collective labor disputes.88 critical to the effectiveness of the efforts.96
Subsequent reviews have found improvements These findings stress the need for approaches
in working conditions and collective rights.89 to improving working conditions that extend
Beyond the initiatives of governments to sectoral and national-level engagement with
through conventions and trade agreements, governments, employers, trade unions, and civil
there has been a growing emphasis on pri- society organizations. Voluntary labor initiatives
vate sector accountability. Under the broader cannot substitute for domestic efforts to set up
corporate social responsibility (CSR) agenda, adequate legal protections and put in place insti-
companies voluntarily assume social and en- tutions to support compliance and provide av-
Beyond labor policies 307
BOX 9.3 Improving business practices facilitates compliance with labor standards
The Better Work program seeks to improve compliance with inter- agement, supporting country teams with tools for advisory services,
national labor standards and national laws, while promoting busi- monitoring and evaluation, and impact assessment.
ness competitiveness. The program operates through partnerships Better Work is modeled on the Better Factories Cambodia pro-
with governments, employer and worker organizations, and inter- gram, which was introduced in conjunction with the bilateral trade
national buyers. It currently includes global garment brands and agreement between Cambodia and the United States. Results of
retailers with supply chains outsourcing production to Cambodia, evaluations of Better Factories Cambodia, covering more than 90
Haiti, Indonesia, Jordan, Lesotho, Nicaragua, and Vietnam. percent of participating factories, found that compliance on occu-
The program involves thorough workplace assessments that pational safety and health improved 20 percent. Correct payment of
examine compliance with international labor standards and wages, overtime, and benefits increased 37 percent. Initially, incen-
national labor law, as well as advisory services to help employers tives to improve working conditions were driven by the quota
and workers jointly create and implement improvement plans. Tai- increases called for under the trade agreement; however, with the
lored training services support workplace cooperation and address expiration of the Multi-Fiber Arrangement (MFA), quota increases
specific issues, such as supervisory skills, human resource systems, were no longer possible. Nevertheless, the Cambodian garment
and occupational safety and health. The program undertakes public industry has continued to invest in monitoring, having identified
reporting, which presents aggregate noncompliance data from all labor compliance as an important part of its claim to a niche in
participating factories in a country and allows comparisons across the global garment industry. This niche exists despite the expiration
countries according to specific indicators. A Better Work global of the MFA largely because of the role that reputation plays in the
team ensures quality, consistency, and effective knowledge man- supply chain.
Sources: World Development Report 2013 team based on Better Work Programme, International Finance Corporation, Washington, DC, and International Labour Organization,
Geneva; Robertson and others 2009; and Adler and Hwang 2012 for the World Development Report 2013.
enues for redress. The public and private sectors ance with labor standards in the garment sector
can work together, as in Brazil, where in 2003 (box 9.3).98
the Ministry of Labor began publishing lists of
companies found to be using forced labor. The
Further liberalizing trade, but managing
increased public awareness led companies to
the tradeoffs
subscribe to a National Pact to Combat Slave
Labor, with civil society organizations establish- International trade in goods has been gradu-
ing a committee to monitor the pact.97 ally liberalized, and the notion that freer trade
While most jobs in developing countries is mutually beneficial for the transacting par-
fall outside the scope of CSR initiatives, these ties is now widely shared. Various mechanisms
efforts have the potential for a wider influence have been used in the liberalization process,
if they can be expanded to include workers, including multilateral, regional, and bilateral
mainly women, who do not have formal con- agreements, as well as unilateral commitments.
tracts. At the same time, local governance and At the multilateral level, liberalization has been
institutions could be boosted through activities achieved through negotiations under the frame-
to strengthen the capacity of actors and insti- work of the General Agreement on Tariffs and
tutions and improve processes of dialogue and Trade (GATT) first, and then of its successor,
cooperation. Demonstration effects may also the WTO. The most recent round of multilateral
occur at the country level if CSR efforts increase negotiations, the Doha Development Agenda,
the visibility of activities to improve rights and aims for better market access for the export-
working conditions, and if labor inspectorates ing industries of developing countries. Average
and third-party monitoring bodies gain expe- bound tariffs would fall from 40 to 30 percent
rience and capacity. The potential benefits of for agricultural products, and from 10 to 5 per-
local capacity building are illustrated by the ex- cent for manufactures. Actual tariffs could fall
perience of Better Work, a partnership program by 11 to 14 percentage points for the former, and
between the ILO and the International Finance by 2 to 3 percentage points for the latter. Cuts
Corporation (IFC) aimed at improving compli- could be much sharper in sectors such as tex-
308 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
tiles and clothing. The least-developed countries proposals in the Doha agenda and in regional
could even benefit from duty-free quota access trade discussions offer prospects for significant
on almost all of their exports to industrial coun- liberalization (figure 9.7). 102
tries.99 For developing countries, the success of However, the productivity gains from ser-
the Doha Round could therefore have a substan- vices liberalization would be substantial. Elec-
tive impact on the creation of jobs connected to tricity, finance, telecommunications, and trade
global value chains, which are typically good have a direct impact on production and trans-
jobs for development. But the Doha negotia- action costs, making downstream sectors more
tions are in limbo. competitive. By boosting job creation and rais-
Despite the progress in trade liberalization, ing labor earnings, these productivity gains
many developing countries still lack the com- should also lead to improved living standards.
petitiveness to harness the benefits from global Social impacts can be more mixed. They are
integration. Providing them with direct as- clearly positive when cell phones connect people
sistance to reduce logistics costs and improve (especially the poor) to markets for their prod-
the competitiveness of firms and farms is thus ucts, to employment opportunities, or to gov-
a priority. The Aid for Trade initiative aims to ernment services. They can be negative when
increase aid to developing countries so that they the disappearance of retail trade leads to the
can tap existing market opportunities. Aid for decline of traditional urban areas and affects the
Trade has increased substantially and now ac- livelihoods of older shopkeepers who may not
counts for about a third of total aid to devel- find alternative employment easily.
oping countries. To date, most of the resources An adequate sequencing of services liberal-
have been channeled to infrastructure invest- ization and domestic regulation can help man-
ments and trade facilitation. But the assistance age these tradeoffs and, in doing so, address the
could be made more effective by focusing on the concerns of developing countries. For instance,
export activities most suited to addressing the in telecommunications, enhanced domestic
specific jobs challenges facing recipient coun- competition improves welfare more than hand-
tries. Increasing the involvement of the private ing over existing providers to better-performing
sector would also enhance the effectiveness of foreign operators. Evidence from 86 developing
the assistance provided.100 countries between 1985 and 1999 suggests that
In contrast to trade in goods, services liber- both competition and liberalization can inde-
alization has made slow progress, at both the pendently improve performance. But penetra-
multilateral and the regional levels. Services are tion of telecommunications services, measured
subject to more pervasive regulations, because by main-line access, is lower if competition is
they are characterized by well-known market introduced after liberalization, rather than at
imperfections. These range from natural mo- the same time.103
nopolies in the distribution of electricity to net- A careful design of liberalization, can also
work externalities in telecommunications, and cushion social impacts. For instance, in its pref-
from asymmetric information and moral hazard erential trade agreement with the United States,
in finance to market power in retail trade. While Oman chose a sequential approach for the lib-
the liberalization of trade in goods is associated eralization of its retail trade. Foreign nationals
with domestic liberalization, the liberalization were initially permitted to own up to 100 per-
of trade in services usually requires domestic cent of the equity in established retail enter-
regulation. Setting up markets for electricity, en- prises valued at more than US$5 million, with
suring universal service in telecommunications, the threshold subsequently declining to US$1
adopting appropriate banking supervision, and million. This agreement allowed for gradual
managing the social impacts of large distribu- adjustment. At the same time, it was gener-
tors on retail trade are challenging tasks.101 ous in relation to foreign ownership, which is
Not surprisingly, liberalization in services restricted to 49 percent in Oman’s prevailing
is much less advanced in developing countries multilateral agreements.104 Similarly, concerns
than in industrial countries. The former are about the impact of liberalization on urban
also reluctant to make additional commitments. centers are addressed through land-zoning re-
Neither existing agreements under General strictions, as some industrial countries do. But
Agreement on Trade in Services (GATS) nor these restrictions can also be used as entry de-
Beyond labor policies 309
90
80
services trade restrictiveness index
70
excess
60 protection
50
GATS
40 commitments
Doha
30 offer
20 actual
protection
10
0
Europe and OECD East Asia Middle Sub- Latin South
Central Asia and Pacific East and Saharan America Asia
North Africa and the
Africa Caribbean
terrents, reducing competition and undermin- than 1 million people, most of them women.
ing job creation.105 Preferential access for developing country im-
The limited traction in services liberalization ports from sectors with more “brain jobs” can
is due largely to the potential tradeoffs involved. thus be used to create employment opportu-
Developing countries may lack knowledge on nities for women in countries where gender
the gains from opening markets, the on precon- equality is far from being attained.107 However,
ditions for realizing such gains in light of existing as countries move up the ladder of global value
tradeoffs, and on the policy options available for chains, women may also lose job opportunities.
maximizing the gains and handling the trade This was the case in Malaysia, where the share of
offs. Similar to the case of trade in goods, many women working in manufacturing declined in
countries also lack the ability to implement poli- the mid-1980s.108
cies and agreements. International collabora-
tion is thus needed to address such knowledge
Migration policies: Toward bilateral
gaps and facilitate implementation.106
agreements
International agreements can also be used to
promote global public goods. One case in point Movements of people across borders have elic-
is gender equality. Trade is not gender neutral. Its ited diverse policy reactions by recipient coun-
liberalization, including services trade, changes tries over the course of history. These have in-
women’s access to jobs. Traditionally men were cluded physical walls that keep foreigners away,
more likely to have “brawn jobs,” involving policies preventing forced and bonded labor
stronger physical requirements. But “brain jobs” across oceans, and policies of open migration.
involving dexterity, attention, or communica- In addition, there has been a range of specific
tion—from stitching garments to processing measures including amnesties for irregular mi-
data—present more opportunities for women. grants, statutes controlling entry by refugees,
In Delhi and Mumbai, call centers employ more and complex systems for granting visas. In most
310 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
cases, these policies have been introduced uni- the large earnings differentials between coun-
laterally by the recipient country and have in- tries, suggesting that the free movement of la-
volved little or no international dialogue or co- bor would accelerate global productivity growth
operation with sending countries. and poverty reduction enormously.111 Another
In contrast to the movement of goods and perspective focuses on national security and
services across borders, few international agree- the protection of communities and their cul-
ments concern migration in general and migra- tures, implying the need for barriers to contain
tion of workers in particular. Those in existence migration. Yet another highlights the moral
have limited coverage. ILO Conventions 97 and imperative to protect the human rights of mi-
143, in force since 1952 and 1978, respectively, grants, no matter their legal status, and to give
seek to protect migrants from discrimination shelter to those who suffer any form of perse-
and abuse, and call for penalties and sanctions cution.112 None of these views suffices, because
against those who promote clandestine or ille- none of them alone can address the complex
gal migration. But these conventions have been tradeoffs that migration poses for policy design.
ratified by only 49 and 23 countries, respectively. There are many examples of such tradeoffs.
Mode 4 of GATS covers exports of services con- The more that is spent in protecting the welfare
ducted through individuals present in another of migrants, which sending countries and con-
WTO member country.109 It entered into force cerned citizens everywhere demand, the more
in 1995 and covers all signatories to the WTO, expensive the use of migrant labor will become,
but only a limited number of services have been and the fewer the number of workers who will
liberalized by either developed or developing be hired. The more that is done to assimilate
countries, with very few moving ahead in sensi- and integrate the migrants, which some host-
tive areas like health services. Finally, the United country groups favor, the less likely migrants
Nations International Convention on the rights will be to return to their home countries. The
of all migrant workers and members of their more active the policies to attract “talent” mi-
families aims to “contribute to the harmoniza- grants, the greater the “brain drain” concerns
tion of the attitudes of States through the accep- among sending countries. The higher the pro-
tance of basic principles concerning the treat- tection of sectors such as agriculture by indus-
ment of migrant workers and members of their trial countries, the more likely are migrants
families.” This convention entered into force in from developing countries to work in those
2003 but has been ratified by only 22 countries, sectors. Conditioning foreign aid on banning
mostly sending countries. migration seems unacceptable and would affect
Growing differences in ages, incomes, skills fundamental rights of workers by constraining
and economic perspectives between countries their freedom to move. Stern visa restrictions
are likely to create mounting pressures for mi- and deportations usually backfire and may turn
gration. Despite the interest of both industrial overstayers into irregular migrants. These exam-
and developing countries in “talent” migra- ples indicate that unilateral policies cannot ad-
tion, low-skill migrants will still account for dress all these dilemmas. However, the adoption
the bulk of cross-border flows in the years to of global agreements setting the conditions of
come.110 But readiness to make the most of migration and superseding country legislation,
these growing differences between countries, seems unlikely. This is why an intermediate so-
and manage migration in a mutually beneficial lution can be more effective.
way, is limited. Multicountry agreements have In many instances, both sending and host
been slow to develop. Bilateral agreements that countries can benefit from migration through
take into consideration geographical and his- a collaborative approach. Most abuses perpe-
torical trends, protect basic rights of workers, trated by traffickers, firms, or workers are as-
and take into account the social impacts of mi- sociated with illegal migrant flows. The for-
gration, could benefit both host and sending malization of these flows is a basic tool for
countries. protecting the rights of migrant workers, while
Migration is an area where a global perspec- at the same time having them honor the terms
tive is warranted, but views on what needs to under which they were welcomed. This formal-
be done are quite diverse. One view focuses on ization, however, is difficult to enforce without
Beyond labor policies 311
the cooperation of institutions in both sending very diverse production units, including micro-
and receiving countries.113 Bilateral agreements enterprises. Assessing whether employment ex-
can include provisions regarding quotas by oc- periences affect trust and willingness to engage
cupation, industry, region, and duration of stay. in society requires information on individual
They can distinguish between temporary move- values and behaviors. Such information is nec-
ments of workers and steps to permanent mi- essary to tackle an emerging research agenda on
gration, with conditions and protocols for mov- jobs and development (box 9.4).
ing from one country to another and regulation However, the paucity of empirical analyses
of recruitment agencies and intermediaries. on the employment impact of the global crisis
They can include considerations about taxation in developing countries and the difficulty of
and social security, including on benefits to be comparing measures of informal employment
provided, portability of contributions, and cost- across countries suggest that data quality and
sharing arrangements. These agreements can availability are limited. Much effort goes into
design incentives so that firms, worker associa- measuring unemployment rates, even with a
tions, and governments in both sending and re- relatively high frequency.116 But open unem-
ceiving countries have an interest in enforcing ployment is not a very telling indicator in coun-
the provisions.114 tries where an important fraction of the labor
Formalizing and extending temporary mi- force is not salaried. Four indicators are listed to
gration agreements could capture part of the monitor progress toward the employment tar-
wage gain from migration that is currently ab- get under the Millennium Development Goal
sorbed by intermediaries, to the benefit of both (MDG) on eradicating poverty. This target calls
migrants and their employers. Agreements in for “achieving full and productive employment
the financial sector could lower the cost of re- and decent work for all, including women and
mittances to migrants and avoid the prevalence young people.” But the four indicators con-
of illegal transactions. Reconsidering the financ- sidered only partially capture advances in the
ing of higher education in both developing and quantity and quality of jobs in the developing
developed countries could favor a more bal- world.117 Many available employment figures
anced sharing of the returns to investments in are actually inferred through interpolation be-
the case of talent migrants. More generally, bi- tween years and extrapolation using data from
lateral coordination is a sensible way to manage “similar” countries, but how reliable these
migration and ensure mutual benefits for send- methods are remains an open question.
ing and recipient countries. These remarks are not meant to criticize
statistical agencies at the country level or data
collection efforts at the international level. Their
Jobs are center stage, but where are efforts are filling important gaps and mobilizing
the numbers? expertise to improve definitions, reach agree-
ments on best practices, and provide technical
Policies for jobs need to be based on reliable data assistance to those generating primary data.118
and rigorous analysis.115 Given that a large share Despite the limitations, data on informal em-
of the people at work in developing countries are ployment, the unemployment rate, or the MDG
not wage employees, and that even a larger share employment target serve an important objec-
lacks social security coverage, the measurement tive, namely, increasing awareness on the im-
of employment must look beyond whatever for- portance of jobs for promoting development.
mal employment data the country gathers. De- However, moving jobs center stage could re-
termining which jobs have the greatest payoffs main an aspirational statement in the absence
for poverty reduction requires linking informa- of a sustained effort to improve the amount and
tion on a household’s income or consumption comparability of data.
with information on the employment of its Today’s challenges regarding labor statistics
members. Understanding which firms create can be regrouped into three key areas: data gaps;
more jobs, or whether labor reallocation leads to data quality issues; and planning, coordination,
substantial growth rather than just churning, re- and communication issues. In some countries,
quires information on the inputs and outputs of labor statistics do not exist at all or are collected
312 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
BOX 9.4 Knowledge gaps on jobs and development chart the research agenda
Increased reliance on disaggregated survey data, together with rig- time may shed light on the links between jobs and behaviors. Inter-
orous program evaluation and controlled experiments, has pushed disciplinary research could provide insights on the broader relation-
the knowledge frontier on jobs and development in recent years. ship between jobs and institutional development processes.
