MILES WORKSHOP: IDENTIFYING BINDING CONSTRAINTS TO JOB CREATION AND PRODUCTIVITY GROWTH AN INTRODUCTION

Transcription

1 MILES WORKSHOP: IDENTIFYING BINDING CONSTRAINTS TO JOB CREATION AND PRODUCTIVITY GROWTH AN INTRODUCTION Robert Holzmann Director, Social Protection & Labor Washington, D.C. Dec. 7, 2007

2 Background and Motivation Mission of the is poverty reduction and development (or inclusive and sustainable globalization/ equitable growth) Labor is the most important asset of the poor, hence its productive use must be forefront of our concerns 2 2

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

4 Motivation (3/3) Sitting down and trying to establish and propose such a paradigm is quite likely little successful Past attempts no successful Critical knowledge gaps in LM understanding Even if successful, uphill battle to get buy-in Hence, what would be a process that helps us move toward the formulation of a paradigm? 4 4

5 Initiated 2 pronged Approach Process to fill the knowledge gaps Regional stock taking conference in 2004 Identified 7 LM research priorities, resulting from international consultations (incl. with ILO) Employment and Development program (IZA- WB) with annual conferences et al Multi-donor trust fund to support research priorities, capacity building, country pilots Operational framework to support country interventions for employment creation: MILES 5 5

6 List of Research Priorities 1. Improve diagnosis of the labor market and identification of vulnerability 2. Understand the linkages between investment climate, labor demand, and poverty 3. Identify the benefits/costs of structural reforms and globalization for workers 4. Understand the different aspects of formality and informality 5. Identify appropriate labor market regulations and institutions 6. Identify best practices in skills development and skills upgrading 7. Assess the role of international migration in smoothing labor market and demographic imbalances across countries and promote knowledge flows 6 6

7 Multi- sectoral policy frame-work for good job creation - MILES M Acroeconomics I nvestment climate Job creation L abor market institutions E S ducation and skills ocial protection Labor supply 7 7

8 Key elements of MILES approach Multi-sectoral demand/supply-side approach Focus on binding constraints Political mandate is limited Universe of potential sector improvements unlimited Use as much as possible existing diagnostics tools (data, information and analysis) Assess consistency of policy interventions across sectors Bring together the relevant policy makers and engage the key stake holders within a country 8 8

9 Binding constraints how to identify? Use multiple methods and compare (i.e. do a triangalization) If yielding similar binding constraints, some confidence in result Otherwise, less confidence, and Do in various countries, compare identification and policy outcomes after interventions Interplay with research agenda (on the way to a LM paradigm ) 9 9

10 Annex: MILES in some detail 10 10

11 M : Macro-economics A sound macro-economic framework crucial for the decision by entrepreneurs to expand their business and to create new jobs Conditions are likely to include macroeconomic stability and fiscal space Indications that economic and political instability hurt mostly SMEs MILES framework focuses on how reforming macro policy settings by providing a more stable and predictable environment can contribute to foster investment, growth and job creation

12 I : Investment climate, institutions and infrastructure Firms will expand and create formal sector jobs when costs of doing business are low and predictable Even when market costs appear to be low, the shadow costs for doing business such as the lack of access to finance or to markets or corruption can be very high. A poor investment climate often has disproportionately negative effects on SMEs MILES framework use of existing tools Doing Business and Investment Climate Surveys To diagnose the status of the business environment and how this affect those firms/sectors with the greatest potential to create more jobs To develop the policy instruments to create a more employmentfriendly climate for businesses 12 12

13 L : Labor market regulations and institutions Sound regulations are crucial for both the employer and the worker to engage in a productive and longer-term working relationship Regulations need to strike a balance between protecting jobs and enhancing working conditions with the need for firms to adapt to the evolution of demand Labor market regulations and institutions also play an important role for working conditions and in the wage setting process, by mandating minimum wages and by setting rules for wage negotiations among the social partner Recent and innovative empirical work in developing countries indicates that these regulations and institutions have a significant bearing on job creation and wage growth through their impact on sector choice and firm size MILES framework assesses the status of labor market regulation, the impact on labor market outcomes, and thus the effects of reforming such regulations on job creation and workers protection on the job 13 13

14 E : Education and skills Good/decent jobs, i.e., higher productivity jobs, are invariably based on good formal education and require appropriate skills for all age groups Many employers consider skill shortages as a main constraint to the operation of their business and growth potential MILES framework reviews education attainment and enrollment rate, information on skill shortages and returns to education, and the policies of school to work transition and life-long learning 14 14

15 S : Social protection Social risk management programs, if well designed and implemented, can potentially enhance efficiency and the proper allocation of resources: Social insurance schemes can stimulate the emergence of more risky, but more productive, jobs and industries Uninsured transient shocks which reduce individual consumption below a threshold needed to retain productivity can give rise to dynamic poverty traps and lead to chronic poverty. Uninsured risk also reduces efficiency through costly production and portfolio choices, such as the use of outdated but less risky production technologies Uninsured risk can adversely affect human capital accumulation, for example, when children are forced to drop out of school in the wake of an income shock But badly designed and expensive social risk management programs can be a critical obstacle for formal and informal job creation MILES framework reviewes the options for social risk management programs given the administrative and resource constraints and assess the benefits and costs of different options 15 15

16 Annex: Research priorities in some detail 16 16

17 1. Improve diagnosis of the labor market and identification of vulnerability Diagnostic tools to assess labor market conditions in countries at different stages of development Allowing for the comparison of labor market outcomes across countries Improving identification of vulnerability and social exclusion in the labor market 17 17

18 2. Understand the linkages between investment climate, labor demand, and poverty Existing bottlenecks in the investment climate affect the three main channels through which growth can affect poverty reduction: the sustainable growth path the employment content of growth (i.e. the elasticity of employment to output growth) poverty-reduction effect of employment growth (the poverty elasticity to employment). Further required work: Assessing labor demand in countries at different levels of development and with different investment climates Understanding the role of labor in the link between growth and poverty, especially in low-income countries 18 18

19 3. Understand the Different Aspects of Formality and Informality Investigating the dynamics and links of the formal and informal labor markets Identifying the effects of labor regulations and social protection programs on formality/informality Re-thinking social protection for informal workers 19 19

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

21 5. Identifying appropriate labor market regulations and institutions Identifying the impacts of labor regulations on labor market and other economic and social outcomes Understanding the political economy of labor market reforms Identifying alternative protection mechanisms with lower economic costs Better understanding of labor standards and the role of social dialogue 21 21

22 6. Identify best practices in skills development and skills upgrading Identifying the role of labor force skills in determining economic outcomes in a context of globalization Identifying optimal government interventions for formal and on-the job training programs Identifying good practices for school to work transition 22 22

23 7. International migration Understanding demographic disequilibria and skill gaps Assessing and improving the labor market impact in receiving countries Assessing and improving the labor market impact in sending countries Improving the portability of social benefits for migrant workers Improving employment services for prospective migrants in sending countries 23 23

24 Implementation of Strategy Multi-donor trust fund that supports Scaling-up Research Support cutting-edge research by the global academic and research community on key policy issues related to good job creation (together with IZA to strengthen link with research community) Capacity Building Build capacity of developing country policy-makers and researchers on labor market data analysis, evaluation techniques, and good practice in labor market policy Actions on the ground Catalyze country-level activities to analyze specific labor market conditions and pilot promising approaches Dissemination strategies, including WB-IZA Employment and Development conferences (next in Morocco, Rabat, May-June 2008) 24 24