a wider prentation on job creation
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A WIDER PRESENTATION ON JOBSBy Tony Addison, Carol Newman and Finn TarpDFID, London, UK31 March 2016
Background• DFID has a large policy interest in job creation – more and more productive jobs – and the
findings of Learning to Compete (L2C) have a lot to say about both the critical barriers to these jobs and what these jobs look like.
• DFID policy teams are being asked to design programmes that create jobs – the ReCom project has a lot to say about how aid can do this.
• Not a request for macro evidence linking aid to overall output growth but more a micro question about what practical things aid projects can deliver and, perhaps, what they can’t.
• Draw out key lessons from these projects. Would be good if focus could be on practical things that DFID programme advisers could/should do and consider.
• Note: see WIDER web site wider.unu.edu for 486 pubs on employment, 88 on jobs, and 75 on livelihoods
Current UNU-WIDER work streams include
• Growth and poverty in sub‐Saharan Africa (GAPP)• Gender and development• Studies on economic transformation under 2014‐18 work programme including:
– UNU‐WIDER country level engagements in Vietnam, South Africa, Mozambique, and Tanzania (+Myanmar?)
– 2013 WDR – background study on Mozambique => Jobs for development– African Lions (Ethiopia, Ghana, Kenya, Nigeria, Mozambique, South Africa)– The growth‐employment‐poverty nexus in Latin America
• ReCom – Research and communication on foreign aid• L2C – Learning to compete: Accelerating industrial development in Africa
– Including a major international L2C conference
L2C Conference – Industrial development and policy in Africa
www1.wider.unu.edu/L2Cconf
Oxford University Press, 2016
Growth, Structural Transformation, and Rural Change in Vietnam: A Rising Dragon on the Move
Jobs and Welfare in MozambiqueForthcoming in Betcherman and Rama (eds.) OUP volume: see https://global.oup.com/academic/product/jobs‐for‐development‐9780198754848?q=rama&lang=en&cc=gb
Note also: new UNU‐WIDER project just started in Mozambique
General context
• But there is growing evidence that macroeconomic success has not delivered unambiguous socio‐economic benefits at the household level.
• A key determinant of the extent to which macroeconomic growth produces gains in social welfare is the quality of jobs that an economy generates.
• Over 20 years, Mozambique has boasted one of the world’s highest rates of GDP growth and has successfully moved from post‐conflict stabilization and reconstruction into a more mature developmental phase.
See also: https://www.wider.unu.edu/video/recom‐results‐meeting‐jobs‐%E2%80%93‐aid‐work
Findings• Majority of labour force remains dependent on low productivity agriculture• Inter‐sectoral labour movement small; dominated by growth of services • Inter‐sectoral differences in labour productivity widening, esp. with investment in mining
• Productivity growth driven by:– Within‐sector growth, BUT this is slowing– Movement of workers from agriculture to services BUT average productivity in
services is falling– Negative dynamic reallocation effect most recently (!)
• Contribution of structural change low and falling
Three key priorities• Address low levels of agricultural productivity
• Foster the non‐farm informal sector as a source of dynamism and entrepreneurship
• Support growth of labour intensive secondary and tertiary industries with export potential
Aid and EmploymentAfrican Development Review Special Issue: see http://onlinelibrary.wiley.com/doi/10.1111/1467‐8268.12134/full
• Support to growth‐enhancing structural change and employment creation becoming increasingly important for donors and recipients of foreign aid.
• Quality and long‐run sustainability of Africa’s growth rates being questioned.
– A specific concern is the limited extent to which Africa’s recent growth has been driven by positive or growth‐enhancing structural transformation, involving a shift of workers out of lower productivity activities and into (stable) higher productivity employment.
• The apparent weakness of positive structural change limits the capacity of African economies to generate enough employment in higher productivity sectors to absorb a young and rapidly growing population.
Key messages• Those seeking to reduce poverty should focus on helping
the working poor to earn more. • Economic growth, international trade, the private sector,
generating jobs, and promoting self‐employment can all play a role in increasing the earnings of the working poor.
• It is important to consider the opportunity costs of projects. The question is not only will a project help poor workers, but will it help more than any alternative project.