On almost all relevant issues a substantive body of evidence already Anthropological approaches may provide insights on the mecha-
exists. Current efforts of the research community promise its expan- nisms at play; for instance on how jobs affect perceptions on fair-
sion in the coming years, in ways that should contribute to better ness and the willingness to trust others.
informed policy making. However, knowledge gaps remain in sev- Spillovers from jobs. Research on the magnitude of spillovers
eral areas. from jobs is patchy. The agenda is long, but a promising area con-
Jobs and living standards. An abundance of high-quality work cerns the impact of jobs on the acquisition of cognitive and noncog-
has been done on the measurement of poverty and the assessment nitive skills, and how this impact varies depending on the character-
of poverty alleviation programs. Less is known on how employment istics of the job and those of the person who holds it. Evidence on
dynamics affect household living standards and movements in and agglomeration effects across cities with different characteristics is
out of poverty. Research on transitions between different employ- also scarce, as are estimates of the environmental impacts of differ-
ment statuses, occupations, industries, and types of jobs can shed ent types of jobs.
light on incentives to work and formalize, as well as on impacts of Labor policies. A growing number of empirical studies focus on
jobs on household well-being. Knowledge is also limited on the the impact of labor policies and institutions, and many of these
subjective value workers attach to various characteristics of their studies are very rigorous. However, a careful review suggests that
jobs, including to social security benefits such as old-age and dis- the relationship between policies and institutions on the one hand,
ability pensions. and outcomes on the other, is not linear. Rather, it evokes a “plateau”
Jobs and productivity. Many studies are available on firm dynam- of modest effects, but with “cliffs” at both ends where the impacts
ics, including births, growth, and deaths. There is also a growing lit- on efficiency and the distribution of jobs can be sizeable. Empirical
erature on the impacts of trade liberalization and foreign direct work to determine where these cliffs lie and how to identify the
investment on productivity and earnings at the plant level. Much of institutional characteristics that demarcate the limits of the plateau
this research focuses on formal sector firms, however. Much less would be of much value for policy makers.
aq:research
no tripleis available on the dynamics of micro- and small enter- Connected jobs agendas. More research is needed on how inter-
asterisks
prises inhere
the informal sector, despite their importance for employ- national trade, investment at both ends, and migration affect the
likement.
otherThere is also some disconnect between studies based on composition of employment across countries. Knowledge gaps are
plant-level surveys and the growing literature on the effects of
chapters? common in all of these areas. The ability of national policies and
urbanization. The dialogue between these different literatures is in supranational mechanisms such as trade agreements to affect jobs
part hampered by different visions of production processes on in different countries is only partially understood. More solid knowl-
issues such as returns to scale or externalities. edge on the right sequencing of international commitments and
Jobs and social cohesion. Research in this area is tentative and the domestic policies related to services could address the reluctance of
empirical evidence is scarce. The importance of the topic and the developing countries to make further progress in the direction of
paucity of robust results mean that the payoffs to high-quality liberalization. Rigorous evaluations of migration policies would also
research in this area could be very high. Natural experiments com- be helpful.
bined with longitudinal data spanning relatively long periods of
only sporadically. Where labor statistics do ensure that establishment surveys include infor-
exist, data quality is a concern throughout the mal firms and microenterprises.
statistical production chain, from the use of ap- A quarter of a century ago, a renewed empha-
propriate definitions to questionnaire design, sis on poverty reduction as the key objective of
from sampling frames to interviewing protocols, development policy launched a long-term data
and from data entry and coding to verification effort. Across the world, information on house-
and estimation procedures. Planning, coordina- hold living standards was collected through
tion, and communication issues are exacerbated standardized surveys, the sampling methods
when different institutions are responsible for and the variable definitions used were duly doc-
collecting and disseminating the data.119 The umented, and the data and documentation were
most urgent priorities are to standardize the made available to researchers and practitioners
employment modules attached to the house- whenever possible. A similar approach should
hold surveys used for poverty analysis, and to be envisioned to move jobs center stage.
Beyond labor policies
9
313
Creative destruction, the mainstay of economic productivity. If the dispersion observed within
growth, happens to a large extent through la- each industry narrowed to the point of match-
bor reallocation. As workers move from jobs ing the dispersion observed in the United States,
in low-productivity farms and obsolete firms India’s average productivity in manufacturing
to jobs in more dynamic economic units, out- could increase by more than half.123 Instead, de-
put increases and the economy moves closer spite India’s buoyant economic growth during
to the efficiency frontier. Differences in pro- the past two decades, the performance of the
ductivity across economic units underlie this labor-intensive manufacturing sector has been
creative destruction process. Such differences sluggish.124 The bulk of the growth in nonfarm
can reflect a healthy ecosystem driven by com- employment has been in the informal sector.
petition which offers the basis for efficiency- The conventional wisdom, when a country
enhancing job reallocation. Market imperfec- is riddled with misguided labor regulations, is
tions and government failures may hinder labor to repeal them. This repeal may be easier said
reallocation, however, resulting in a wider dis- than done, however. India’s complex labor reg-
persion of productivity and many missed op- ulatory system has been in place for 60 years;
portunities for growth.120 even the ambitious reform program triggered
Stringent regulations that obstruct the move- by the balance-of-payment crisis of 1991 left
ment of workers from low- to high-productivity labor regulations largely untouched.125 The IDA
areas or that prevent their separation from ob- of 1947 has been amended at the state level but
solete firms are a case in point. These regula- not always toward the plateau. Between 1958
tions may stem from good intentions, such as and 1992, seven states amended the IDA to give
containing congestion in cities or providing employers more latitude in labor decisions.
earnings stability to workers. But their cost in These states subsequently experienced higher
productivity growth can be substantial. Regu- growth in output, employment, investment,
lations of this kind do not sit on the efficiency and productivity in their formal manufactur-
“plateau” where labor policies are mainly redis- ing sector. But six other states changed the IDA
tributive; they are rather on the cliff, and have in the opposite direction, which resulted in a
unambiguously negative effects on economic worsening in firm performance and an expan-
efficiency. sion of the informal sector.126 Overall, the dis-
India is arguably an example of a country persion of productivity in India’s manufactur-
whose complex and cumbersome labor policies ing sector remained stable, or even increased,
have pushed it off the “plateau.” The country has between 1987 and 1994.127
more than 40 national and state-level labor laws.
Most of them apply to the organized (or formal)
From bypassing regulatory obstacles . . .
sector and to firms above a certain size. As firms’
employment increases, they fall under the pur- India’s response to these regulatory obstacles has
view of a growing number of regulations.121 The been to learn how to live with them, and this has
Industrial Disputes Act (IDA) of 1947 is particu- been achieved through widespread noncompli-
larly restrictive. Governing employee-employer ance.128 For example, large firms rely on con-
relationships, the IDA makes it extremely diffi- tractors, who in turn hire workers; thus total
cult for firms to terminate employment.122 employment is “sliced” into smaller packages,
The stringency of labor regulations is con- each escaping the most stringent labor market
sistent with the “missing middle” phenomenon, regulations. Short-term contracts and tempo-
characteristic of India and other developing rary employment agencies are other mecha-
countries, where medium-size businesses make nisms used to circumvent the regulations. The
up a disproportionately small share of the to- propensity of firms to hire contract workers has
tal. Also consistent with the stringency of la- increased over time for all firms employing 10
bor regulations is the substantial dispersion of or more workers and is highest among medium-
314 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
15
sidering the entire distribution, including infor-
mal firms, the biggest discontinuity is between
10
firms employing up to 4 workers and those em-
ploying 5 to 10 (figure 9.8a). However, there is
5 no 5-worker threshold in the applicable labor
market regulations. On the other hand, there is
0 no discontinuity in the distribution when cross-
1–4
5–10
11–20
21–50
51–100
101–200
200 and more
5
. . . to actively offsetting them . . .
4 While India has learned how to live with cum-
bersome regulatory obstacles, other developing
countries with similar constraints have accom-
millions of jobs, 2005
3
plished more efficiency-enhancing labor reallo-
cation. Sri Lanka inherited the same labor regu-
2
lations from the British colonial administration
as India did. Without reaching the extremes in
1 India, many Latin American countries face sim-
ilar regulatory obstacles. Although China’s labor
0 regulations were less stringent until the 1990s,
1–4
5–10
11–20
21–50
51–100
101–200
200 and more
ployee’s length of service. Yet the country’s gar- across state borders to find employment. And
ment industry was a runaway success. Replac- an estimated two-fifths to one-half of formal
ing tea as the country’s major source of export sector workers change jobs every year.135
revenue, the industry now accounts for half of Nowhere is the extent of labor reallocation
Sri Lanka’s sales abroad, up from almost noth- more striking than in China, and much of it
ing in the 1970s. It also accounts for much of happened under the hukou system. Since its in-
the increase in employment in manufactur- troduction in the 1950s, this system governed
ing.134 The success of the garment industry has where people could live, effectively preventing
been a magnet for rural migrants, with 45 per- rural-to-urban labor flows and reserving em-
cent of them moving to the western provinces ployment in cities for their residents (box 9.5).
where the garment industry is concentrated. With market-oriented reforms, the system was
Restrictive labor market regulations are gradually liberalized, and many restrictions on
a common feature of many Latin American internal migration were lifted. But the hukou
countries too. In Brazil, after years of economic system has not been completely abolished; even
reforms, hiring workers remains as burden- today it may still inhibit migrant flows and re-
some as ever. If anything, the sustained increase duce the incidence of workers moving with
in formalization over the past decade has made dependents. Despite this barrier to labor mobil-
compliance with labor regulations more com- ity, China experienced phenomenal growth in
mon. Yet, Brazil’s labor market has been char- labor-intensive manufacturing, involving mas-
acterized by massive internal migration and sive internal migration from the hinterland to
remarkably high labor turnover rates. Lifetime coastal areas, and from villages to towns and
interstate migration is estimated to have dou- urban centers. This geographically concentrated
bled between the 1980s and the 1990s, reach- development absorbed an important share of
ing two-fifths of the population by 1999. In the rural surplus labor, while integrating China into
1990s, one-third of the workers who changed international value chains and making it the
jobs in Brazil’s formal sector had migrated “world’s factory.”136
A hukou is analogous to an internal passport. Legal residency in a the food ration scheme that was still in force. Restrictions were not
city, town, or village is determined by an individual’s birth place. lifted until the mid-1990s, when reforms were well under way. By
Rural and urban populations are registered separately. The hukou then, the fast growth of labor-intensive and export-oriented sectors
system regulates many social entitlements of citizens, including and the dramatic surge of private sector activities in urban areas
education, housing, utilities subsidies, and social protection. generated a substantial demand for low-skilled labor. Only at that
Together with other policies such as urban food rationing during point was the hukou system substantially liberalized.
the period under central planning the hukou system prevented The implementation of this liberalization process has been con-
the rural labor force from moving out of agriculture. It maintained ducted in a decentralized way. Most medium and large cities have
an exclusive urban labor market with basic social welfare, and gradually lowered the criteria for migrants to change hukou identi-
supported industrial policy, effectively creating rural-urban ties, and hence their accompanying entitlements. However, the cri-
segmentation. teria remain exceptionally strict in major cities and in cities with high
At the beginning of the reform process, cities and towns could income levels, including Shanghai, Beijing, and Guangzhou. For
afford basic social welfare only for a limited population. Inflows of example, Shanghai was the first city to make the residence permit
rural workers were therefore seen as a double-edged sword that system open to all, but its qualifying conditions are among the
could increase the well-being of rural residents but also lead to con- strictest. Shanghai’s system favors immigrants with college degrees
gestion and overcrowded infrastructure. After reforms in urban or special talents, and those who do business or invest. It also
areas were under way in the mid-1980s, and the growth of township requires seven years of social insurance contributions before apply-
and village enterprises stagnated, farmers were allowed to work in ing. In addition, the city has a tight overall quota on hukou conver-
small and medium cities—but only on the condition that they con- sions, and the actual number of conversions has to date been very
tinued to be self-sufficient in terms of staples, in accordance with low.
Sources: World Development Report 2013 team based on Cai, Du, and Meiyan 2002; Cai and Meiyan 2011; Cai, Park, and Zhao 2008; Chaudhuri and Datt 2009; and Giles, Wang, and
Park 2012.
316 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Export
F I G U R E 9. 9 processing zones were a driver of foreign direct investment in Sri Lanka
80
70
60
50
percent
40
30
20
10
0
Sri Lanka Philippines Malaysia China Indonesia Korea, Rep.
EPZ share of total FDI EPZ share of total exports EPZ share of manufacturing exports
F I G U R E 9.10 Restrictions to hukou conversion increase with city size and income
0.6 0.6
0.4 0.4
0.2 0.2
0 0
3 4 5 6 9 10 11
population, millions GDP per capita, thousand yuan per year
Source: Wang, Song, and O’Keefe 2012 for the World Development Report 2013.
Note: GDP = gross domestic product. The index measuring the threshold for hukou conversion takes into account requirements on investment, employment and family reunion.
Each dot represents one of 120 cities in 30 provinces.
was second to the United States; and by 2009, cordingly, the criteria for changing hukou iden-
more than 60,000 kilometers were in use.139 tities in these cities are generally defined by
Regional competition and experimentation skills, investments, income, and residence re-
in part underpin these successes. In China, lo- quirements. The numbers of migrants meeting
cal governments have substantial autonomy to these criteria have been small.143
raise fiscal and nonfiscal resources. They thus Back to India, then, where the slow pace of
have considerable scope to take responsibility urbanization is even more striking than the
for local development. The Chinese Commu- rigidity of its labor regulations. In 1990, the
nist Party also rewards local officials based on share of India’s population living in cities was
local performance, prompting them to actively the same as China’s: 27 percent. Two decades
engage in economic competition.140 later, it had grown only to 30 percent.144 The
This decentralized institutional setting al- functionality of the cities also poses severe
lowed cities in China to experiment with re- challenges. For instance, large swaths of Delhi
forms to the hukou system as a tool for urban- or Mumbai have access to no more than four
ization. It has been argued that a large fraction to five hours of water supply a day. Energy
of cities in China are too small because of it.141 shortfalls have increased in recent years and are
But the decentralized implementation of the perceived as the top constraint for doing busi-
system allowed major globalizing cities to use ness. A company can expect 17 power shut-
the hukou system as a screening tool to select downs a month. The cost imposed on firms
more skilled migrants and enhance the produc- by the power problem is among the highest in
tivity spillovers from jobs. Most medium and the world.145 Judging from the experiences of
large cities have gradually eased the criteria for Brazil, China, and Sri Lanka, and after 60 years
migrants to change hukou identities. However, of partial success in making labor regulations
bigger and richer globalizing cities have em- more flexible, the key for India to accelerate
braced a more skill-intensive pattern of growth, labor reallocation and thereby realize its devel-
putting more weight on productivity growth opment potential may lie in its urbanization
than on poverty reduction (figure 9.10).142 Ac- policy.
© Sebastião Salgado / Amazonas—Contact Press Images
Worker at a construction site in Jakarta, Indonesia
Beyond labor policies 319
64. Dudwick and Srinivasan, forthcoming; World 88. Adler and Hwang 2012 for the World Develop-
Bank 2011h. ment Report 2013.
65. World Bank 2011d. 89. Berik and Rodger 2010; Polaski 2006.
66. A study of farmers and workers in coffee en- 90. Levi and others 2012 for the World Develop-
terprises found that interactions through these ment Report 2013; Newitt 2012 for the World
jobs were associated with improved attitudes Development Report 2013.
toward interethnic collaboration as well as less 91. Examples of multistakeholder initiatives in-
distrust and positive views about reconciliation. clude the U.K.-based Ethical Trading Initiative,
Tobias and Boudreaux 2011. http://www.ethicaltrade.org/; the U.S.-based
67. United States Geological Survey, http:// Fair Labor Association, http://www.fairlabor
minerals.usgs.gov/minerals/pubs/commodity/ .org/; and Social Accountability International,
copper/mcs-2012-coppe.pdf; UNCTAD Statis- http://www.sa-intl.org/.
tics, http://unctadstat.unctad.org/. 92. Levi and others 2012 for the World Develop-
68. BADECEL (database), Economic Commis- ment Report 2013; Newitt 2012 for the WDR
sion for Latin America, Santiago, http://websie 2013; UNCTAD 2011.
