session 4: the jobs agenda: operationalizing the findings of the 2013 world development report on...

Session 4:

The Jobs Agenda: Operationalizing the Findings of the 2013 World Development Report on Jobs

Najy Benhassine

Manager, Business Regulation

Investment Climate Department and FIAS

FIAS Consultative Committee of Donors Meeting

November 14-15, 2012

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Five key policy messages of the WDR:

1. There’s no magic bullet for job creation across countries : sweeping prescriptions usually don’t work

2. The private sector creates jobs, so the fundamentals of the enabling environment (IC, macro, infra, finance,…) are at the core of any jobs strategy. The public sector creates the enabling environment.

3. The jobs challenges (and thus policy solutions) are different for different countries, and at different points in time (e.g., during crises)

4. Policy solutions are typically multi-sectoral, and thus difficult for countries to implement

5. Job-creation policies have to be evidence-based, and there is still insufficient data and tools of the right type and used in the right combination

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1. No magic bullet for job creation.

IC

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2. Private versus public sector roles.

♦ Private versus public sectors: – It is not one versus the other – both are needed. – The private sector creates the jobs, and appropriate

public policies and investments are essential for the private sector to do so.

♦ Labor regulations as a binding constraint:– Excessive regulations can stifle private job creation– But lowering moderate regulations won’t create a

lot of jobs in the aggregate – it will just redistribute jobs (mostly from insiders to outsiders) – “plateau effect”

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3. Different jobs challenges, different solutions

♦ Countries’ jobs challenges differ greatly according to their initial conditions, their current imperatives and their long-term development agendas

– Examples of short-term challenges: Youth employment after Arab Spring; dealing with short-term effects of recession

– Examples of long-term challenges: Sustaining incomes in aging economies; improving productivity in agrarian economies

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A country typology to guide prioritization of job policies.

♦ Economic structure: Challenges different from more rural vs. more urban contexts, or where resources or geographic isolation is a factor

♦ Demography: Creating jobs for youth different from preserving jobs for mid-age or increasing productivity of old.

♦ Institutions: Implementing reforms harder in weaker institutional contexts, or where there are strong existing policies and regulations

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4. Multi-sectoral policy solutions are often hard to implement and coordinate

♦ Examples: Necessary but not sufficient

– Agrarian economies: Ag. Extension + land reform + basic infrastructure + urbanization + small-scale self-employment facilitation

– Youth employment: investment climate reforms + market-oriented skills

– Reducing informality: Tax/regulatory reform + enforcement capacity + better public services

– Women’s employment: Active labor market programs + improving access to productive resources + child care

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5. Evidence-based decision making

♦ To implement policies, countries need to:

– Prioritize jobs challenges, and focus on policy coordination

– Diagnose constraints and devise country-appropriate policies

– Improve capacity and coordination to implement

Strategy and policy advice

Better data and tools

Implemen-tation support and TA

WBG can help, with existing

capability, but greater emphasis

on:

• Collaborating on solutions

across sectors • Improving

data• Developing

more diagnostic

tools

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What does it mean for us? Implications for Investment Climate work

1. Investment climate reforms are central to job creation strategies: the results chains.

2. Need to better identify binding constraints in the investment climate space

3. Need to evaluate the impact of different IC reforms on job creation.

4. Data and operational implications.

5. Need to better understand the informal sector and the potential for formalization of some of its segments.

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Investment climate reforms and jobs: the results chains

♦ Improvement of the investment climate → higher business growth/productivity → investment and job creation

♦ Reduction of entry barriers → increased entry of firms.

♦ Reduction of barriers to business operation and growth… → business invest more and create jobs.

♦ Reduction of barriers to competition in sectors → increased competition, higher entry, productivity and growth → job creation

♦ Improved insolvency regimes → lower cost of credit and increased lending → more investment and job creation (and saved jobs from efficient insolvency procedures)

SMEs’ Job Growth* by Labor ProductivityBy Country Income Level By Region

Investment climate reforms → Higher productivity → Higher job creation rates

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• There is a positive and significant relationship between initial labor productivity and employment growth across firms (IFC DOTS and Enterprise Surveys)

• Highly productive SMEs create jobs faster than less productive SMEs

*Employment growth (Y axis) is measured as the ratio of the annualized change in employment over the average employment of the initial and final year (Haltiwanger index). This measure reduces the impact of a very low initial level of employment which can produce very high rates of growth (i.e. a firm that grows employment from 1 to 10, would render a 900% growth rate).

Empl

oym

ent G

row

th R

ate*

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Need to better understand what is most constraining to firms (1/3)

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Limited evidence on the impact of IC reforms on job creation

•Business entry reforms and job creation: increase of 2.2-8% in employment in Mexico. In Peru, a reduction in time and cost to register did not find any impact on employment.

•Reduction in competition barriers in French retail industry leads to 10% increase in employment in retail

•In Colombia, a decrease in the time of liquidations by 32% and in reorganizations by 65% protected 14% of the jobs that would have been lost. [also, strong evidence in OECD]

•A microeconomic study in Brazil shows that the introduction of a simplified tax system for MSMEs increased employment by 12%.

