“Jobs for Development”: How job creation can drive progress and what policies can support this process

jfdcoverJob creation is at the heart of development. This was the central message of the World Bank’s “World Development Report 2013: Jobs”, to which IZA had also contributed. Jobs raise living standards and lift people out of poverty, they contribute to gains in aggregate productivity, and they may even foster social cohesion.

But which jobs make the greatest contribution to development and what policies can facilitate the creation of more of these jobs? There is no universal answer – it depends on the country’s level of development, demography, natural endowments, and institutions.

A new volume, edited by IZA research fellows Martin Rama (World Bank) and Gordon Betcherman (University of Ottawa) as a sequel to the World Development Report, explores the diversity of jobs challenges and solutions through case studies of seven developing countries.

These countries, drawn from four continents, represent seven different contexts – a small island nation (St. Lucia), a resource-rich country (Papua New Guinea), agrarian (Mozambique), urbanizing (Bangladesh), and formalizing (Mexico) economies, as well as young (Tunisia) and aging (Ukraine) populations.

We wanted to know from Gordon Betcherman what readers may take away from the book.

IZA: Even if there is no one-size-fits-all solution to country-specific labor market policy challenges, are there any general lessons to be learned from these case studies?

betcherman

Gordon Betcherman

G.B.:  The cases that we study are not unalloyed success stories but they have been chosen to illustrate the different challenges that countries face in creating jobs. The book highlights this diversity, as is reflected in the subtitle. So certainly one general message that we hope comes through is that different countries have different priorities when it comes to employment and understanding these priorities is a key to developing effective jobs policies. But this focus on country context does not mean that there are not universally applicable requirements for success in creating jobs. The experiences of all of the countries included in our book show that strong fundamentals are needed.

What do you mean by “fundamentals”?

We include the sorts of things that are necessary for establishing a positive environment for employment – a favorable macroeconomic environment, an attractive investment climate, rule of law, and a productive workforce. Also sound labor institutions that support equity and social protection goals without constraining efficiency and economic growth.

Countries that cannot provide these basics are unlikely to experience sustained success in creating good jobs. However, the case studies do show that these fundamentals can look quite different in different country contexts. For example, what constitutes sound labor institutions in an “urbanizing” country like Bangladesh will undoubtedly look very different than in an “agrarian” economy like Mozambique.

What are some of the impediments to job creation in the countries studied?

Of course, where these fundamentals are not present, job creation will be impeded. But, in addition, we are particularly concerned in these cases about jobs that will have substantial development spillovers. These are what we call “good jobs for development”, a concept which was introduced in the 2013 World Development Report. What those jobs are depends on the country situation, as do the factors that may be getting in the way of creating them.

Can you give an example?

Tunisia, for example, has a large youth bulge and high youth unemployment. The price of this youth unemployment has obviously been great in both economic and social terms, and it is hard to imagine anything that would benefit Tunisia, like several other countries in the Middle East and North Africa, more than suitable jobs for these young people. At first glance, it might seem plausible to point to inadequate education or overly restrictive labor market rules as the obstacles. However, the authors conclude that the binding constraint for young people is on the demand side, specifically Tunisia’s anti-competitive formal and informal rules and practices.

What about other countries?

A very different example in the book is Mexico where, despite substantial economic progress, much of the workforce remains in the informal sector. The major challenge there is to generate formal jobs that can provide the economic and social benefits found in more developed OECD countries.

Why has there been so little progress in formalization?

Here, the case study points to two factors: the preponderance of microenterprises with low-productivity and what the authors call “social segmentation”, whereby households without access to formal jobs are constrained by low human capital and, in some cases, discrimination.

Do the case studies suggest the need for new policy approaches to the creation of more and better jobs?

On the one hand, the cases reinforce the importance of a favorable economic and business environment and good labor policies. This is familiar territory. But a prominent conclusion from the studies is that policies that can affect job creation go well beyond these. Addressing country-specific priorities often calls for policies in areas that are normally not considered as “jobs” policies.

What are some of those policy areas?

For example, in Papua New Guinea, a “resource-rich” country, the management of sovereign wealth funds may be the decisive policy area for jobs. In Mozambique, an “agrarian” economy where rural living standards need to rise, the policies that will have the greatest impact are in areas we normally consider as agricultural or rural policy: increasing farming productivity and diversifying to non-farm rural activities.  So one of our conclusions is that a much wider range of policies is relevant for a jobs strategy than is normally considered.

Apart from the policy prescriptions for developing countries, is there a need for donor countries to rethink their development policies?

Employment should be a more central and explicit element in development programs. Jobs are often seen by donors as a by-product of growth (demand-side strategies) or human capital (supply-side). Where donor programs explicitly target jobs as the development outcome, they tend to focus quite narrowly on labor policies such as regulation and active labor market programs. While these are not insignificant, our cases show that they are usually not the most important factors in determining how successful a county is in creating jobs that are good for its workers and for the society at large.

Are you seeing any progress in this regard?

One optimistic sign that development actors are more explicitly focusing on jobs is that, while employment was barely evident in the Millennium Development Goals, the new Sustainable Development Goals include a goal directly concerned with jobs.

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Read more about the book at Oxford University Press.

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