.eclac.cl/badecel/badecel_new/index.html. 93. Newitt 2012 for the World Development Report
69. World Bank 2012f. 2013.
94. These include the Wine Industry Ethical Trade
70. Sinnott, Nash, and de la Torre 2010. At the out-
Association in South Africa, http://wieta.org.za
set of the international financial crisis, Chile’s
.www34.cpt3.host-h.net/; and Fibre Citoyenne,
stabilization fund accounted for US$20 billion
a multistakeholder initiative in the Moroccan
(or 12 percent of GDP) in 2008, permitting the
garment sector, http://www.fibrecitoyenne.org/.
country to finance a substantial countercyclical 95. Barrientos and Smith 2007.
expansion of expenditures. 96. Locke, forthcoming; Locke, Quin, and Brause
71. Sinnott, Nash, and De la Torre 2010. After the 2007.
Asian financial crisis of 1997, the government 97. Maranhao Costa and Trindade 2009.
adopted a free floating exchange rate policy and 98. See “Better Work,” International Finance Cor-
introduced instruments to mitigate exchange poration, Washington, DC; International La-
rate risk. World Bank 2006. bour Organization, Geneva, http://www.better
72. Worldwide Governance Indicators. See Kauf work.org/EN/Pages/newhome.aspx.
mann, Kraay, and Mastruzzi 2010. 99. Laborde and Martin 2011a; Laborde and Mar-
73. Consejo Nacional de Innovación 2008; World tin 2011b.
Bank 2008. 100. Hoekman 2011.
74. World Bank 2011f. 101. François and Hoekman 2010; Hoekman and
75. World Bank 2006. Mattoo 2011.
76. OECD Scoreboard for Youth, http://www.oecd 102. Hoekman and Mattoo 2011.
.org/document/31/0,3746,en_2649_ 103. Fink, Mattoo, and Rathindran 2003; François
37457_46328479_1_1_1_37457,00.html. and Hoekman 2010.
77. OECD 2010. 104. Roy 2008.
78. OECD 2010. 105. Bertrand and Kramarz 2002; Wrigley and Lowe
79. EU Press Release, http://www.eu-skladi.si/ 2010.
information-and-publicity/news-on-cohesion- 106. Hoekman and Mattoo 2011.
107. Randriamaro 2007.
policy-implementation/latest-news/barroso-
108. World Bank 2011g.
slovenia-example-of-best-practice-in-youth-
109. See World Trade Organization, “Movement
employment#c1=News%20Item&c1=novica.
of National Pensions,” http://www.wto.org/
80. OECD 2009.
english/tratop_e/serv_e/mouvement_persons_
81. OECD 2011. e/mouvement_persons_e.htm.
82. ILO 1996; ILO 2011. 110. Solimano 2008.
83. Chau and Kanbur (2001) find evidence of a 111. See, for instance, Winters and others (2002) and
peer effect whereby ratification depends on the World Bank (2005).
number of similar countries that have already 112. See, for instance, EFRA (2011), and Angenendt
ratified the convention. (2012).
84. Aaronson and Zimmerman 2008; Elliott and 113. Regional agreements also exist, for example, for
Freeman 2003. the European Union’s Schengen area.
85. Hafner-Burton 2009. 114. For a discussion on these issues, see Pritchett
86. Mosley 2011. (2006).
87. Schrank 2009. 115. Kanbur and Svejnar 2009.
Beyond labor policies 321
116. Around the world, 65 countries produce impose central control over entry and produc-
monthly or quarterly labor force surveys, tion in the organized manufacturing sector.
whereas 116 produce annual surveys. 126. Ahsan and Pagés 2009; Besley and Burgess
117. The four indicators are GDP per employed per 2004. Also see Bhattacharjea (2006) for con-
son (a measure of productivity), the employment- cerns about the evidence presented by Besley
to-population rate, the proportion of the em- and Burgess (2004) because of the interpreta-
ployed population living on less than US$1.25 tion and enforcement of the amendments to the
per day (the so-called working poor), and the IDA of 1947.
proportion of own-account and unremuner- 127. Hsieh and Klenow 2009.
ated workers in employed population (also 128. Bhattacharjea 2006.
called vulnerable workers). United Nations De- 129. Hasan and Jandoc 2012.
velopment Group 2010. 130. Deshpande and others 2004.
118. International standards on labor statistics are of 131. Preliminary estimates by Santosh Mehrotra
two types: those outlined in Conventions and (Planning Commission of India).
Recommendations adopted by the ILO Interna- 132. Hasan and Jandoc 2012.
tional Labour Conference, and the Resolutions 133. Several labor laws have been enacted in China
and Guidelines adopted by the International since 2000, including a revision to the Trade
Conference of Labour Statisticians (ICLS). The Union Law in 2001; the Labor Contract Law,
first type of standards is part of the interna- the Employment Promotion Law, and the La-
tional labor code and is legally binding in rati- bor Dispute Mediation and Arbitration Law in
fying countries, whereas standards adopted by 2008; and the Social Insurance Law in 2011. The
the ICLS are intended to provide guidance to implementation of these regulations may lead
countries, promote international comparabil- to lower flexibility in the labor market.
ity of labor statistics, and encourage coherence 134. World Bank 2004a.
in concepts and methods across sources and 135. More interesting, the migration flows of for-
domains. mal sector workers were directed toward un-
119. ILO 2012. conventional destinations: a few states in Bra-
120. Bartelsman, Haltiwanger, and Scarpetta 2011; zil’s Center-West, North, and Northeast. These
Hsieh and Klenow 2009, 2011; McMillan and flows contradict the assertion that the typical
Rodrik 2011; McMillan and Verduzco for the migrant flow runs from the low-income North
World Development Report 2013; Pagés 2010. to the higher-income South. Aguayo-Tellez,
121. For example, once employment in a firm using Muendler, and Poole 2010.
power reaches 10 workers (20 for firms that do 136. World Bank 2009c; Lin 2012.
not use power), the firm enters the organized 137. Jayanthakumaran 2003.
sector and becomes subject to the Factories Act 138. Aguayo-Tellez, Muendler, and Poole 2010;
of 1948. Once it reaches 50 workers, it is subject Amaral-Filho 2003; Lastres, Cassiolato, and
to the IDA of 1947 and must offer mandatory Campos 2006.
health insurance under the Employee State In- 139. Bardhan 2010.
surance Act of 1948. Once it reaches 100 work- 140. Bardhan 2010
ers, it effectively loses the rights to terminate 141. Au and Henderson 2006.
workers. 142. Wang, Song, and O’Keefe 2012 for the World
122. Panagariya 2008. Development Report 2013.
123. Hsieh and Klenow 2009. 143. Cai 2011; Cai, Du, and Meiyan 2002; Cai, Park,
124. Panagariya 2008. The entire decline in the and Zhao 2008; Chaudhuri and Datt 2009;
share of agriculture since 1990–91 has been Giles, Wang, and Park 2012.
absorbed by services. Agriculture as a share of 144. World Bank 2012f.
GDP fell from 46 percent in 1970–71 to 27 per- 145. Bardhan 2010; World Bank 2011c.
cent in 1990–91 and to 21 percent in 2004–05;
industry’s share of GDP rose from 22 percent
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appendixes
Glossary
Jobs
Jobs: While precise definitions vary, jobs are labor activities that generate income, monetary or
in kind, without violating fundamental rights and principles at work. Jobs can take the form of
wage employment, self-employment, and farming. They can be formal or informal.
Good jobs for development: These are jobs that contribute the most to societal goals. The
development payoff of a job is the sum of the value it has to the worker and its spillovers (if
any) on others. The individual value is the first-order measure of the development payoff, but
spillovers can be substantial.
Jobs lens: Strategies, policies, and programs adopt a jobs lens if they take into account the
development payoffs from jobs. The jobs lens involves aims at realizing the untapped develop-
ment payoffs by addressing the constraints that prevent the private sector from creating more
good jobs for development.
Skills
Cognitive skills: They include verbal ability, working memory, numeracy, and problem-
solving abilities. They are the foundation for the acquisition and building of other skills
throughout life.
Social skills: They facilitate interaction and communication with others. They are based
on personality traits that underlie behaviors such as teamwork, reliability, discipline, or work
effort.
Technical skills: They enable the performance of specific tasks. They take the form of knowl-
edge that is specific to a particular occupation or group of occupations.
Entrepreneurship: It is the combination of innovative capacity to put new ideas into effect
with managerial capacity to increase a firm’s efficiency within the limits of known technology.
Transformations
Living standards: They encompass the material and subjective aspects of well-being. Jobs con-
tribute to living standards through earnings opportunities that lift people out of poverty, make
them less vulnerable, motivate them, and contribute to their broader happiness and satisfac-
tion with life.
329
330 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Productivity: It is the amount of output generated with a given amount of inputs. A higher
productivity of individual jobs, the creation of more productive jobs and destruction of less
productive ones, and the reallocation of workers within countries and across borders drive
changes in aggregate productivity.
Social cohesion: Societies are cohesive when they have the capacity to manage collective deci-
sion making peacefully. Jobs can contribute to social cohesion by nurturing trust in others
beyond the group people belong to. They can also do so by fostering civic engagement.
Rights
Core labor standards: A set of eight International Labour Organization conventions included
in the 1998 Declaration of the Fundamental Principles and Rights at Work. These conven-
tions cover child labor, discrimination, forced labor, and freedom of association and collective
bargaining.
Health and safety at work: Occupational accidents and work-related diseases can undermine
workers’ health, are an important source of mortality, and can have high costs to society.
Development payoffs
Spillovers: Beyond their direct impact on the well-being of the people who hold them, jobs
can have additional impacts on societal goals. Jobs may influence the living standards of oth-
ers, their productivity, or the way collective decisionmaking works. Spillovers from jobs can be
positive or negative.
Earnings of others: Uneven bargaining power or discrimination may lead to labor earnings
that are too low or too high, with others gaining or losing as a result. Jobs supported through
government transfers or restrictive regulations also affect the earnings and employment
opportunities of others.
Household allocations: Jobs can change the status of their jobholders and increase their say
on how resources are allocated among household members. Jobs that empower women can
lead to greater investments in children’s education and health.
Poverty reduction: In societies that value poverty reduction, jobs that take people out of hard-
ship increase overall well-being. In these societies, employment opportunities tilted in favor of
the poor are seen as preferable, even if aggregate earnings or output do not change.
Agglomeration effects: Work-related interactions can increase the productivity of others. The
sharing of ideas; learning from customers, suppliers and competitors; and a better matching
of skills across a larger pool of workers are among the mechanisms through which these pro-
ductivity gains take place.
Global integration: Jobs linked to world markets and jobs in foreign-owned companies al-
low acquiring more advanced technical and managerial skills. These jobs can also change the
industrial structure in ways that favor the most productive economic units and push the least
productive out of business.
Glossary 331
Environmental effects: Jobs have negative impacts on aggregate productivity when they dam-
age the environment or lead to an overuse of scarce resources. But they can also have positive
environmental effects, as in the case of jobs to manage forests and other common resources.
Social identity: Jobs can impact the well-being of others by influencing the values and be-
havior of those who hold them in ways that affect society at large. Jobs can shape the norms
influencing how the jobholder interacts with others.
Networks: Jobs connect people to each other. They convey information among coworkers and
society more broadly. Jobs may also contribute to tolerance when interactions at the workplace
increase direct knowledge among people of different social and ethnic backgrounds.
Sense of fairness: Job allocations at odds with the idea of equality of opportunity may lead
to frustration and disengagement from society and collective decision-making processes.
Jobs that live up to standards of transparency and merit can contribute to the sense of fairness
in society.
Jobs challenges
Agrarian economies: In these economies most people are still engaged in agriculture, often
in very small family farms, and cities are not yet a source of economic dynamism.
Conflict-affected countries: These are countries undergoing or emerging from conflict, where
peace-keeping forces may still be needed or where deaths from conflict may still be high.
Resource-rich countries: Minerals account for a large share of exports. Exploitation of re-
sources brings dramatic economic growth but undermines competitiveness and encourages
jobs based on transfers.
Small island nations: Their size and remoteness make it difficult for them to reap the benefits
of agglomeration and global integration. Their fragile ecosystems add to their vulnerability.
Urbanizing countries: The share of the urban population is growing rapidly. Cities are a
magnet for rural migrants but may fail to move up from exports of light manufacturing
to higher value added products.
Countries with high youth unemployment: Prolonged joblessness and idleness affect a large
share of the often sizeable youth population. The allocation of business opportunities and jobs
is tainted by privilege.
Formalizing countries: The coverage of social protection systems is large enough to envision
extending it to the entire workforce, but how to do it without undermining productivity is a
challenge.
Aging societies: The share of the working-age population is declining and the costs of pro
viding and caring for the growing number of elderly is increasing, putting a double burden on
living standards.
Bibliographical note
This Report draws on a wide range of background papers commissioned by the team, as well
as on contributions by numerous colleagues inside and outside of the World Bank. The team
gratefully acknowledges the papers, notes, presentations, and data analyses by:
Ana Abras, Daniel Adler, Christopher Adolph, Cristian Aedo, Alpasan Akay, Yilmaz Akyuz,
Rita Almeida, Miriam Altman, Uma Rani Amara, Colin Andrews, Steffen Angenendt, Omar
Arias, Hassen Arouri, Javier Arias-Vasquez, Gabriela Armenta, Ragui Assaad, João Pedro
Azevedo, Elisabeth Baehr, Aminata Bakouan, Sajitha Bashir, Daniel Berliner, Janine Berg,
M. Inés Berniell, Haroon Bhorat, Constanza Biavaschi, Ingunn Bjørkhaug, David Blanch-
flower, Erik Bloom, Nicholas Bloom, Chris Bonner, Alessio Brown, Drusilla Brown, Tilman
Brueck, Martha Chen, Mahendra Chetty, Yoonyoung Cho, Hayat Chowdhury, Sarah Cook,
Katia Covarrubias, Hai-Anh Dang, Maitreyi Bordia Das, Benjamin Davis, Arjan de Haan,
Joost de Laat, Rajeev Dehejia, Peter Dewees, Stefania Di Giuseppe, Rafael Díez de Medina,
Susanne Dorasil, Nora Dudwick, Gilles Duranton, Werner Eichhorst, Aaron Erlich, Jonna
Estudillo, Christine Evans-Klock, Paolo Falco, Lucia Fernandez, Gary Fields, Sandra Fredman,
Richard Freeman, Caroline Freund, Leonardo Garrido, John Giles, T. H. Gindling, Corrado
Giulietti, Anne Greenleaf, Michael Grimm, Lorenzo Guarcello, John Haltiwanger, Anne
Hatløy, Ricardo Hausmann, Yuki Higuchi, Margo Hoftijzer, Maddalena Honorati, Shoghik
Hovhannisyan, Alejandro Hoyos, Jikun Huang, Steffen Hummelsheim, Hans Hwang, Gabriela
Inchauste, Beata Javorcik, Johannes Jütting, Tewodros Kebede, Jennifer Keller, Michael Kend-
zia, Niny Khor, Talip Kilic, Austin Kilroy, Christian Kingombe, Johannes Koettl, Irina Kovrova,
Adea Kryeziu, David Kucera, Nandika Kumanayake, Milli Lake, Peter Lanjouw, Donald Lar-
son, Jean Lee, Hartmut Lehman, Margaret Levi, Philip Levy, Richard Locke, Javier Luque, Scott
Lyon, William Maloney, Ghazala Mansuri, David Margolis, Pedro Martins, Tomoya Matsu-
moto, Dimitris Mavridis, Catriona McLeod, Margaret McMillan, Johan Mistiaen, Martin
Moreno, Marc-Andreas Muendler, Alexander Muravyev, Yoo-Jeung Nam, Ambar Narayan,
David Newhouse, Kirsten Newitt, Andrew Norton, Jennifer Noveck, Antonio Nucifora, Philip
O’Keefe, Sergio Olivieri, Remco Oostendorp, Ana Maria Oviedo, Caglar Özden, Pierella Paci,
Karin Pape, Federico Parra, Harry Anthony Patrinos, Patti Petesch, Janneke Pieters, Uma Rani,
Marco Ranzani, Bob Rijkers, David Robalino, Raymond Robertson, Nuría Rodríguez-Planas,
Paul Romer, Furio Camillo Rosati, Friederike Rother, Scott Rozelle, Jaime Saavedra Chanduvi,
Klas Sander, Mauricio Sarrias, Naotaka Sawada, Ricarda Schmidl, Helmar Schneider, Nadia
Selim, Binayak Sen, Slesh Shrestha, Arbind Singh, Caroline Skinner, Jin Song, Tetsushi Sonobe,
Walter Sosa, Dirk Willem te Velde, Sailesh Tiwari, Ihnsan Tunali, Erol Tymaz, Zia Uddin, Inigo
Verduzco, Marco Vivarelli, Jacqueline Wahba, Dewen Wang, Michael Weber, Christian Welzel,
Frank-Borge Wietzke, Hernan Winkler, Firman Witoelar, Monica Yanez-Pagans, Huafeng
Zhang, and Klaus Zimmerman.