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Implications for the impact evaluation agenda

•Integrate (selectively) jobs as an impact variable to assess in the impact evaluation program.

•May have cost implications (if it requires employer-employee surveys).

•Ongoing examples: Serbia analysis, impact evaluations of IC reforms (entry, formalization, tax, etc.).

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Data and operational implications

•When available and easy to access, teams should be encouraged to collect employment data in parallel to the number of firms reached by particular reforms.

•This is feasible when business registration agency is linked with social security/labor administration (need Common Enterprise Identifier).

•ICT systems of registration reforms should aim to offer such integrated systems.

•To illustrate how useful and powerful such data can be for policymakers: data collected from Serbia (100k+ firms) and Slovakia (500k+) is under analysis.

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Informal employment is positively correlated with poverty

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“What the whole world wants is a good job” – skills and wages

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• Low skilled workers predominantly work in the informal sector (LAC Sample) and very few high skilled workers do

• Evidence from household data in Ghana and Tanzania suggests that workers in micro/small enterprises (5-10 employees) have essentially the same earnings as the self employed, while workers in medium and large firms earn between 50 to 70 percent more

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The formalization agenda: learning is ongoing…

♦ It is certainly not solely about cost and complexity of registration or lack of information (e.g. Sri Lanka, Malawi, Brazil, Benin).

♦ A multi-faceted agenda: regulatory barriers, access to finance, tax policy, access to business development services, etc. (trust? learning?)

♦ There are many informal sectors: need to understand what segment of which economic activity would benefit most (traders? Small manufacturing? Services?)

♦ Ongoing impact evaluations will help answer these questions (e.g. Malawi, Benin, Togo, etc.)

♦ Compared to recent formalization pilots, this pilot will innovate in three ways :

i. The mix of incentives proposed:

Easy/cheap entry, information, ID card, basic books keeping training.

Dedicated microfinance product.

Increased predictability of tax obligations and (some) protection from arbitrary tax inspections.

ii. It will target the intervention on specific segments of the informal sector that are most likely to benefit from formalizing: high-end of informal firms, as identified through partner institutions (MFIs, handicraft associations, market management organizations). Example: artisans, carpenters, garments, large shop owners in Cotonou main market.

iii. It will have a phased approach, where the government will progressively expand on the set of services proposed to Entreprenants and expand to other segments of the informal sector.

Designing a selective formalization strategy in Benin

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Thank you !

1. Need to better identify binding constraints in the investment climate space.



4. Need to better understand the informal sector and the potential for job creation of formalization.

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Annex slides

Large 0.34 billion

0.2 billion

Elderly & Others outside of EM labor force

World

Developed

Population

1.6 billion

Government / SOEs

1.2 billion

Children <14 in emerging markets1.6 billion

MSMEs0.67 billion

Urban Poor

0.72 billion

Agricultural Workers

0.95 billion

Where the jobs are in emerging markets

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Emerging Market Labor Force*

~3 billion people

Total Workforce~60% in informal employment~40% in formal employment

~20% in public sector (ILO)~80% in private sector

~67% in MSME (ES)~33% in Large

Enterprise (ES)

Vulnerable Employment ~1/3 are working poor <$2/day (ILO)~1/2 are “vulnerable” (per ILO, self- or family-employed)

Sectors (ILO)~40% Agriculture ~22% Industry~38% services

Unemployment (ILO)~5.5% “unemployment” rate Table includes estimated data from various sources that are not necessarily

reconciled

Total Global Population of ~7 billion

Total Developing Country Pop. ~5.4 billion

*Unless otherwise ntoed, data from Global Employment Trends: Preventing a deeper jobs crisis, ILO Geneva 2012

Own Account and Contributing Family Workers(% of total Employment) (MDG)

Informal Economy (relative to GDP, in per cent)

Jobs migrate from informal to formal sector firms as economies grow

• Informal MSMEs dominate the employment picture making up 60% of jobs in emerging markets• Numbers vary widely across countries, but trends down as income increases• From 90% in countries like Indonesia to ~ 30% in LAC and ~10% in high income regions

• Informal firms in countries with large shadow economies can “crowd out” formal firms• Generally, there are not large numbers of informal firms that transform into formal firms --

informal firms tend to stay informal and formal firms start up as formal firms. Informal MSMEs may prefer to stay informal if the “costs” of formalization outweigh the benefits

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• ILO definition of informal employment: “Informal employment occurs in private unincorporated enterprises owned and operated by individual household members or by several members of the same household, as well as unincorporated partnerships and co-operatives formed by members of different households, if they lack complete sets of accounts.”

session 4: the jobs agenda: operationalizing the findings of the 2013 world development report on...

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different jobs challenges

countries jobs challenges

challenges different

lot of jobs

jobs agenda

jobs strategy

different countries

different solutions