Private sector development
Small and medium size enterprises account for around 50 per cent of employment in Africa.
a. The positive and negative sides of SME job creation balance each other out. If SMEs survive, they tend to grow faster than larger firms and therefore create more jobs. However SMEs have a higher failure rate than larger firms. These two effects roughly balance each other out; consequently the expected rate of growth is similar between SMEs and larger firms.
b. Larger firms provide better job security. Larger firms are more stable and less likely to fail. Due to this higher survival rate larger firms offer much more job security than SMEs.
c. Larger firms provide better wages. In fact larger firms provide significantly higher wages. A firm 10 per cent larger than another will typically provide wages that are 2.9 per cent higher.
Key message:Policy makers need to focus on all firms, helping small firms to survive and grow, and supporting larger firms seeking to increase their size.
or should donors support small and medium enterprises or larger firms?
Support structural change1. Pushing non‐traditional exports – for the vast majority of countries in Africa the export market represents the only option for rapid growth in manufacturing, agro‐industry and high‐value added services.
2. Strengthening agglomerations – a large empirical literature has documented the significant productivity boost that concentrated areas of industry provide.
3. Attracting and building human capabilities – in most industries productivity and quality depend on the 'tacit knowledge' and 'working practices' of the workforce.
4. Supporting regional intervention – poor infrastructure in neighboring countries, incoherent customs and transport regulations, and inefficient customs procedures and 'informal' taxes significantly raise export costs.
ReCom - Research and Communication on Foreign Aid
See position paper on aid, growth and employment: https://www.wider.unu.edu/publication/aid‐growth‐and‐employment
Aid and employment – what do we know? • No less than 240 original studies
• Involving 300 researchers from around the world
5 Position paper on key themes: Growth & Employment, Gender Equality, Environment & Climate Change, Social Sectors, and Governance & Fragility
• Over 40 peer reviewed publications (including books and journal issues)
• Over 200 briefs on the research papers
www.wider.unu.edu/recom
UN High-Level Panel report on the post-2015 development agenda
• Calls for:
• “..A quantum leap forward in economic opportunities and a profound economic transformation to end extreme poverty and improve livelihoods…”
• How can aid help?
• Aid to social sectors builds human capital BUT being educated & healthy is not enough
What will happen to aid allocation post‐2015?
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Social Sectors
Economic Infrastructure
Production Sectors
Environment, Gender,Rural‐Urban Development
2030 SDG agenda• Aid helps economic growth (overall). BUT:• To achieve the HLP ‘quantum leap’ it must support:• Structural transformation – industrial policy & don’t just focus on SMEs (“East Asia’s donors do
it better?”)• Creation of ‘good jobs’ – donors pay too little attention to employment – fragmented livelihood
projects• State capability and legitimacy – support domestic capability and legitimacy to deliver like a
state, not just look like a state• Gender equity at scale – rhetoric, but too‐small‐scale• Aid to agriculture – slumped & still too low (esp. crop research). IFAD & AfDB ‘going to scale’• Infrastructure – use aid to leverage private capital (e.g. AfDB Africa50 fund). Recall Climate
change challenge
Need: research not rhetoric• Ask an engineer: do bridges work?• Bridges work ‐ when well‐designed & built• Ask a development expert: does aid work?• Aid can work – when well‐designed & implemented• Instead of rhetoric – nothing works in development, nor in aid, & we
can never know what works & why (= “all bridges fail, & will continue to fail”)…
• … find out: what works? What could work? What is scalable? What is transferrable?
Private action can do much. Remittances help build this:
But we also need to build this:
Key messages• No simple mapping between poor countries and poor people. Both
development economists and development practitioners need to unbundle poverty on a country‐by‐country basis, looking for its deeper causes and policy solutions.
• Finding ways to accelerate structural change in poor economies can have a high payoff in terms of employment growth and poverty reduction
• Investments in infrastructure and enhancement of firm capabilities are likely to be crucial in creating more ‘ good ’ jobs.
• Agriculture remains a focus for the livelihoods of the poor – and needs more donor ambition, scale, and less project fragmentation
L2C - Learning to Compete
See: https://www.wider.unu.edu/project/jobs‐poverty‐and‐structural‐change‐africa
Collaborative research programme between UNU-WIDER, the AfDB and The Brookings Institution
• Trying to answer a simple question:
– Why is there so little industry in Africa?