Many people inside and outside of the World Bank gave comments to the team and sup-
ported the preparation of the Report in various ways:
Paloma Acevedo, Cristian Aedo, Junaid Kamal Ahmad, Ahmad Ahsan, Rita Almeida, Til-
332 man Altenburg, Colin Andrews, Omar Arias, Gabriela Armenta, Erhan Artuc, Orazio
Bibliographical note 333
Attanasio, Ajita Berar Awad, João Pedro Azevedo, Peter Bakvis, Elena Bardasi, Nicholas Barr,
Andrew Beath, Deepak Bhattasali, Benu Bidani, Erik Bloom, Richard Blundell, Carlos Braga,
Milan Brahmbhatt, Hana Brixi, Miriam Bruhn, Sharan Burrows, Wei Ca, Sandrine Cazes,
Barry Chiswick, Luc Christiansen, Michael Cichon, Tito Cordella, Paulo Correa, Wendy Cun-
ningham, Karen Curtis, Mahesh Dahal, Andrea Mario Dall’Olio, Maitreyi Das, Joost de Laat,
Augosto de la Torre, Gabriel Demombynes, Stefan Dercon, Shanta Devarajan, Peter Dewees,
Charles di Leva, Carolina Diaz-Bonilla, Nancy Donaldson, Nora Dudwick, Olivier Dupriez,
Friedel Eggelmeyer, Philippe Egger, Marcelo Jorge Fabre, Gabriel Alejandro Faccini Palma,
Marcel Fafchamps, Marianne Fay, Juan Feng, Colin Fenwick, Manuela Ferro, Deon Filmer,
Georg Fischer, Ciprian Fisiy, Ariel Fiszbein, Roberto Foa, Louise Fox, Caroline Freund, Ber-
nard Funck, Leonardo Garrido, Roberta Gatti, Varun Gauri, Steve Gibbons, Indermit Gill,
Delfin Go, Pablo Gottret, Timo Graf von Koenigsmarck, Duncan Green, Mary Hallward-
Driemeier, Mark Hanush, Bernard Harborne, Niels Harild, Rana Hasan, Susan Hayter, James
Heckman, Rasmus Heltberg, Bernard Hoekman, Bert Hofman, Robin Horn, James Howard,
Chang-Tai Hsieh, Elisabeth Huybens, Herwig Immervoll, Gabriela Inchauste, Selina Jackson,
Steen Lau Jorgensen, Roy Katayama, Philip Keefer, William James Kemp, Austin Kilroy, Eliza-
beth King, Leora Klapper, Judith Klemmer, Jeni Klugman, Kalpana Kochhar, Markus Kostner,
Aphichoke Kotikula, Rachel Kranton, Arvo Kuddo, Somik Lall, Esperanza Lasagabaster, Daniel
Lederman, Philippe Leite, Jeffrey Lewis, Eduardo Ley, Michael Lipton, Gladys López-Acevedo,
Malte Luebker, Amy Luinstra, Mattias Lundberg, Xubei Luo, Nora Lustig, Larissa Luy, Ghazala
Mansuri, Alexandre Marc, Andrew Mason, Elizabeth Mata Lorenzo, Aaditya Mattoo, Piotr
Mazurkiewicz, Siobhan McInerney-Lankford, David McKenzie, Gerard McLinden, Julian
Messina, Roland Michelitsch, Pradeep Mitra, Layna Mosley, Rose Mungai, Ana Maria Muñoz
Boudet, Reema Nanavaty, Urvashi Narain, Ambar Narayan, Reema Nayar, David Newhouse,
Philip O’Keefe, Anna Olefir, Israel Osorio-Rodarte, Caglar Özden, Pierella Paci, Howard Pack,
Truman Packard, Carmen Pagés, Robert Palacios, Montserrat Pallares-Millares, Pia Peeters,
Nicola Pontara, Aleksandra Posarac, Peter Poschen, Patrick Premand, Menachem Prywes,
Stephen Pursey, Rita Ramalho, Martin Ravallion, Michelle Rebosio, Ritva Reinikka, Jose
Guilherme Reis, Ana Revenga, Carolyn Reynolds, Francesca Riccardone, Jamele Rigolini,
Bob Rijkers, David Robalino, Nigel Roberts, Halsey Rogers, Mark Rosenzweig, Friederike
Rother, Robert Francis Rowe, Jan Rutkowski, Jaime Saavedra Chanduvi, Frank Sader, Juan
Sebastián Saez, Jamil Salmi, Carolina Sánchez Paramo, Maria Laura Sanchez Puerta, Justin
Sanderfur, Prem Sangraula, Indhira Santos, Sigrid Schenk-Dornbusch, Grit Schmalisch, Anita
Schwarz, Sudhir Shetty, Saurabh Shome, Sandor Sipos, Radhika Srinivasan, Stavros Stavrou,
Henriette Strothmann, Manami Suga, Naotaka Sugawara, Victor Sulla, Jee-Peng Tan, Afia
Tasneem, Ehab Tawfik, Graham Teskey, Manuela Tomei, Carrie Turk, Alexandria Valerio,
Bernice Van Bronkhurst, Aleem Walji, David Warren, Michael Weber, Deborah Welzel, Jill
Wilkins, Alys Willman, Doris Witteler-Stiepelmann, Michael Woolcock, Colin Xu, Xiao Ye,
Nobuo Yoshida, and Anders Zeijlon.
The World Development Report 2013 team benefited from close collaboration with the
team preparing the International Finance Corporation’s Jobs Study: “Assessing Private Sec-
tor Contributions to Job Creation,” led by Roland Michelitsch. The team also benefited from
the interaction with the Jobs Knowledge Platform, which was launched during the prepara-
tion of the report under the guidance of Mary Hallward-Driemeier, Gladys López-Acevedo,
David Robalino, and Claudia Sepulveda.
The team also engaged closely with the Implementation Task Force for the Report con-
vened by Mahmoud Mohieldin, led by Tamar Manuelyan Atinc and Arup Banerji, and includ-
ing Omar Arias, Najy Benhassine, Mary Hallward-Driemeier, Roland Michelitsch, Pierella
Paci, and Idah Pswarayi-Riddihough.
Background papers and notes
Abras, Ana, Alejandro Hoyos, Ambar Narayan, and Sailesh Tiwari. 2012. “Inequality of Opportunities
in the Labor Market: Evidence from Life in Transition Surveys in Europe and Central Asia.”
Adler, Daniel, and Hans Hwang. 2012. “From Law on the Books to Law in Action: A Note on the Role
of Regulation in the Production of Good Jobs in Cambodia’s Garment Sector.”
Almeida, Rita, David Margolis, David Robalino, and Michael Weber. 2012. “Facilitating Labor Market
Transitions and Managing Risks.”
Aedo, Cristian, Jesko Hentschel, Javier Luque, and Martin Moreno. 2012. “Skills Around the World:
Structure and Recent Dynamics.”
Andrews, Colin, and Adea Kryeziu. 2012. “Public Works and the Jobs Agenda: Pathways for Social
Cohesion.”
Arias, Omar, and Walter Sosa. 2012. “Do Jobs Cause Trust? Results from Pseudo-Panel Analysis of
Euro and Latino Barometer Surveys.”
Arias-Vasquez, Javier, Jean N. Lee, and David Newhouse. 2012. “The Role of Sectoral Growth Patterns
in Labor Market Development.”
Azevedo, João Pedro, Gabriela Inchauste, Sergio Olivieri, Jaime Saavedra Chanduvi, and Hernan
Winkler. 2012. “Is Labor Income Responsible for Poverty Reduction? A Decomposition Approach.”
Bashir, Sajitha, T. H. Gindling, and Ana Maria Oviedo. 2012. “Better Jobs in Central America:
The Role of Human Capital.”
Betcherman, Gordon. 2012. “Labor Market Institutions: A Review of the Literature.”
Bhorat, Haroon. 2012. “Temporary Employment Services in South Africa.”
Biavaschi, Costanza, Werner Eichhorst, Corrado Giulietti, Michael J. Kendzia, Alexander Muravyev,
Janneke Pieters, Nuría Rodríguez-Planas, Ricarda Schmidl, and Klaus F. Zimmermann. 2012. “Youth
Unemployment and Vocational Training.”
Bjørkhaug, Ingunn, Anne Hatløy, Tewodros Kebede, and Huafeng Zhang. 2012. “Perception of Good
Jobs: Colombia.”
Chen, Martha, Chris Bonner, Mahendra Chetty, Lucia Fernandez, Karin Pape, Federico Parra, Arbind
Singh, and Caroline Skinner. 2012. “Urban Informal Workers: Representative Voice and Economic
Rights.”
Cho, Yoonyoung, and Maddalena Honorati. 2012. “A Meta-Analysis of Entrepreneurship Programs In
Developing Countries.”
Covarrubias, Katia, Benjamin Davis, Aminata Bakouan, and Stefania Di Giuseppe. 2012. “Household
Income Generation Strategies.”
Das, Maitreyi Bordia. 2012. “Stubborn Inequalities, Subtle Processes: Exclusion and Discrimination in
the Labor Market.”
Dehejia, Rajeev, Drusilla Brown, and Raymond Robertson. 2012. “Life Satisfaction, Mental Well-Being
and Workplace Characteristics: Evidence from Vietnam, Jordan, and Haiti.”
Dudwick, Nora. 2012. “The Relationship Between Jobs and Social Cohesion: Some Examples from
Ethnography.”
Duranton, Gilles. 2012. “Agglomeration and Jobs in Developing Countries.”
Estudillo, Jonna P., Tomoya Matsumoto, Hayat Chowdhury, Zia Uddin, Nandika Kumanayake, and
Keijiro Otsuka. 2012. “Labor Markets, Occupational Choice, and Rural Poverty in Selected Countries
in Asia and Sub-Saharan Africa.”
334
Background papers and notes 335
Falco, Paolo, William Maloney, Bob Rijkers, and Mauricio Sarrias. 2012. “Subjective Well-Being,
Informality, and Preference Heterogeneity in Africa.”
Fredman, Sandra. 2012. “Anti-Discrimination Laws and Work in the Developing World: A Thematic
Overview.”
Giles, John, Dimitris Mavridis, and Firman Witoelar. 2012. “Subjective Well-Being, Social Cohesion, and
Labor Market Outcomes in Indonesia.”
Gindling, T. H., and David Newhouse. 2012. “Self-Employment in the Developing World.”
Hatløy, Anne, Tewodros Kebede, Huafeng Zhang, and Ingunn Bjørkhaug. 2012. “Perception of Good
Jobs: Sierra Leone.”
Hovhannisyan, Shoghik. 2012. “Labor Market and Growth Implications of Emigration: Cross-Country
Evidence.”
Inchauste, Gabriela. 2012. “Jobs and Transitions Out of Poverty: A Literature Review.”
Inchauste, Gabriela, Sergio Olivieri, Jaime Saavedra Chanduvi, and Hernan Winkler. 2012. “Decompos-
ing Recent Declines in Poverty: Evidence from Bangladesh, Peru, and Thailand.”
Javorcik, Beata Smarzynska. 2012. “Does FDI Bring Good Jobs to Host Countries?”
Kebede, Tewodros, Anne Hatløy, Huafeng Zhang, and Ingunn Bjørkhaug. 2012. “Perception of Good
Jobs: Egypt.”
Kilroy, Austin. 2012. “Jobs to Social Cohesion: Via Interests, Attitudes, and Identities.”
Kingombe, Christian, and Dirk Willem te Velde. 2012. “Structural Transformation and Employment
Creation: The Role of Growth Facilitation Policies in Sub-Saharan Africa.”
Kovrova, Irina, Scott Lyon, and Furio Camillo Rosati. 2012. “NEET Youth Dynamics in Indonesia and
Brazil: A Cohort Analysis.”
Larson, Donald, Keijiro Otsuka, Tomoya Matsumoto, and Talip Kilic. 2012. “Can Africa’s Agriculture
Depend on Smallholder Farmers?”
Lee, Jean N., and David Newhouse. 2012. “Cognitive Skills and Labor Market Outcomes.”
Levi, Margaret, Christopher Adolph, Aaron Erlich, Anne Greenleaf, Milli Lake, and Jennifer Noveck.
2012. “Aligning Rights and Interests: Why, When, and How to Uphold Labor Standards.”
Levy, Philip. 2012. “Potential for International Rivalry as Governments Pursue Jobs.”
Lyon, Scott, Furio Camillo Rosati, and Lorenzo Guarcello. 2012. “At the Margins: Young People Neither
in Education nor in Employment.”
Mansuri, Ghazala, Slesh Shrestha, Hernan Winkler, and Monica Yanez-Pagans. 2012a. “A Plot of My
Own: Land Titling and Economic Mobility in Rural Uganda.”
———. 2012b. “Health or Wealth? Income Earner Death and Economic Mobility in Rural Pakistan.”
Martins, Pedro. 2012. “Growth, Employment and Poverty in Africa: Tales of Lions and Cheetahs.”
McMillan, Margaret S., and Inigo Verduzco. 2012. “Measuring the Impact of Structural Change on
Labor’s Share of Income.”
Montenegro, Claudio E., and Harry Anthony Patrinos. 2012. “Returns to Schooling around the World.”
Newitt, Kirsten. 2012. “Private Sector Voluntary Initiatives on Labour Standards.”
Norton, Andrew, and Arjan de Haan. 2012. “Social Cohesion: Theoretical Debates and Practical Appli
cations with Respect to Jobs.”
Oostendorp, Remco. 2012. “The Occupational Wages around the World (OWW) Database: Update for
1983–2008.”
Petesch, Patti. 2012. “The Exponential Clash of Conflict, Good Jobs, and Changing Gender Norms
in Four Economies.”
Ranzani, Marco, and Furio Camillo Rosati. 2012. “The NEET Trap: A Dynamic Analysis for Mexico.”
Rijkers, Bob, Hassan Arouri, Caroline Freund, and Antonio Nucifora. 2012. “Which Firms Create Jobs
in Tunisia?”
Rozelle, Scott, and Jikun Huang. 2012. “China’s Labor Transition and the Future of China’s Rural
Wages and Employment.”
Sander, Klas, and Peter A. Dewees. 2012. “Sustainable Management of Trees, Reduction in Forest
Degradation, and Job Creation for the Poor.”
Sawada, Naotaka. 2012. “Providing Business Services for Rural Income Generations: Using the Rural
Investment Climate Survey Data.”
336 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
General notes
Table 2 Skills
Table 5 Productivity
Table 8 Connectedness
Technical notes
reference points. The micro-data sources used Unless otherwise noted, data for China do not
are seldom available on an annual basis. For include data for Hong Kong SAR, China; Macao
these indicators, data are for the nearest point SAR, China; or Taiwan, China. Data for Indone-
within a five-year window. For example, figures sia include Timor Leste through 1999. Data for
reported for 1995 are from the closest year over Serbia include Montenegro through 2005, and
the period 1993–97. The precise year of the sur- exclude Kosovo from 1999 onwards.
vey data varies from country to country.
Symbols
Countries
An empty space means that data are not avail-
Tables 1 to 8 include 156 countries or econo- able, or that the indicator cannot be calculated.
mies. The word country may refer to any terri- A “0” or “0.0” means that the value of the indi-
tory for which separate social or economic sta- cator is nil or small enough that it would round
tistics are available. Data are shown for countries to zero at the displayed number of decimal
and economies as they were constituted in 2010. places.
