IFC Jobs Study: Findings and implications

Transcription

1 IFC Jobs Study: Findings and implications Thanks to the donors supporting the jobs study: Roland Michelitsch Development Impact Department, IFC More information: 1

2 Why jobs matter Current dual jobs challenge: o Quantity: 200 million unemployed. Additional 600 million jobs are needed by o Quality: About 50% of jobs are informal and 30% of workers are poor worldwide Only the private sector can bring an answer, as it provides ~90% of jobs worldwide but the public sector needs to help. IFC Jobs Study: o Assesses the effects of private sector activity on job creation o Elicits practical lessons for policy makers, IFC and other finance institutions focused on private sector and private companies. 2

3 IFC Job Study: Components Financial Markets case study IFC s Smart Lessons competition IFC Operational experience Funds analysis MSMEs FI study Microcase studies Macro-case studies Infrastructure case study Data from IFC s DOTS Enterprise Survey Analysis Blog Advisory panel Literature review Meta evaluation Website ifc.org/ jobcreation WEF-IFC Youth essay competition Collaboration with WDR 3

4 Percentage of total change in extreme poverty Why jobs matter Jobs contribute to development by boosting living standards and productivity, and fostering social cohesion Jobs are the pathway out of poverty: #1 (self-employed) and #2 (wage-employed) Changes in labor earnings: largest contributor to poverty reduction Labor income Source: World Development Report

5 Where are the jobs? Particularly in poorer countries: Small businesses dominate Small firms have the highest share of employment. For higher country income groups, large firms become much more important. In addition: High informality also small firms Signs of stunted growth Impedes income growth Job growth rate of smaller companies is twice the average of all companies. However, small companies are more likely to go out of business. Source: IFC Jobs Study using Enterprise Surveys data 5

6 Why growth - into larger companies matters Productivity Larger firms tend to be more productive Gains in labor productivity tend to be positively associated with more job growth than destruction. Many firms are born small and grow little in India and Mexico 6 Source: Hsieh and Klenow (2011) 6

7 Large is beautiful? Productivity Larger firms tend to be more productive, pay higher wages, offer more training and often better working conditions. Larger firms pay higher wages 80 Firms offering training to workers (%) by firm size and country income group Source: WDR 2013 team based on Ayyagari, Demirguc-Kunt, and Maksimovic (2007), and on Montenegro and Patrinos (2012) 0 Small Medium Large Low Low mid Upper mid High Firm size Country Income Group Source: IFC Jobs Study using Enterprise Surveys data 7

8 Measuring job Other effects selected findings Direct job creation net of losses - tends to be small However, large job creation in supply/distribution chains (indirect), and in whole economy (induced jobs) Indirect jobs tend to be unskilled, providing opportunities for the poor Micro-case studies in Manufacturing, Agribusiness and Services Direct Jobs Indirect Jobs Multiplier Sector, Country Mriya 2,505 7,390 3 Agribusiness, Ukraine Safal* 4,200 24,000 6 Steel, Africa PRAN 294 2,198 7 Agribusiness, Bangladesh Ecogreen 177 3, Chemicals, Indonesia OCL 293 7, Cement, India * Safal: multiplier calculated on total jobs provided instead of incremental jobs due to difficulties with attribution. Total jobs, not just multiplier! Mriya 2009 vs. 2011: more direct jobs (increased quality), multiplier declined. 8

9 OCL, India: Jobs creating opportunities 9

10 Multipliers and how to strengthen them Large variation for indirect and induced job creation effects Total jobs (direct, indirect, induced) in the economy Sector/Industry for each direct job in a sector Agriculture 1.2 (Chile) 2 (US and Scotland) 3 (Tanzania) Mining 2.5 (Scotland) 5 ( US) 7 (Chile) 28 (Ghana) Financial Services 14.9 (Indonesia) 19 (Ghana) Oil and Gas 7.5 (US) 13.4 (Scotland)* Hotels 1.24 (Scotland) 2.66 (Tanzania) Retail 1.27 (Chile) 1.31 (Scotland) 1.89 (US) Cement 2.47 (Scotland) 4.45 (US)** IFC-supported supply-chain linkage and community development programs * This number considers only petroleum refineries. ** This number is for California only, not the whole country. Source: Literature Review for IFC Jobs Study. 10

11 Estimating effects and tradeoffs Transformations Macro-case studies: - Jordan: 9,100 jobs from IFC investment (0.6% of labor force) plus 3,200 from financing mobilized - All: Tradeoff between value added per job and number of jobs Short-term job growth Long-term job growth Invest in labor intensive sectors and Financial Institutions (FIs) Invest in larger non-fis & sectors facing international competition 11