• Lead to two others:
– What makes firms more competitive?
– What makes countries more attractive to competitive firms?
Three drivers of firm-level productivity
• Exports and competition– Firms in low income countries increase their productivity by exporting– Competition increases productivity through entry and exit
• Firm capabilities– The tacit knowledge and working practices that affect both productivity and quality– Capabilities can spill over to other firms through supply chain links
• Agglomerations– Industrial clusters confer significant productivity gains– Virtually everything we know about agglomeration economies comes from middle and
high income countries
The country comparative framework• Eleven countries
– Nine African : Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania, Tunisia and Uganda.
– Two Asian: Vietnam, Cambodia.
• National researchers– Teamed with global
experts
• Three track approach– Detailed case studies of
industrialization and the evolution of public policies
– Econometric analysis of the stock of firm level surveys
– Qualitative surveys of FDI firms and linked domestic firms.
Exports and productivityCambodia, Ethiopia, Mozambique, Senegal, Tunisia, Vietnam
• Confirming expectations– More productive firms select into
exporting– Large (and foreign) firms are more
likely to export– Exporting further raises productivity– Learning effects are stronger in
• Domestically owned firms• More sophisticated products• Higher income (or more distant)
markets• The initial years of exporting
• Some surprises– Many African exporters are “born
global” (both FDI and local) – Few firms “learn to export” over
time (few partial exporters and fewer switchers)
– Export activity is highly persistent– The productivity premium is higher
with low national (or sectoral) export participation rates
Firm capabilitiesCambodia, Ghana, Kenya, Ethiopia, Mozambique, Uganda, Vietnam
• Africa lacks capable mid sized firms (50‐70 workers)– Management of a growing labor force is a major constraint
• Firms learn capabilities from exporting– The positive relationship between exporting and productivity is mainly due to
process and quality innovations undertaken by firms
• Firm to firm knowledge transfers are an important source of capabilities– FDI is a major source of higher capabilities– Vertical linkages along supply chains are much more dense in Asia than in
Africa
Agglomeration effectsCambodia, Ethiopia, Tunisia and Vietnam
• Broad evidence of productivity gains– Large (formal) firms appear to benefit more than small (informal) firms
• Localization (“cluster”) effects are strongest in lower income countries
• Where markets are poorly integrated competition offsets productivity gains– Prices tend to fall, reducing incentives to cluster
A strategy for industrial development• Africa has a chance to break into the global market for industrial goods
– Changes in Asia– Trade in tasks– Industries without smokestacks
• While some firms in some countries are competitive many others are not– This places a premium on policies to raise firm‐level productivity
• Investment climate reforms are necessary – but not sufficient!– Drivers of firm‐level productivity are interdependent
• Exports, geography and capabilities must be linked strategically– They cannot be addressed piecemeal
New directions for industrial policy (1)Reform the investment climate agenda
• Stop Doing (monkey) Business
• Focus on infrastructure and skills development relevant to industry
• Support institutional development for FDI and SEZs 0
5
10
15
20
25
30
35
40
45
50
Percen
t of Total ODA
Com
mittmen
ts
ODA for Economic Infrastructure 1973‐2009
New directions for industrial policy (2)Mounting an “export push”
• Productivity gains but high private costs of entry– Knowledge of potential markets’ is the most serious constraint for
international market entry. • Entering global markets will need an “East Asian style” export push
– A broadly owned strategy and effective institutions (leadership from the top)
– Trade related infrastructure and trade logistics• Support for regional institutions and infrastructure
New directions for industrial policy (3)Capabilities and clusters
• Building Firm Capabilities– An export push is a major
source of capabilities (demanding buyers; repeated relationships)
– Build effective FDI agencies– Strengthen domestic value
chain relationships
• Creating Clusters– Agglomeration economies
create a collective action problem
– SEZs are a means of creating clusters
– Bring Africa’s SEZs up to world class
– Strengthen the links between firms in the SEZ and domestic suppliers/purchasers
And importantly• Give African governments the policy space to take initiatives and make mistakes!
• The practice of industrial policy (OUP)
• Case studies of government‐business relationships
• Special Issue of Journal of African Economies
• Learning from exporting
www.wider.unu.eduHelsinki, Finland