340 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
Table 2 Skills
Average schooling Average schooling Average schooling Skills as a
(years) (years) (years) constraint (%)
Total Men Women Total
1995 2005 2010 1995 2005 2010 1995 2005 2010 2005 2010
Afghanistan 2.2 3.4 4.2 3.4 5.5 6.7 0.9 1.1 1.5 18
Albania 9.4 10.3 10.3 9.8 10.5 10.4 9.1 10.1 10.1 10
Algeria 6.3 7.7 8.3 7.7 8.8 9.1 4.8 6.7 7.5
Angola 21 26
Argentina 8.6 9.1 9.3 8.5 9.0 9.1 8.7 9.3 9.5 49 57
Armenia 10.4 10.4 10.4 10.5 10.1 9.8 10.3 10.6 11.0 2 23
Australia 11.7 11.9 12.1 11.5 11.5 11.7 11.9 12.2 12.5
Austria 8.5 9.3 9.5 9.5 10.3 10.3 7.6 8.4 8.8
Azerbaijan 2 15
Bangladesh 3.7 5.2 5.8 4.3 5.5 6.0 3.1 4.8 5.6 25
Barbados 8.8 9.3 9.5 8.8 9.2 9.2 8.7 9.5 9.8
Belarus 7 61
Belgium 9.9 10.5 10.5 10.0 10.6 10.7 9.8 10.4 10.4
Belize 8.8 9.3 9.5 8.8 9.4 9.5 8.7 9.3 9.5
Benin 2.6 3.6 4.2 3.6 4.8 5.5 1.6 2.4 2.9 26 26
Bhutan 13
Bolivia 7.8 9.4 9.9 8.6 10.1 10.5 6.9 8.7 9.3 28 37
Bosnia and Herzegovina 4 19
Botswana 8.2 9.2 9.6 8.3 9.4 9.8 8.2 9.1 9.4 20 32
Brazil 5.4 7.2 7.5 5.3 7.1 7.4 5.4 7.3 7.7 40 69
Bulgaria 9.1 9.7 9.9 9.2 9.7 9.8 9.0 9.7 9.9 10 21
Burkina Faso 13 37
Burundi 2.2 2.9 3.3 2.7 3.4 3.9 1.6 2.3 2.7 12
Cambodia 5.6 5.9 6.0 6.1 6.2 6.3 5.3 5.6 5.8 7
Cameroon 5.0 5.8 6.1 5.8 6.5 6.8 4.1 5.0 5.4 8 38
Canada 10.8 12.1 12.1 10.8 12.1 12.0 10.7 12.2 12.1
Central African Republic 3.0 3.5 3.6 4.1 4.7 4.8 1.9 2.4 2.6
Chad 53
Chile 8.8 9.7 10.2 8.9 9.8 10.3 8.7 9.6 10.1 42 41
China 6.4 7.6 8.2 6.9 8.2 8.7 5.9 7.0 7.6
Colombia 6.5 7.0 7.7 6.6 7.0 7.7 6.4 7.1 7.7 29 45
Congo, Dem. Rep. 3.2 3.5 3.5 4.6 4.7 4.6 2.0 2.3 2.4 13 65
Congo, Rep. 5.7 5.9 6.0 6.4 6.7 6.9 5.1 5.1 5.2 51
Costa Rica 7.6 8.1 8.7 7.6 8.0 8.6 7.5 8.1 8.8 13 38
Côte d’Ivoire 4.2 5.2 5.5 27
Croatia 8.1 8.7 9.0 8.7 9.2 9.4 7.5 8.3 8.6 7
Cuba 9.5 10.1 10.6 9.7 10.3 10.7 9.3 10.0 10.5
Czech Republic 11.4 12.7 12.1 11.6 12.9 12.3 11.2 12.6 12.0 12 29
Denmark 9.7 9.9 10.1 9.9 10.1 10.2 9.5 9.7 9.9
Dominican Republic 6.3 7.0 7.4 6.5 7.0 7.3 6.1 7.0 7.5 31
Ecuador 7.2 7.6 8.1 7.4 7.8 8.3 7.1 7.5 7.9 36 34
Egypt, Arab Rep. 5.1 6.6 7.1 6.1 7.5 7.9 4.0 5.6 6.3 30
El Salvador 5.6 7.3 8.0 5.8 7.7 8.3 5.4 7.0 7.7 32 30
Eritrea 1
Estonia 10.4 11.6 11.8 10.3 11.3 11.5 10.5 11.8 12.1 7 30
Ethiopia
Fiji 10.1 9.4 10.0 10.3 9.4 9.9 9.9 9.3 10.0 14
Finland 9.1 9.8 10.0 9.2 9.7 9.9 9.0 9.8 10.1
France 8.6 9.9 10.5 8.8 10.2 10.7 8.3 9.6 10.4
Gabon 6.2 7.7 8.4 5.5 7.1 7.9 7.0 8.2 8.8 43
Gambia, The 2.5 3.1 3.5 3.2 3.8 4.2 1.7 2.3 2.9 12
Georgia 14 26
Germany 9.2 11.8 11.8 9.9 12.2 12.1 8.4 11.5 11.6 7
Ghana 6.1 6.8 7.1 7.6 7.7 7.8 4.6 5.8 6.4 5
Greece 8.7 9.9 10.7 9.2 10.2 10.9 8.2 9.6 10.5 9
Guatemala 3.9 4.0 4.8 4.3 4.4 5.3 3.5 3.6 4.4 29 33
Guinea 12
Guinea-Bissau 12
Haiti 4.0 4.8 5.2 5.6 6.8 7.3 2.6 3.0 3.1
Honduras 5.6 6.8 7.5 5.7 7.0 7.6 5.4 6.7 7.4 23 28
Hungary 10.4 11.5 11.7 10.7 11.6 11.8 10.2 11.4 11.5 13 6
India 3.8 4.7 5.1 4.9 5.8 6.1 2.6 3.6 4.1 14
Indonesia 4.7 5.7 6.2 5.4 6.4 6.9 3.9 5.1 5.6 19 4
Iran, Islamic Rep. 6.1 8.1 8.6 7.3 9.3 9.6 4.9 6.8 7.5
Iraq 4.9 5.4 5.8 6.0 6.4 6.8 3.7 4.4 4.9
Ireland 10.7 11.3 11.6 10.6 11.1 11.5 10.8 11.4 11.7 16
Israel 10.9 11.3 11.3 10.9 11.2 11.2 10.8 11.3 11.5
Italy 8.3 9.1 9.5 8.6 9.5 9.9 7.9 8.8 9.2
Jamaica 8.1 9.6 9.9 7.9 9.4 9.7 8.3 9.8 10.0 42 20
Japan 10.6 11.3 11.6 11.0 11.6 11.8 10.2 11.0 11.4
Jordan 7.4 8.7 9.2 8.3 9.4 9.8 6.4 8.0 8.6
Kazakhstan 8.8 10.1 10.4 9.0 10.2 10.5 8.6 10.0 10.3 9 50
Kenya 6.2 7.1 7.3 6.9 7.7 7.8 5.4 6.5 6.8 3
Kiribati
Korea, Rep. 10.6 11.5 11.8 11.4 12.1 12.4 9.7 10.8 11.3 7
Kosovo 10
Kyrgyz Republic 8.4 8.6 8.7 8.6 8.6 8.7 8.3 8.6 8.8 19 28
Lao PDR 3.9 4.7 5.1 4.8 5.4 5.7 3.0 3.9 4.5 11 19
Selected Indicators 349
Table 5 Productivity
Value added per worker (2005 US$ per year)
Primary sector Secondary sector Tertiary sector
1995 2005 2010 1995 2005 2010 1995 2005 2010
Afghanistan
Albania 2,409 2,622 3,885 6,602 10,419 8,110 3,031 13,496 14,021
Algeria 5,364 23,962 6,979
Angola
Argentina 169,887 115,095 134,720 30,924 18,165 24,822 27,453 8,976 14,530
Armenia 2,452 4,636 15,285 28,403 4,803 10,819
Australia 40,133 61,462 70,416 73,971 95,996 90,412 55,153 70,239 89,745
Austria 32,626 22,953 26,250 83,512 89,626 99,691 95,032 88,496 84,955
Azerbaijan 903 909 1,627 1,915 18,994 44,847 1,115 1,939 6,286
Bangladesh 394 398 2,406 1,720 1,914 1,348
Barbados 25,047 24,469 19,951 19,992 22,501 23,701
Belarus 3,261 4,693 5,595
Belgium 51,682 40,155 67,238 103,700 93,212 91,242 104,053 99,852 99,674
Belize 7,302 7,920 12,726 10,017 12,421 11,235
Benin 1,066 1,960 1,684
Bhutan 1,474 1,017 6,136 25,363 2,837 4,794
Bolivia 22,960 827 3,106 3,780 1,971 2,861
Bosnia and Herzegovina
Botswana 2,562 858 20,939 47,317 7,425 12,354
Brazil 2,764 2,618 5,048 17,135 13,428 18,599 15,379 10,798 16,888
Bulgaria 3,536 10,254 11,062 4,412 8,675 13,748 7,076 11,058 15,240
Burkina Faso 207 348 3,803 6,551 2,813 3,125
Burundi
Cambodia 615 3,359 2,762
Cameroon
Canada 42,189 46,905 84,494 81,109 112,454 129,063 52,079 67,069 76,038
Central African Republic
Chad 316 5,679 2,875
Chile 8,839 7,230 7,742 20,778 32,805 39,481 14,640 18,340 21,281
China 576 912 1,649 3,077 6,683 10,799 1,972 4,425 7,788
Colombia 143,353 3,298 5,171 9,289 13,472 23,951 7,423 8,389 12,101
Congo, Dem. Rep.
Congo, Rep. 626 16,495 2,705
Costa Rica 6,904 6,367 7,964 13,678 14,495 16,232 11,644 11,324 13,886
Côte d’Ivoire
Croatia 5,509 8,061 12,516 16,501 26,744 34,397 18,959 33,420 39,446
Cuba 2,778 2,396 2,848 7,880 8,687 12,553 10,416 10,477 12,875
Czech Republic 10,589 21,146 30,708 13,520 26,449 38,029 17,605 31,396 41,145
Denmark 78,444 46,179 65,098 83,948 107,422 120,024 93,598 95,626 108,138
Dominican Republic 4,614 5,113 4,814 10,323 14,995 17,142 6,144 10,549 11,879
Ecuador 17,147 1,428 1,942 6,974 13,671 14,885 4,995 7,264 8,338
Egypt, Arab Rep. 2,299 2,125 2,759 6,839 7,234 10,894 5,391 4,543 7,308
El Salvador 3,217 4,267 4,839 6,845 10,911 10,641 7,131 8,254 8,561
Eritrea
Estonia 286 1,122 1,831 477 1,338 1,992 538 1,770 2,157
Ethiopia 264 216 1,986 678 1,619 1,136
Fiji
Finland 44,202 46,796 63,793 97,244 105,407 111,333 75,501 78,173 83,346
France 61,774 51,238 59,087 84,530 77,422 83,291 98,683 95,476 107,508
Gabon 4,968 4,517 92,742 113,418 24,212 11,700
Gambia, The 665 2,418 7,841
Georgia 1,091 10,531 5,537
Germany 39,654 37,059 35,975 83,494 83,183 82,362 102,070 87,032 82,997
Ghana 1,204 3,353 3,797
Greece
Guatemala 2,485 2,226 5,193 7,885 10,519 7,908
Guinea 434 6,850 4,665
Guinea-Bissau
Haiti
Honduras 1,441 1,373 3,167 5,364 3,032 5,649
Hungary 15,389 24,218 22,162 13,658 27,139 31,452 16,227 30,227 31,631
India 530 620 1,154 1,919 2,733 4,089 2,395 3,917 6,775
Indonesia 1,223 947 2,527 7,292 7,779 15,500 3,393 3,462 5,637
Iran, Islamic Rep. 9,417 3,798 16,510 13,886 14,977 9,339
Iraq
Ireland 53,117 27,237 22,334 88,974 127,274 172,844 60,801 100,012 103,349
Israel
Italy 36,317 49,362 41,152 68,402 77,744 75,596 85,677 98,654 93,103
Jamaica 2,865 3,409 3,123 13,424 14,414 13,113 6,946 10,989 11,501
Japan 32,158 28,324 30,531 116,579 93,297 115,414 131,008 99,791 107,592
Jordan 10,358 27,585 13,865 26,114 9,033 13,463
Kazakhstan 1,725 3,016 18,115 28,778 8,638 13,905
Kenya 644 3,941 2,425
Kiribati
Korea, Rep. 15,783 15,431 14,515 37,835 51,736 91,830 28,615 33,609 30,423
Kosovo
Kyrgyz Republic 1,035 921 1,550 1,274 1,399 2,183 1,125 1,166 2,142
Lao PDR 690 5,064 2,400
Selected Indicators 361
Table 8 Connectedness
Conventions on Immigrants Emigrants Remittances
migration ratified (% of population) (% of native population) (% of GDP)
2010 1990 2000 2010 1990 2000 2010 1995 2005 2010
Afghanistan 0 0.3 0.3 0.3 6.4
Albania 3 2.0 2.5 2.8 6.0 25.5 31.6 17.6 15.4 9.7
Algeria 2 1.1 0.8 0.7 5.9 4.2 3.3 2.7 2.0 1.3
Angola 0 0.3 0.3 0.3 2.5 2.6 2.7 0.1 0.1
Argentina 1 5.1 4.2 3.6 1.4 1.6 2.4 0.0 0.2 0.2
Armenia 2 18.6 18.7 10.5 14.0 25.1 23.9 4.5 10.2 10.6
Australia 0 21.0 21.0 21.1 2.2 2.9 2.5 0.4 0.4 0.4
Austria 0 10.3 12.4 15.6 6.8 7.0 7.8 0.4 0.9 0.9
Azerbaijan 1 5.0 4.3 2.9 13.4 16.3 14.0 0.1 5.2 2.7
Bangladesh 0 0.8 0.8 0.7 4.6 3.7 3.5 3.2 7.2 10.8
Barbados 1 8.2 9.2 10.3 27.5 26.6 30 3.3 4.5 3
Belarus 0 12.3 11.2 11.5 22.5 16.4 17.4 0.2 0.8 0.7
Belgium 1 8.9 8.6 8.9 4.3 3.5 4.4 1.7 1.9 2.2
Belize 2 16.1 14.6 13.6 14.4 2.2 4.1 5.7
Benin 1 1.6 2.1 2.6 5.4 5.2 5.8 5.0 4.0 3.8
Bhutan 0 4.3 5.6 5.5 2.7 2.1 6.1 0.2 0.3
Bolivia 1 0.9 1.1 1.5 3.3 4.2 6.5 0.1 3.6 5.5
Bosnia and Herzegovina 3 1.3 2.6 0.7 16.3 26.5 28.1 18.7 11.4
Botswana 0 2.0 3.2 5.7 5.1 2.2 3.2 1.2 1.3 0.7
Brazil 1 0.5 0.4 0.4 0.3 0.5 0.7 0.4 0.4 0.2
Bulgaria 0 0.2 1.2 1.4 7.0 8.8 13.9 0.5 5.6 2.9
Burkina Faso 3 3.7 4.7 6.3 9.8 10.6 9.3 3.3 1.0 1.1
Burundi 0 5.9 1.2 0.7 4.1 3.3 4.1 0.0 1.4
Cambodia 0 0.4 1.9 2.4 2.5 2.3 2.5 0.3 3.2 3.3
Cameroon 2 2.2 1.5 1.0 1.0 0.9 1.4 0.1 0.5 0.9
Canada 0 16.2 18.1 21.1 4.7 4.7 4.2
Central African Republic 0 2.1 1.9 1.8 1.2 0.7 2.9 0.0
Chad 0 1.2 1.3 3.5 2.7 1.7 2.2 0.1
Chile 1 0.8 1.2 1.9 3.6 3.2 3.6 0.0 0.0
China 0 0.0 0.0 0.1 0.4 0.5 0.6 0.1 1.0 0.9
Colombia 1 0.3 0.3 0.2 3.0 3.7 4.4 0.9 2.3 1.4
Congo, Dem. Rep. 0 2.1 1.2 0.7 1.0 1.3 1.4
Congo, Rep. 0 5.4 3.3 3.5 2.3 2.0 5.1 0.2 0.2 0.1
Costa Rica 0 13.6 7.9 10.5 2.7 2.8 2.9 1.1 2.1 1.5
Côte d’Ivoire 0 14.5 14.1 12.2 2.7 3.7 6.3 1.4 1.0 0.8
Croatia 0 9.9 13.9 15.8 8.2 14.1 16.9 2.5 1.6 2.2
Cuba 1 0.3 0.2 0.1 7.7 8.6 9.8
Czech Republic 0 4.1 4.4 4.3 5.8 8.2 3.5 0.3 0.8 0.6
Denmark 0 4.6 6.9 8.7 4.1 4.1 4.9 0.3 0.3 0.2
Dominican Republic 0 4.0 4.1 4.4 6.0 9.3 9.8 5.1 8.0 6.5
Ecuador 2 0.8 0.8 2.7 2.2 4.9 7.5 1.9 6.7 4.4
Egypt, Arab Rep. 1 0.3 0.3 0.3 3.3 3.2 4.4 5.4 5.6 3.5
El Salvador 1 0.9 0.5 0.7 9.7 13.7 17.1 11.2 17.7 16.1
Eritrea 0 0.4 0.4 0.3 9.4 8.9 15.2
Estonia 0 24.3 18.2 13.6 14.1 17.1 12.8 0.0 1.9 1.7
Ethiopia 0 2.4 1.0 0.7 0.3 0.4 0.7 0.4 1.4 0.8
Fiji 0 1.9 2 2.2 9.3 13.7 17.8 1.7 6.2 5.8
Finland 0 1.3 2.6 4.2 6.2 6.9 6.0 0.1 0.4 0.3
France 1 10.1 10.3 10.3 2.3 2.7 2.9 0.3 0.6 0.6
Gabon 0 13.7 17.0 18.9 1.7 1.4 2.0 0.1 0.1
Gambia, The 0 12.2 14.3 16.8 2.7 3.1 4.3 9.3 11.0
Georgia 0 7.0 4.9 3.8 16.6 21.2 19.8 8.1 5.4 6.9
Germany 1 7.5 12.1 13.2 4.1 4.7 4.7 0.2 0.3 0.3
Ghana 1 4.8 7.9 7.6 2.7 2.6 3.5 0.3 0.9 0.4
Greece 0 4.1 6.7 10.0 9.8 9.3 10.6 2.5 0.5 0.5
Guatemala 2 3.0 0.4 0.4 3.4 4.8 5.7 2.4 11.3 10.2
Guinea 2 4.2 8.5 4.0 7.0 5.3 5.3 0.0 1.4 1.3
Guinea-Bissau 0 1.4 1.6 1.3 6.4 5.7 6.9 0.7 3.5 5.8
Haiti 0 0.3 0.3 0.3 6.6 8.0 9.2 23.7 22.6
Honduras 1 5.5 0.5 0.3 3.2 5.2 7.0 3.2 18.7 17.3
Hungary 0 3.3 2.9 3.7 4.0 4.2 4.6 0.3 1.8 1.8
India 0 0.9 0.6 0.4 0.9 0.9 0.9 1.7 2.7 3.2
Indonesia 0 0.3 0.1 0.1 0.6 0.9 1.0 0.3 1.9 1.0
Iran, Islamic Rep. 0 7.8 4.3 2.9 1.3 1.6 1.8 1.8 0.5 0.3
Iraq 0 0.5 0.6 0.3 3.6 4.1 4.6 2.3 0.1
Ireland 0 6.5 10.1 20.1 22.5 24.5 17.1 0.5 0.3 0.3
Israel 1 35.0 35.9 38.6 14.5 15.0 17.9 0.7 0.6 0.6
Italy 2 2.5 3.7 7.4 6.4 5.4 5.8 0.2 0.1 0.3
Jamaica 2 0.9 1.0 1.1 20.8 26.1 27.0 11.2 15.8 14.5
Japan 0 0.9 1.3 1.7 0.6 0.7 0.6 0.0 0.0 0.0
Jordan 0 36.2 40.2 49.2 32.6 27.7 19.3 21.4 19.9 13.8
Kazakhstan 0 22.1 19.3 18.9 18.7 21.8 21.9 0.6 0.3 0.2
Kenya 2 0.7 2.4 2.0 1.3 1.2 1.1 3.3 4.3 5.5
Kiribati 0 3 2.4 2 6.8 11.9 6.2 12.3
Korea, Rep. 0 1.3 1.2 1.1 3.6 3.9 4.1 0.7 0.8 0.9
Kosovo 0 18.8 16.7
Kyrgyz Republic 2 14.2 7.6 4.1 12.7 13.2 10.6 0.1 13.1 26.6
Lao PDR 0 0.5 0.4 0.3 6.5 6.0 5.6 1.3 0.0 0.6
Selected Indicators 373
ment. Persons employed directly by these in- their life at the time of the interview; in per-
stitutions are included regardless of their type cent of all respondents; by work status (three
of employment contract; workers in state- indicators). The question in the survey is: “All
owned enterprises are not included. Data things considered, how satisfied are you with
source: LABORSTA tables on “Public Sector your life as a whole these days?” Possible an-
Employment” and “General Employment swers range from 1(“completely dissatisfied”)
Level,” at http://laborsta.ilo.org. to 10 (“completely satisfied”). Responses of 6
or higher were considered affirmative. Data
• Employment by work status: Share of em-
source: World Values Survey, 1999–2008, at
ployment in wage work, self employment, and
http://www.worldvaluessurvey.org.