12 What constrains private sector and job growth? Main constraints for formal enterprises Firm Size Country income group For this analysis: Small 5-20 employees; medium sized: employees; large >=100 employees. Source: World Bank Group s Enterprise Surveys covering 46,566 enterprises in 106 countries 12

13 How do the 4 top constraints affect businesses? Poor investment climate: Companies are prevented from operating and growing in the formal sector due to cumbersome and costly regulations Lack of access to finance: A problem for all firms, but particularly for micro, small and medium enterprises, and for women entrepreneurs Inadequate infrastructure: In lower-income countries the lack of reliable power supply (especially) is a big concern Inadequate skills and training : Not enough workers with advanced skills, very few jobs for unskilled workers 13

14 Investment Climate Cumbersome and costly regulations prevent companies from entering, operating and growing. Investment climate adds up to the most pressing issue for firms Top IC constraints: (1) Informal competition (2) Tax rate (3) Corruption Source: Enterprise Surveys 14

15 Informal employment (% of total non-agricultural employment) Investment Climate Informal firms provide a large portion of jobs in developing countries. Informality is closely linked to poverty Low poverty high informality 36 countries High poverty high informality Low poverty low informality High poverty low informality Population living below the national poverty line (% of total population) Source: ILO, Department of Statistics, and IMF, World Economic Outlook. 15

16 If you were to ask me, from all the world polling Gallup has done for more than 75 years, what would fix the world what would suddenly create worldwide peace, global well-being, and the next extraordinary advancements in human development, I would say the immediate appearance of 1.8 billion jobs formal jobs This raises an important distinction not only do we need to create more jobs, we need to increase the number of good jobs. Jim Clifton, Chairman and CEO of Gallup 16

17 Selected Findings: Investment Climate (IC) Business entry reforms: Evidence of job creation, particularly when combined with other reforms. Mexico one-stop shop reform increased jobs (including self-employed) by 2.8% in eligible industries in one year Business entry reform alone may not be not enough to formalize : Business owners Out of aspiration 14.3% more likely to register. Business owners Out of desperation less likely to register, but 20.4% more likely to become wage workers Some evidence of benefits from IC reforms (e.g. competition reform); but more data and impact evaluation needed. Special economic zones (SEZs/EPZs), industry specific reforms: Potential and challenges 17

18 Infrastructure: Increasing private investment Infrastructure investment by sector using PPP arrangements (US$ billions) Energy Telecommunications Transport Water and sewerage Need to improve urban infrastructure, as more people move to cities. 0 Source: Private Participation in Infrastructure Database. 18

19 Access to Infrastructure: Power Reliable power supply could increase job growth in low income countries by at least 4-5% Current focus on direct jobs, but larger job effects through enabling economic growth Second-order ( growth ) effects Indirect and induced jobs Improved/more firm services and inputs (e.g. reliable power) more output/jobs Indirect/induced jobs often larger than direct jobs Important, but often ignored Direct New power transmission lines in India, jobs created: Construction and maintenance ~2K direct, and ~8K direct/induced in 25 yrs Improved power supply: ~75K jobs from

20 Selected findings: Infrastructure other sectors Telecoms/IT: Significant employment effects especially for young people and use of technology can help spur job growth. Strong job effects also from other infrastructure services (e.g. water irrigation), and huge needs from urbanization. In LAC: water/sewer (100K), rural electrification (23K): Strong direct job effects per $ billion invested but regional/sectoral variation. Direct job creation is the focus of most studies, but growth effects can be much larger and women often benefit disproportionately more. Summary: Infrastructure a big contributor to jobs, and the biggest effects often come from improved infrastructure. 20

21 Source of financing for working capital and fixed investment needs (%) Finance: Smaller firms have less access to financing Use of bank financing: Small firms: 14% Medium firms: 18% Large firms: 25% Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World. 21

22 and firms in poorer countries too Ratio of domestic private sector credit to GDP 22

23 Selected Findings: Access to Finance (A2F) Firms in developing countries: Less access to finance. Financial markets are less developed % of formal SMEs unserved, over 20% underserved, 70% don t use external finance. Gap: $2.5 trillion SMEs that have access to finance show significant job growth mainly as a result of expansion of operations and technology investments o 3.1% - 4.2% higher job growth with loans/overdraft, external financing o Footprint : In 2011 IFC s client FIs reached 23M MSMEs which in turn employed an estimated 100M+ people huge potential. Growth: Sri Lanka case study SMEs financed grew twice as fast (12%) as jobs in economy but attribution is difficult. o Macro case studies: High job creation through FIs: Per $ million invested: Estimated 228 jobs in Ghana, 107 jobs in Jordan o From 2000 to 2010, 494 Firms financed by IFC s private equity funds created, net of job loss, ~300K jobs Strong growth compared to small portfolio. 23