farming; in percent (three indicators). The
self-employed include employers and non- • Labor share of national income: Compen-
remunerated family workers outside farming. sation of employees as a share of GDP; in
Data sources: see table 9. percent. Compensation of employees cor-
responds is measured by account D.1 in the
• Employment in urban areas: Share of em-
SNA, and GDP by account B.1 in the Sys-
ployment in cities and towns; in percent.
tem of National Accounts). Compensation
Urban is defined by national statistical offices.
of employees includes payments in cash and
Data sources: see table 9.
in-kind. It also includes government contri-
butions to social insurance schemes that pro-
Table 4: Living standards vide benefits to the employees. Data source:
UNDATA, at http://data.un.org.
• Wages by occupation: Average wages of ac-
countants, chemical engineers, bus drivers, • Gender gap in earnings: Wage earnings for
and sewing machine operators; in annual US$ women relative to the wage earnings of men
at 2005 prices (four indicators). Wages are having the same characteristics; as a ratio. The
based on data from the ILO October Inquiry estimate is based on a country-specific regres-
database, calibrated into a normalized format sion of the logarithm of monthly earnings in
referring to average monthly wage rate for an local currency on years of education and po-
adult worker and transformed into dollars tential years of experience (and its square),
using the exchange rate of the local currency controlling for industry, occupation, urban
in the same year. The data are then converted residence and gender. The methodology is de-
to 2005 prices using the U.S. GDP deflator. scribed by Claudio E. Montenegro and Harry
The methodology is described by R.H. Oos- Anthony Patrinos, 2012, “Returns to School-
tendorp, 2012, “The Occupational Wages ing around the World,” background paper for
around the World (OWW) Database: Up- the World Development Report 2013. Data
date for 1983–2008,” background paper for sources: see table 9.
the World Development Report 2013. Data
source: http://www.worldbank.org/wdr2013.
Table 5: Productivity
• Working poor: Share of total employment
• Value-added per worker: Total value-added
represented by workers who are members of
per worker; in annual US$ at 2005 prices; to-
households living in extreme poverty; in per-
tal and by sector of activity (four indicators).
cent. Households living in extreme poverty are
Value-added is the output of a sector net of
identified on the basis of poverty rates comput-
intermediate inputs. It is calculated without
ed from the international poverty line of 1.25
making deductions for depreciation of fabri-
US$ PPP per day at 2005 prices. The use of the
cated assets or depletion and degradation of
international poverty line means that figures
natural resources. The origin of value-added
are not necessarily comparable to estimates
is determined by the International Standard
generated using national poverty lines. Data
Industrial Classification (ISIC), revision 3.
sources: see table 9, and for the poverty rate, see
Value-added data are converted to US$ using
http://iresearch.worldbank.org/PovcalNet/.
current exchange rates and then converted to
• Life satisfaction: Persons aged 14 and above 2005 prices using the U.S. GDP deflator. Data
who answered affirmatively to a survey ask- source: WDI, at http://data.worldbank.org/
ing them whether they were satisfied with data-catalog/world-development-indicators.
376 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
cerning the application of the principles of the versity of Amsterdam, Version 3.0, May 2011,
right to Organize and to bargain collectively; at http://www.uva-aias.net/208.
Convention 100, on equal remuneration;
• Labor market policies: Government spending
Convention 105, concerning the abolition
in programs to help the unemployed back to
of forced labor; Convention 111, concerning
work, or to support the income or consump-
discrimination in respect of employment and
tion levels of unemployed or inactive persons;
occupation; Convention 138, on the mini-
in percent of GDP. Seven types of programs
mum age for admission to employment; and
are considered: macroeconomic stimulus
Convention 182, concerning the prohibi-
policies, measures to increase labor demand,
tion and immediate action for the elimina-
active labor market policies, unemployment
tion of the worst forms of child. Data source:
benefits, other social protection measures,
NORMLEX database, at http://www.ilo.org/
social dialogue and compliance with labor
dyn/normlex/en.
standards. Data sources: International Labour
• Minimum wage: The lowest a private sector Organization/World Bank, Inventory of policy
employer can pay a 19-year-old worker who responses to the financial and economic crisis:
has no previous experience in the economy’s Joint synthesis report, mimeo, July 2012; and
most populated city; in US$ at 2005 prices. OECD (2012) Employment and Labour Mar-
The applicable minimum wage can be legally kets: Key Tables from OECD, at: http://stats.
enacted or agreed upon in collective bargain- oecd.org/Index.aspx?DataSetCode=LMPEXP.
ing agreements. When a zero is reported, it
• Social security contributions: The sum of
does not necessarily mean that there is no
employer and employee contributions to-
minimum wage in force in the country or
wards social security programs for sickness,
economy. For instance, there may be rates ap-
old age, injury and unemployment; in percent
plicable to regular workers but not to appren-
of the employee’s gross salary. Data sources:
tices. Data source: Doing Business Indicators,
ILO SECSOC Database of the Social Security
at www.doingbusiness.org.
Department, at http://www.ilo.org/public/
• Separation cost: Severance pay and others english/protection/secsoc; Martín Rama and
costs associated with redundancy dismissal; Raquel Artecona, 2002, “A Database of Labor
in weeks of salary per separated worker; after Market Indicators across Countries,” Com-
1 and 10 years of continuous employment missioned by a Committee of the National
(two indicators). For comparability, figures Academies.
refer to a hypothetical worker and firm across
• Social security coverage: Share of the labor
all countries. The worker is a male, non-
force actively contributing to old-age pension
executive employee, earning the economy’s
schemes; in percent. Data sources: Montser-
average wage. The firm is a limited liability
rat Pallares-Miralles, Carolina Romero, and
company with 60 workers in the manufactur-
Edwards Whitehouse, 2012 “International
ing sector of the economy’s most populated
Patterns of Pension Provision II. A Worldwide
city. Separation costs include the cost of ad-
Overview of Facts and Figures,” SP Discus-
vance notice requirements, severance pay-
sion Paper No. 1211. World Bank, Washing-
ments and penalties in the case of redundancy
ton, DC; Martín Rama and Raquel Artecona,
dismissals justified by economic, operational
2002, “A Database of Labor Market Indicators
or structural reasons, not by the behavior of
across Countries,” Commissioned by a Com-
the worker. Data source: Doing Business Indi-
mittee of the National Academies.
cators, at www.doingbusiness.org.
• Union membership: Share of wage work-
Table 8: Connectedness
ers with union membership; in percent. Data
source: Jelle Visser, Data Base on Institutional • Conventions on migration ratified: Indi-
Characteristics of Trade Unions, Wage Setting, cates how many of the following have been
State Intervention and Social Pacts, 1960– ratified by the country: ILO Convention 97,
2010 (ICTWSS) Jelle Visser Amsterdam Insti- concerning migration for employment; ILO
tute for Advanced Labour Studies AIAS Uni- Convention 143, concerning migrations in
378 WO R L D D E V E LO P M E N T R E P O RT 2 0 1 3
abusive conditions and the promotion of percent. The native population is computed
equality of opportunity and treatment of as the total population minus immigrants
migrant workers; and the United Nations plus emigrants. Data source: Özden, Çaglar,
(UN) Convention on the Protection of the Christopher Parsons, Maurice Schiff, and
Rights of All Migrant Workers and Members Terrie L. Walmsley. 2011. “Where on Earth Is
of Their Families. In the case of the UN Con- Everybody? The Evolution of Global Bilateral
vention, accessions and successions are also Migration 1960–2000.” World Bank Economic
treated as ratifications. Data source: ILOLEX: Review, 25 (1): 12–56, at http://go.worldbank
Database of International Labor Standards .org/JITC7NYTT0.
(http://www.ilo.org/ilolex/english/convdisp1
• Remittances: Foreign currency inflows from
.htm; and United Nations Treaty Collec-
workers abroad; in percent of GDP. The in-
tion, at http://treaties.un.org/pages/View-
flows comprise current transfers by migrant
Details.aspx?src=TREATY&mtdsg_no=IV-
workers and compensation earned by non-
13&chapter=4&lang=en.
resident workers. Current transfers from
• Immigrants: Share of the population that is migrant workers are considered remittances
foreign born; in percent. Data source: Özden, when workers have resided in the host coun-
Çaglar, Christopher Parsons, Maurice Schiff, try for more than a year, irrespective of their
and Terrie L. Walmsley. 2011. “Where on immigration status. Compensation earned by
Earth Is Everybody? The Evolution of Global nonresident workers refers to the wages and
Bilateral Migration 1960–2000.” World Bank salaries of migrant workers having lived in
Economic Review, 25 (1): 12–56, at http://data the host country for less than one year. Data
.worldbank.org/indicator/SM.POP.TOTL. source: World Development Indicators, at
http://data.worldbank.org/indicator/BX.TRF
• Emigrants: Share of the native population that
.PWKR.DT.GD.ZS.
is residing in another country or economy; in
Selected Indicators 379
381
382 INDEX
“meaningful” work, value of, 83b Democratic Republic of Congo. See Congo, Democratic
minimum wage in, 26, 263 Republic of
pension benefits in, 83 demographics
productivity and trade liberalization in, 168 aging population. See aging population
social identity and jobs in, 134b in formalizing economies, 212b
social insurance contributions in, 274 population decline, 6, 214
underemployment in, 49 poverty reduction and, 78–79
value of jobs to individuals and society in, 159f shifts in, 6. See also international migration
wages in, 243 workers, 48
waste pickers, organization of, 266, 267b youth, 51. See also youth
Commission on Growth and Development, 293, 296 developing countries. See also low-income countries
Communist Party, 132b ALMPs, effectiveness of, 270
community-based programs for jobs, 195 corporate codes of conduct in, 306
community involvement, 131, 132f, 145n13, 145n15. See also trust diversity of jobs and types of work in, 5–6
and civic engagement female labor participation in, 30b, 300b
competing for jobs globally, 37, 194b, 234, 243–47. See also global financial crisis (2008), effect on, 61, 61f, 293
globalization informal employment in, 6
conditional cash transfers, household effects of, 164 job protection policies in, 279–80
Confederation of South African Trade Unions, 265 labor earnings, growth in, 58
conflict-affected countries macroeconomic instability in, 293
defined, 281n1 micro- and small enterprises as job creators in, 11, 13f, 105,
demobilization programs in, 140, 195 105f, 108–9
jobs agenda, 19, 20f, 190, 193–96, 194–95b, 196f productivity in manufacturing sector in, 107–8, 108f
mix of labor policies and institutions in, 259f resilience of employment in, 293
policy making in, 3, 30, 302–3 skipping over industrialization phase of development in, 241
tax wedge effect in, 275f social insurance coverage in, 273, 274, 274m
conflict studies on job spillovers, 160b structural transformation in, 52
Congo, Democratic Republic of trade in services in, 33
community-based programs for jobs, 195 unions’ political involvement in, 265
cost of integration program for excombatants, 301 disability insurance, 272, 273, 302b
as resource-rich country, 19 disabled persons, employment of, 84
Consultative Group to Assist the Poor, 276b discrimination. See ethnic differences; labor discrimination
contracts, ability to enter into, 297 displaced persons, 133, 195b
Convention on the Rights of the Child (UN), 65, 66b dissimilarity index to measure inequality, 132b
Cook Islands, sustained growth in, 204 distrust. See trust and civic engagement
coordination failures, 218b diversity in world of work, 49
corporate social responsibility, 32–33, 198, 306–7 Doha Development Agenda, 33, 307–8
corruption, 198, 276b, 295, 297 Doi Moi (Vietnamese land reform), 29, 301
Costa Rica domestic violence, 133b
Intel location of semiconductor plant in, 178, 245 domestic workers, 31, 141, 141b, 156, 267
services sector in, 241 Dominican Republic
Côte d’Ivoire Central America Free Trade Agreement and, 306
productivity and trade liberalization in, 168 female labor force participation in, 54b
women’s income, household effects of, 164 job satisfaction in, 86
crowd-sourcing tools, 240b Juventud y Empleo program, 15, 142–43, 171, 269
currency overvaluation, 23, 294 micro- and small enterprises in, 110b
Czech Republic poverty programs in, 276b
minimum wages for domestic workers in, 141 returns to education in, 178
Roma children, discrimination against, 157b skills training in, 181n100
special economic zones (SEZs) in, 221b
D downsizing, 11, 101, 103, 133b, 280
data needs dual economies, 64b
approaches to, 28–29, 299 Durkheim, Emile, 128b
jobs numbers, need for, 34–35, 311–12, 312b, 320n116 Dutch disease, 199, 205
job spillover effects, need for data sources on, 163, 163b
Decent Work and Decent Work Agenda, 15, 158, 158b, 170b, 246 E
deforestation, 170, 170b earnings. See labor earnings; wages
demobilization programs, 140, 195 ease of doing business, 24, 194b, 295
Index 385
firm size and growth in, 12, 111 Hogares Comunitarios (Colombia), 30b, 300b
growth elasticities of employment in, 88b HOI (Human Opportunity Index), 138b
idleness rates of youth in, 51f household businesses, 11, 98, 104–5, 110b, 179n12
informal firm owners in, 67n43 household income
management training interventions in, 118, 120–21n81 decision making when women have labor income, 15, 160,
microcredit investments in, 164 164–65, 166f
outsourcing attractiveness of, 55 jobs as source of, 78, 80f
social interactions afforded by jobs in, 135 job spillover effects on, 160–61, 164–65, 166f
youth issues in, 6f household surveys, 163b
global financial crisis (2008). See financial crises hukou (Chinese household registration system), 314, 315, 315b,
globalization, 6–7, 54–55, 58. See also jobs migration 317, 317f
competing for jobs, 194b, 243–47, 244b human capital accumulation, 24–25, 99b, 296–97. See also
job spillovers to, 161, 168–69 educational attainment
winners and losers, 241–42 child development and, 24–25, 296
global partnerships for jobs, 31–34, 305–11 Human Opportunity Index (HOI), 138b
good jobs. See also Decent Work and Decent Work Agenda human rights, 5, 14–15, 156. See also child labor; forced labor
competition for, 246–47, 247f human trafficking, 235, 246
meaning of, 17–18, 20f, 275, 275f, 283n82 Hungary
setting policy priorities for, 27, 28, 28f, 298–99, 299f self-employment in, 56
Green Revolution, 11, 98, 107, 170b, 191, 192f, 198 training programs purchased by public employment services
gross domestic product (GDP), 41n145, 98–99, 99f, 293, 294, in, 269
320n117 underemployment in, 49
gross job creation, 98, 99, 119n3
Guatemala I
productivity effects of jobs in, 161 ICLS. See International Conference of Labour Statisticians
underemployment in, 49 identity economics on job spillovers, 160b
“Guidelines Concerning a Statistical Definition of Informal idleness rates of youth, 6, 6f, 50, 51f
Employment” (ICLS), 64b IFC (International Finance Corporation), 179n9, 307
Guinea illegal activities in conflict-affected countries, 194
ethnic differences, jobs connecting people across, 136b ILO. See International Labour Organization
public works programs in, 270 incentives
Guyana, social effects of job loss in, 131–32, 133b for educated workers to return to home countries, 236
for job assistance providers, 267–68
H for job seekers, 270
Haiti unemployment insurance’s effects on, 273
educational level of migrants from, 234 India
garment industry in, 84b Aadhaar (identification program for social insurance
Better Work program, 307b programs), 276b
job matching networks in, 268b as aging society, 213
job satisfaction in, 86 Babajobs, 55, 268b
life satisfaction in, 85 child labor in, 157b
migration from, 248n10 construction in, 88b
hazardous work, 83–84, 84b, 155–57 educational attainment in, 7, 54
child labor, 51, 65, 66b, 155b educational learning outcomes in, 296–97
health and safety risks, 25, 83–84, 84b, 155, 179n10, 236, 297, 306. electronic payment systems for social insurance programs in,
See also hazardous work 276b
health care costs in aging societies, 215 Employee State Insurance Act of 1948, 320n122
health insurance benefits, 27, 83b, 212b, 275–76, 275f ethnic/racial cross-cutting interactions at work in, 135
health status Factories Act of 1948, 320n122
high productivity as result of, 296 firm size and growth in, 12, 112
jobs and unemployment, effect on, 10 garbage collectors, organization of, 266
migration improving, 248n13 idleness rates of youth in, 6f, 51f
hedonic pricing, 83b Industrial Disputes Act (IDA) of 1947, 313, 314, 320n122
high-income countries informal employment rates in, 64b, 315
job search services in, 267 information technology (IT) sector in, 54, 117, 246
manufacturing jobs in, 22f infrastructure constraints in, 317
self-employment in, 56 job matching networks in, 268b
stimulus packages in reaction to global financial crisis, 61, 62b labor force growth in, 6
388 INDEX
countries ratifying conventions of, 41n128, 260, 281n3, 305, decoupling from job destruction, 277–79
310, 319n83 fundamental requirements for, 3, 22, 23–25, 23f, 292–98
Decent Work Agenda, 15, 158, 158b, 170b, 246 enabling business environment, 294–96
Declaration on Fundamental Rights and Principles at Work, 5, human capital, 24–25, 296–97
31, 65, 305 macroeconomic stability, 23, 23f, 293–94
Domestic Workers Convention and the Domestic Workers rule of law, 25, 297–98, 297f
Recommendation, 31, 141, 141b, 267 gross vs. net, 98, 99, 119n3
International Finance Corporation (IFC), partnership with, 307 highest development payoffs for, 245
Key Indicators of the Labor Market database, 64b need for new jobs, 51, 52f
labor statistics, standards on, 320n118 simultaneous with job destruction, 10, 11f, 98, 99–100, 100f
on unemployment insurance coverage, 273 job destruction
on unemployment rate’s effect on social unrest, 145n1 decoupling from job creation, 277–79
on unions’ proliferation, 266b labor reallocation and, 313
on working poor, 80b simultaneous with job creation, 10, 11f, 98, 99–100, 100f
international migration, 19–21, 33–34, 232–37 jobless growth, 98–104
bilateral agreements on, 33–34, 310–11 joblessness. See unemployment
conflict’s effect on, 194 job protection policies, 25, 26, 37, 277–80, 280b
drivers of, 234 jobs
effect on labor force, 51 activities considered not to be, 65–66
global patterns of, 19, 21m, 233–34, 233m, 235m data needed on, 34–35, 311–12, 312b
impacts on sending and receiving countries, 234–37, 248n29, defined, 5, 49, 63, 66
310 development agenda and, 2
international coordination of policies, 34, 292–93, 309–11 jobs strategies vs. growth strategies, 36, 87–89, 90b
irregular migration, 237, 248n33, 310 multiple forms of, 5, 49, 63–66
legal protection for overseas workers, 34, 141, 310 nonproduction activities, 49
racial discrimination and, 20, 237 preservation of jobs vs. protection of people, 37, 277–80
return home of migrants seen as brain gain, 236 jobs agenda, 17–21, 190–230
from small island nations, 204–5, 205f aging societies, 18, 20f, 190, 213–16, 214–16f, 216b
South-North vs. South-South, 234 agrarian economies, 18, 20f, 190–93, 192–93f, 194b
International Organization for Migration, 195b conflict-affected countries, 19, 20f, 190, 193–96, 194–95b, 196f
Internet, 55, 268. See also technological change constraints on, 219–20, 220f
Internet and job opportunities, 240b data gap on, 312b
investment climate, 25, 297. See also targeted investment climate formalizing economies, 18, 20f, 190, 210–13, 211f, 212b, 213f
irrigation, 192 global competition and, 243–47. See also globalization
Italy global partnerships and, 305–11
short-time work scheme in, 88b high youth unemployment, countries with, 18, 20f, 190, 206–10,
social capital in, 128b 207–8f, 210f
training programs in, 62b international migration and, 232–37. See also international
unemployment insurance in, 273 migration
jobs migration and, 237–42. See also jobs migration
J policy priorities for jobs, 3, 22–23, 23f, 27–29, 28f, 298–301, 299f
Jamaica resource-rich countries, 19, 20f, 190, 199–203, 200–201t, 203b,
educational level of migrants from, 234 203f
migrants from, 19 small island nations, 19, 20f, 190, 203–6, 204–6f
migration from, 52 targeted investment climate and, 26, 195, 217–21, 218–19b,
Japan 220f, 221b
industrialization in, 238 urbanizing countries, 18, 20f, 190, 197–98b, 197–99, 199f
manufacturing sector in, 22f job satisfaction, 83b
productivity growth in, 245 Jobs counseling, 208
unemployment rate in, 23 job search
union wage effect in, 263 active labor market programs (ALMPs), 267–72
job benefits, value of, 9, 82–83, 83b. See also spillover effects assistance programs, 267–70
JobCentre (Germany), 270 “one-stop shops” for administration of both social benefits and
JobCentre Plus (UK), 270 ALMPs, 270
job creation unemployment insurance and, 273
agricultural innovation and, 107 job security, 26, 85, 85f, 260–62
collaboration of private sector with public sector for, 90b jobs lens
data needed on, 34–35, 311–12, 312b aging societies, 216f
390 INDEX
agrarian economies, 193f Korea University of Technology and Education’s Bridge Model,
conflict-affected countries, 196f 177b
formalizing countries, 213f Kurzarbeit (reduced working hours) in Germany, 279, 280b
high youth unemployment, countries with, 210f Kuwait, migrant population in, 19, 52, 233
resource-rich countries, 203f Kyrgyz Republic
small island nations, 206f educational learning outcomes in, 296–97
three-layered approach of, 3, 292, 293f fairness in access to job opportunities in, 173f
urbanizing countries, 199f
jobs migration, 20–21, 237–42. See also globalization L
to countries where labor is cheaper, 244f labor discrimination, 31, 65, 65f, 68n75, 129, 141–42, 157b, 164,
global trends, 20–21, 237–41, 238–39f, 244b 237, 260, 297
multinational corporations and, 240b labor earnings, 9, 9f, 15, 48, 158, 160, 243, 245
job spillover effects. See spillover effects labor economics, 28, 164, 299
jobs strategies, 89–90 labor laws and regulations
growth strategies vs., 36, 87–89, 90b employment protection legislation (EPL), 260–62, 260b, 261t,
Jordan 281n13, 282n20
garment industry in, 84b gaps in coverage, 156
Better Work program, 307b as obstacle to formalization, 211f, 213
high youth unemployment in, 19 “plateau” effect, 26, 27, 258, 260–63, 292, 313
job satisfaction in, 86 social protection regulation, 275
life satisfaction in, 85 labor market
migrant population in, 52, 233 female labor force participation, 54b, 77
unemployment insurance savings accounts in, 273 growth of, 48
Jóvenes programs, 268–69 mismatch of supply and demand, 232, 270
judicial systems, 25, 297, 298 participation rate, 51, 90b
Juventud y Empleo program (Dominican Republic), 15, 142–43, risk management of, 272–73
171, 269 shrinking labor force, 214f
labor policies, 3, 22, 258–91. See also labor laws and regulations;
K policy making
KDP (Kecamatan Development Project), 145n14 active labor market programs (ALMPs), 267–72. See also active
Kenya labor market programs
as agrarian economy, 190 collective representation, 263–67. See also collective bargaining
agricultural productivity in, 106, 119n29 data gap on, 312b
electronic payment systems for social insurance programs in, different configurations in different countries, 3, 258, 259f,
276b 281n1
vocational training in entrepreneurship in, 146n71 impact of, 3, 27, 258
Key Indicators of the Labor Market database (ILO), 64b protecting jobs, pros and cons of, 26–27, 37, 277–80
Ibn Khaldun, 128b social insurance coverage, 272–76
knowledge gaps. See data needs temporary job protection policies, 277–79, 280b
knowledge-intensive jobs, 54 labor reallocation, 37, 100, 101f, 104, 313–17
knowledge spillovers, 15, 27, 116, 167–69, 168f, 177, 178, 193, 218b labor statistics. See data needs
knowledge transfers, 117 Labournet (job assistance program), 268b
Konbit (job assistance program), 268b land. See property rights
Korea, Republic of landowner companies, 203b
dynamic skills development in, 177b Lao People’s Democratic Republic, garment workers in, 298
educational attainment in, 7, 55 large firms, 11, 11f, 36, 108, 109f
financial crisis in Thailand (1997), effect on, 59 Latin America and Caribbean
industrialization of, 237, 238 aging societies in, 213
jobs strategy in, 87, 89, 90b, 302b dismantling of inefficient industries in, 280
manufacturing sector in, 22f emigration from Caribbean countries, 205
decline in, 237 EPL impacts in, 261
suburban expansion of, 100–101, 102f female labor participation in, 30b, 300b
microenterprises in, 105 financial crisis in Mexico (1995), effect on, 58–59
policy removal of constraints to job creation in, 31, 32f, 302b formalizing economies in, 212
productivity and urban scale in, 167 growth elasticities of employment in, 88b
trade liberalization in, 168 inequality in access to jobs in, 137
unemployment rates in, 49 informal vs. formal firms’ productivity in, 210
union wage effect in, 26, 263 job matching networks in, 268b
wages in, 243 job training programs in, 269
Index 391
removing constraints by government action, 3, 21–22, 28–29, labor reallocation and, 100, 101f, 104
292, 294–95, 298 living standards tied to, 215, 215f
in resource-rich countries, 3, 23, 30–31, 303–4 manufacturing sector and, 238
rule of law and, 25, 297–98, 297f migration’s effect on, 19
in small island nations, 302b minimum wage’s impacts on, 261–62, 262t
social cohesion, benefits to, 36, 140–44, 246 ripple effect of lost jobs, 277
targeting in, 217, 300 sectoral differences, 107–13
three-stage approach, 3, 292, 293f services liberalization and, 308
in urbanizing economies, 31, 302b small farms and firms, 104–6
political instability technological progress and, 100, 106–7, 245
in conflict-affected countries, 195 turbulence of productivity growth, 98–104
migrant flows and, 234 unions and, 264–65
political instability in conflict-affected countries, 196f productivity-enhancing structural change, 100
portability of benefits, 276 productivity studies, 28, 299
Portugal Programme for International Student Assessment (PISA), 25,
firm size and growth in, 12, 111–12 67n32, 296
underemployment in, 49 property rights, 17, 25, 297, 301
post-conflict programs, 143, 143b pro-poor growth, 87, 91–92n50
poverty analyses, 28, 160b, 299 prosperity, 8, 9, 56, 57f, 58, 62, 243
poverty reduction public good
in agrarian economies, 191–92, 192f globalization and, 33, 246
decomposed by sources of income, 79, 82f investment climate as, 217
economic development with no impact on, 87, 89 technology as, 191
jobs as path to, 7, 9, 10f, 56, 76–80, 81f public-private partnerships, 218b, 221b
job spillover effect on, 16, 160–61, 166–67, 166f public sector. See also civil service
pro-poor growth, 87 in agrarian economies, 191–92
relapses into poverty, 82 collaboration with private sector in job creation, 90b
in slow growth periods, 87 “queuing” for jobs in, 7, 8, 58
working poor and, 7, 41n145, 77, 80b, 82, 110, 191, 320n117 restructuring, effect on jobs, 278
power shortage, effect of, 295f youth preference to work in, 208, 223n75
price of labor, 58 public utilities, 154
priority setting. See policy making public works programs, 36, 58, 143, 146n70, 269–70, 273, 283n59
private sector Putnam, Robert, 128b
central role in job creation, 3, 7–8, 21, 58, 60f, 292
collaboration with public sector in job creation, 90b Q