24 How to improve access to finance? Improve financial sector regulation: Liberalize to encourage entry and lending but enforce prudential regulations and protect property rights (which helps lenders and enterprises). Improve financial infrastructure to improve information (e.g. collateral registries). Example: 28%-40% higher likelihood for SMEs to get a loan in countries with credit bureaus. Step up competition increases the incentive to reach out to SMEs. Increase funding to FIs: Particularly for under-served groups, such as MSMEs and women entrepreneurs. 24

25 Small Medium Large Low Lowmiddle Uppermiddle High Training and Skills Not enough workers for high-skilled jobs ~1/3 of companies can t find the workers they need.* Not enough jobs for low-skilled workers Business owners/managers can lack skills to manage firms Limits potential for firm growth and job creation. Small firms are less likely to offer training to their workers, even though many identify skills as a constraint % of firms offering training to their workers Firm size Income group Source graph: IFC Jobs Study using Enterprise Surveys. *ManPower Group (2012) sample of 41 countries ; **McKinsey Global Institute (2012)

26 Training and Skills Training, technology, and innovation can create jobs Innovating firms attain more productivity and job growth than non-innovative firms. This employment growth is inclusive* But programs show mixed results on jobs; combining training with work experience works best Employment effects more significant in longer-term, and focused on disadvantaged groups (e.g. women, low-income youth). Combination can increase probability of employment up to 25% in urban areas and up to 20% in rural areas.** Comprehensive approach is needed Dual vocational training systems - Germany and Switzerland successful examples Requires collaboration with private sector and relevant stakeholders Clusters facilitate investments in training, technology, and innovation E4E Initiative for Arab Youth: Jointly supported by IsDB and IFC - focuses on preparing young people for the work place. Sources: *Dutz et al. (2011). **Fares, Puerto (2009). 26

27 Quality of Jobs IFC s Performance Standard 2: Labor and Working Conditions: IFC sets standards for the private sector Through the Equator principles, other private sector actors and IFIs are adopting these standards too. IFC works with clients to improve understanding of labor standards through training and advisory services Not just number of jobs; quality matters Business case for higher standards: Less accidents, less turnover, higher product quality, lower insurance premiums higher profits For maximum poverty reduction create good jobs in supply/distribution networks, e.g. Antea Cement, Albania; Mindanao Bananas, Philippines. IFC s sustainability policy and performance standards: Ensure high standards for IFC clients and influence global standards for project finance through the Equator Principles. 27

28 Quality of Jobs ILO-IFC Better Work program: Currently working with 42 global apparel brands and 600 factories employing over 700,000 workers in 7 countries to improve compliance with labor standards and competitiveness Demonstrating that improved labor standards can not only increase worker satisfaction, but also worker retention, productivity, profits and ultimately jobs. 28

29 Female labor force participation (residual) Gender: Unequal treatment When there is greater legal differentiation based on gender, fewer women work Number of legal differentiations (residual) Legal differences: 102 of 141 countries Lack of access to finance: Less likely to get a loan and paying more for it. Cultural norms, less access to education, childcare Work in less productive areas, lower wages Source: Women, Business and the Law database; World Development Indicators; Enterprise Surveys. Correlation between the two variables, after controlling for per capita income. 29

30 and benefits from removing the obstacles Removing obstacles benefits women, their families, companies and society Women reinvest 90% of income in families With women-friendly policies higher productivity and profits Turkey: Increase female participation in the labor force from 23% to 29% Reduce poverty by 15% Some solutions include: Support women-friendly industries and help women into leadership positions Encourage female participation in nontraditional fields Connect women to markets, support womenowned SMEs Further develop business case for women as workers and leaders 30

31 Some implications for IFC and others IFC s overall strategic focus on IC, infrastructure, A2F, and training and skills is consistent with the key constraints to private sector and job growth. Use a job lens to identify and focus on the key constraints in the country, region or sector (including gender/youth issues). Help strengthen client companies linkages to domestic suppliers and distribution networks Opportunities to support people at base of pyramid. Assess private sector needs on training and skills, and support private providers programs, particularly where education is combined with work experience. Focus on helping SMEs (upgrade skills of managers & workers). Working conditions (through E&S standards): Affect IFC s clients, but also look beyond: (1) work with linked companies; (2) industry standards (e.g. Better Work ), (3) global standards ( Equator Principles ). Reduce obstacles to formality, particularly in low-income countries, support emerging entrepreneurs and create opportunities in formal enterprises. 31

32 IFC Jobs Study: Findings and implications Thanks to the donors supporting the jobs study: Roland Michelitsch Development Impact Department, IFC More information: 32