defined, 39n22, 68n49 Qatar
enabling business environment and, 294–96 educational learning outcomes in, 296–97
macroeconomic stability and, 293–98 migrant population in, 19, 52, 233
training commitment of, 177 quotas for hiring underrepresented groups, 142
privatization, effect on jobs, 278
pro-competitive business environment, 103 R
production activities, 49 racial differences. See ethnic differences
Productive Safety Net Program (Ethiopia), 143 Rawls, John, 138b
productivity, 10–12, 98–125 reallocation of labor, 37, 100, 101f, 104, 313–17
aggregate productivity, 101 recessions. See financial crises
in agrarian economies, 191 Recognized Seasonal Employer (RSE) program (New Zealand), 31,
agricultural sector, 79, 81, 88 302b
data gap on, 312b reform to offset constraints to job creation, 3, 300. See also policy
developing countries compared to industrial countries, 54, 55f making
downsizing vs. upsizing, 11, 101, 103, 103f refugees from conflict-affected countries, 194
efficiency gains at firm level, 101, 102f regulation. See also labor laws and regulations
EPL impacts on, 261–62, 261t business regulation, 24, 194b, 295
firm size and, 12, 108, 108–9f, 111–12, 111f. See also remittances, 19, 197, 200, 204, 205b, 236, 311
microenterprises research performed by Asia-located affiliates, 67n27
in formalizing economies, 211 resource-rich countries
informal employment’s effect on, 6, 49, 210 currency appreciation pressures in, 294
job protection and, 277 defined, 281n1
job spillover effect on, 8f, 161, 167–70, 277 extractive industries in, 88–89. See also extractive industries
Index 395
jobs agenda in, 19, 20f, 190, 199–203, 200–201t, 203b, 203f job satisfaction and, 85
mix of labor policies and institutions in, 259f Recognized Seasonal Employer (RSE) program (New Zealand),
policy making in, 3, 23, 30–31, 303–4 31
tax wedge effect in, 275f sectoral differences
returns to education, 58, 60f, 178, 181n101 economic development and, 88b
right to life, 267b in productivity, 107–13
ripple effect of lost jobs, 277. See also spillover effects Self Employed Women’s Association (SEWA), 27, 63, 134, 135b,
Ritzen, Jozef, 128b 266
Roma children, discrimination against, 157b self-employment
Romania in agrarian economies, 193
child development in, 296 entrepreneurship and, 114, 115f. See also entrepreneurship
gross job creation and destruction in, 100 hazards of, 83
inequality in access to jobs in, 137 health insurance, subsidizing participation in programs, 276
job training programs in, 269 life satisfaction and, 85
manufacturing sector in, 103 microenterprises and, 110, 270
population decline in, 214 preference for, 56, 67n43
public works programs in, 270, 272f prevalence of, 3, 5, 49
upsizing in, 11 regional differences in, 49–50, 50f
Rowntree, Benjamin Seebohm, 77b social identity and, 134
rule of law, 25, 297–98, 297f temporary work, effect on measuring, 49
RuralShores, 240b unemployment and
rural-urban migration effect on measuring, 49
in agrarian economies, 193 social safety nets for, 272
economic growth and, 52, 53f urbanization and, 193
hukou (Chinese household registration system) and, 314, 315, Senegal
315b, 317, 317f outsourcing attractiveness of, 55
networking and choice of location, 137 women in formal sector work in, 191
reallocation of workers. See reallocation of labor sense of fairness. See fairness, sense of
structural changes in job market and, 6, 48 Serbia
rural vs. urban jobs in terms of earnings, 165f job loss, social effects of, 131
Russian Federation public works programs in, 270, 283n62
educational attainment in, 7, 55 training programs purchased by public employment services
entrepreneurship in, 117 in, 269
fairness in access to job opportunities in, 172, 173f services sector, 20, 33, 54, 239. See also General Agreement on
global financial crisis (2008), effect on, 61 Trade in Services (GATS)
migrant population as percent of total population in, 234 severance payments, 260
Rwanda SEWA. See Self Employed Women’s Association
civil war in, 318n56 SEZs (special economic zones), 221, 221b
interethnic collaboration and jobs in, 319n66 shocks
policy removal of constraints to job creation in, 30, 32f, 301, as drivers of households into poverty, 82
302–3 employment. See employment shocks
public works program in, 143 natural disasters. See natural shocks
technical and vocational education (TVE) in, 176 underemployment and unemployment due to, 277
tourism in, 88b Sierra Leone
unemployment rates of female ex-combatants in, 318n61 fairness in access to job opportunities in, 172
women in wage employment in, 50 good jobs defined as having access to pensions and health
insurance in, 15, 275, 275f
S health insurance benefits in, 83b
safety on the job. See health and safety risks network effects of working in, 171
Samasource, 240b post-conflict youth employment in, 195
Samoan migration to New Zealand, 204 public works programs in, 270
Samsung, 177b value of jobs to individuals and society in, 158, 159f
savings accounts for unemployment insurance, 273 vocational training in entrepreneurship in, 146n71
savings decline among older age groups, 214 Singapore
scale economies, 218b as aging society, 213
“scarring,” 268, 279, 283–84n91 domestic workers, legal protection of, 141b
school-to-work transitions, 164, 178, 181n96 dynamic skills development in, 177b
seasonal workers jobs strategy in, 87, 89, 90b
396 INDEX
migrant population in, 52, 233 aspirations and expectations, 14, 137–39
Nanyang Polytechnic, 178 connection with jobs, 14, 126
partnering with India’s Tata Group in, 178 data gap on, 312b
population decline in, 214 defined, 128b
productivity effects of jobs in, 161 economic development without increasing, 87
training funds in, 181n82 EPL impacts on, 261–62, 261t
as transportation hub, 245–46 job spillover effects to, 8f, 15, 83b, 85–86, 87, 134–39, 170–73,
unemployment rates in, 49 171f. See also spillover effects
skilled workers minimum wage’s impacts on, 261–62, 262t
earnings vs. those of unskilled workers, 165f policies contributing to, 36, 140–44, 246
exporting skilled jobs, 241 social interactions created by jobs, 13, 134–37
middle-skilled jobs, decline in, 54 socially important jobs and, 15, 16–17f
migration of, 234, 236–37, 311 social tensions, reduction of, 14, 127–33, 143b
pay of, 48 transparency and, 202
in resource-rich countries, 202 trust and civic engagement. See trust and civic engagement
returns to education, 58 unemployment’s effect on, 277, 279
shortage of, 48, 174, 207 universal social insurance programs and, 276
skills, 36, 174–78 social identity, 84, 134, 134b, 142–44, 161, 170–71
acquisition of, 174, 175b social insurance and social protection programs, 26–27, 62b,
as constraint, 174, 175f, 181n81, 295f 212–13, 215, 272–76, 274m. See also unemployment
dynamic skills development, 177b insurance
economic development’s effect on mix of, 56f financing of, 273–76
as human capital, 296 managing market risks, 272–73
improving skills to increase earnings, 158 portability of benefits, 276
learning on the job, 176–78 technology to make participation easier, 275, 276b
manpower planning and, 176, 177b social networks. See networks
measurement of, 175b social safety nets not tied to labor market, 272
mismatches with economic demands, 174–75, 207 social security programs, 272
National Qualification Frameworks, 177b social skills, 176
productivity traps when skills insufficient, 178 social unrest, link to unemployment, 12, 126, 127, 132, 140, 142
prolonged unemployment’s effect on, 277, 279 social value of jobs. See value of jobs
social skills, 176 SOEs. See state-owned enterprises
types of, 55, 67n33 Solidarność (Polish trade union federation), 265
slavery, 155 Souktel (job assistance program), 268b
Slovenia South Africa
fairness in access to job opportunities in, 172, 173f affirmative action in, 142
gross job creation and destruction in, 100 electronic payment systems for social insurance programs in,
policy removal of constraints to job creation in, 31, 32f, 301, 276b
304–5 female labor force participation in, 54b
trade liberalization in, 168 electrification and, 30b, 300b
training programs purchased by public employment services global financial crisis (2008), effect on, 61
in, 269 informal employment in
youth unemployment in, 31, 304–5, 305f gender differences, 210, 211
small and medium enterprises (SMEs), 177b size of informal sector, 265b
small businesses. See microenterprises job satisfaction in, 86
small farms, 88, 104–6, 104f, 113f minimum wages for domestic workers in, 141
small island nations outsourcing attractiveness of, 55
defined, 281n1 poverty reduction, effect of jobs on, 78
jobs agenda in, 19, 20f, 190, 203–6, 204–6f street vendors, organization of, 266–67
mix of labor policies and institutions in, 259f temporary and part-time work in, 7, 48
policy making in, 31, 302b unemployment in
tax wedge effect in, 275f bargaining councils as cause of, 265b
smart cards and insurance benefits, 276b rates of, 49
SMEs (small and medium enterprises), 177b union wage effect in, 26, 263
SNA (system of national accounts), 64–65, 77b vocational training in entrepreneurship in, 146n71
social capital, 128b, 129 Wine Industry Ethical Trade Association, 319n94
social cohesion, 12–14, 126–50 women’s income, household effects of, 164
access to information, rights, and voice, 140–41 youth unemployment in, 6, 50
South Asia statistical profiling and linking job seekers with programs, 270
agricultural productivity in, 106 stimulus packages in reaction to global financial crisis, 61
competing for jobs in, 246 structural transformation
light manufacturing jobs, 245 economic growth and, 52, 53f
growth of labor force in, 48 job destruction vs. job creation during, 278, 279
labor productivity in, 55f jobs migration and, 6–7, 52, 53b, 100, 241
manufacturing sector in, 238 productivity and, 54
need for new jobs in, 52f in urbanizing countries, 100, 198
nonwage jobs in, 5f, 50, 50f Subodhini, Sachchithananthan, 143b
trade liberalization in, 309f Sub-Saharan Africa. See also specific countries
South-South migration, 234 agrarian economies in, 191–92, 192f
South-South trade, 241 agricultural productivity in, 106, 107
South Sudan, job challenges in, 195b agricultural sector in, 82
Spain apprenticeships in, 176
ethnic differences, jobs connecting people across, 136b child labor in, 51
unemployment rate in, 23, 49 competing for light manufacturing jobs, 245
youth unemployment in, 6 customary land holdings in, 105
spatial relocation of manufacturing sector, 100–101, 102f Green Revolution of little consequence in, 98, 191, 192f
spatial targeting, 218 growth of labor force in, 48
special economic zones (SEZs), 221, 221b household businesses in, 112
spillover effects, 2, 15–17, 82–84, 83b, 159–62, 162f informal enterprises in, 110
to development, 16–17, 17f, 160–61, 160f infrastructure improvements in, 295
from earnings of others, 160, 163–64 labor productivity in, 55f
economics and social sciences on, 160b, 163 management of small enterprises in, 115, 116f
to environment, 16, 161, 167–68, 169–70, 169f, 170b manufacturing sector in, 117, 193, 238
to global integration, 161, 168–69, 293 migration from agriculture in, 52, 53f
government interventions aimed at, 16, 246 need for new jobs in, 51, 52f
to household allocations, 160, 164–65 nonwage jobs in, 5–6, 5f, 50, 50f
jobs strategies and, 89 services sector in, 241
to knowledge. See knowledge spillovers small and family farms in, 11, 98, 104, 104f
to living standards, 8f, 163–66 trade liberalization in, 168, 243, 309f
need for data sources on, 163, 163b, 312b urbanization in, 193, 200
to networking, 161, 171–72, 171f women employees in
to poverty reduction, 16, 160–61, 166–67, 166f formal sector work, 191
to productivity, 8f, 161, 167–70, 277 working hours, 52
to sense of fairness, 16, 161, 171f, 172, 173f Sudanese civil war, 195b
to social cohesion, 8f, 15, 83b, 85–86, 87, 134–39, 170–73, 171f sweatshops, 65
to social identity, 161, 170–71, 171f system of national accounts (SNA), 64–65, 77b
tradeoffs and, 162
Sri Lanka T
cash-for-work programs in, 143b Taiwan
as conflict-affected country, 194 microenterprises in, 105
export processing zones (EPZs) in, 37, 316, 316f trade liberalization in, 168
foreign direct investment (FDI) in, 316, 316f urban scale and productivity in, 167
garment industry in, 37, 315, 316 Tanzania
labor regulations in, 314 agricultural productivity in, 106
microcredit investments in, 164 economic development without reduction of poverty in, 87
microenterprises in, 116 female labor force participation in, 6
skills level as constraint in, 181n81 growth elasticities of employment in, 88b
technical and vocational education (TVE) in, 176 household businesses in, 112
Termination of Employment of Workman Act (TEWA) of 1971, idleness rates of youth in, 6f, 51f
314–15 management training interventions in, 118
unemployment rates in, 49 as resource-rich country, 200f
wages and unemployment rates, effect on migration from, 236 skills level as constraint in, 181n81
youth unemployment in, 207 targeted investment climate, 26, 195, 217–21, 218–19b, 220f, 221b
state-owned enterprises (SOEs) Tata Group (India), 12, 111, 178
in China, 7, 8f, 104, 108, 279–80 tax policy, 163–64
in Vietnam, 301–2 competing for jobs and, 246
398 INDEX
as incentive to create good jobs, 28, 299 trade agreements, 32, 306
payroll taxes as funding mechanism for social insurance trade in services, 241, 308–9
programs, 274 trade liberalization, 33, 168, 243, 246, 307–9, 309f
tax rates as constraint, 295f tradeoffs, 36, 162
tax wedge effect, 274, 275f trade with Pacific Island nations, 203–4, 204f
TeamLease, 57b training programs
technical and vocational education (TVE), 176, 181n89 in active labor market programs, 272
technological change funding for, 181nn82–83
agricultural. See innovation massive unemployment not affected by, 278–79
decoupling of job destruction and job creation during, 277–78 on-the-job programs, 176–77, 269, 269f
e-links to jobs, 268b in post-conflict countries, 143b
job competition and, 7, 245 skills building via, 174, 176–77
market production shift induced by, 52 social identity and, 142–43, 143b
productivity and, 100, 106–7, 245 success rates of, 26, 27f, 62b, 269, 269f
productivity improved by, 55, 99b, 100 transition economies, 103–4, 112, 278
as public good, 191 transnational companies, 54
in urbanizing countries, 197 transparency, 36, 140–41, 202
technology and telecommunications, social insurance programs transportation hubs, 245–46
using to make participation easier, 275, 276b Trinidad and Tobago
technology sector, 104 educational level of migrants from, 234
technology transfer, 239 ethnic/racial cross-cutting interactions at work in, 13, 135,
telecommunications. See also mobile phone technology; 172
technological change trust and civic engagement, 14, 126–33
competition and liberalization, 308 correlated with job characteristics, 129, 131f
needs, 24, 295 correlated with peaceful collective decision making, 127, 129f
social insurance programs using to make participation easier, correlated with unemployment, 14, 14f, 127–28, 130f, 133b
275, 276b defined, 127
Temporary Income Assistance Program (El Salvador), 143 distrust of migrants, 237
temporary work evolution of, 132b
in conflict-affected countries, 195 social tensions and, 14, 127–29
defined, 67n2 training programs and, 269
in industrial countries, 7, 48, 56 Tunisia
legal protections, 156 educational learning outcomes in, 296–97
negativity from, 140 entrepreneurial training in, 143–44, 269
as percent of total wage employment, 7, 49 firm growth in, 209
protection policies, 279 GDP per capita in, 91n49
self-employment’s effect on measuring, 49 microenterprises in, 105
temporary staffing industry, 57b social unrest and social justice in, 127
for youth at risk and vulnerable populations, 143, 208 unemployment despite GDP growth in, 209
Termination of Employment of Workman Act (TEWA) of 1971 university-educated youth searching for jobs in, 207–8, 208f
(Sri Lanka), 314–15 Turkey
TFP. See total factor productivity global financial crisis (2008), effect on, 61
Thailand idleness rates of youth in, 51f
as aging society, 213 inequality of job opportunities in, 137
agribusiness growth in, 12, 111 informal vs. formal firms’ productivity in, 210
financial crisis in (1997), 59 outsourcing attractiveness of, 55
informal employment rates in, 64b private sector in, 7, 58
poverty reduction in, 9 productivity effects of jobs in, 161
technical and vocational education (TVE) in, 176 self-employment in, 56
unemployment rates in, 49 trade liberalization in, 168
timber industry in Ethiopia, 194b training programs in, 62b
Tonga, migration from, 19, 31, 32f, 52, 248n10, 302b urban scale and productivity in, 167
TopCoder, 240b vocational training enrollment in, 174
total factor productivity (TFP), 99, 99f, 104, 108, 119n33, 120n40, wage subsidy programs in, 268
210 youth issues in, 6f
tourism, 20, 88b, 205–6 turnover vs. decoupling of job destruction and job creation,
Trabajar programs (Argentina), 270 277–79
tradable sectors, 58, 59f TVE (technical and vocational education), 176, 181n89
Index 399
High unemployment and unmet job expectations among youth are the most
immediate concerns. But in many developing countries, where farming and
self-employment are prevalent and safety nets are modest at best, unemploy-
ment rates can be low. In these countries, growth is seldom jobless. Most of
the poor work long hours but simply cannot make ends meet. And the
violation of basic rights is not uncommon. Therefore, the number of jobs
is not all that matters: jobs with high development payoffs are needed.
The World Development Report 2013: Jobs offers answers to these and other
difficult questions by looking at jobs as drivers of development—not as
derived labor demand—and by considering all types of jobs—not just formal
wage employment. The Report provides a framework that cuts across sectors
and shows that the best policy responses vary across countries, depending
on their levels of development, endowments, demography, and institutions.
Policy fundamentals matter in all cases, as they enable a vibrant private sector,
the source of most jobs in the world. Labor policies can help as well, even
if they are less critical than is often assumed. Development policies, from
making smallholder farming viable to fostering functional cities to engaging
in global markets, hold the key to success.
ISBN 978-0-8213-9620-9
SKU 19620