The Globalization JackpotJobs Dividends from a Multi-polar World

Célestin MongaWorld Bank

IEA-WB Roundtable, Pretoria, July 3, 2012

Outline

• 1. The theoretical focus on unemployment has often led to (mostly) ineffective policy recommendations

• 2. The economic magic of manufacturing has sustained growth and job creation—but not in Africa

• 3. Smart industrial policy can help Africa can reap job dividends from a multi-polar World—especially in labor-intensive manufacturing industries

• The focus on unemployment has not yielded many policy insights

• Unresolved conceptual issues have led to policy tolerance for informality and underemployment– Unemployment should be situations where workers are unsuccessfully

looking for jobs at the prevailing wages when they are as qualified as those holding these jobs, or where workers are willing to work at less than the prevailing wages for jobs which they could usefully fulfill, but are unable to find such jobs

– Yet, governments and ILO only focus on people of “working age” (whatever they choose it to be), who are out of work (whatever is considered “work”) and capable of submitting evidence (whatever is deemed acceptable) of having looked for work in the recent past.

– What is unemployment in the African context?

1. The Elusive Theoretical Search for Jobs

Traditional remedies to unemployment have been ineffective

• Changes in hiring and firing practices to reduce transaction costs for firms and give them more leeway—Assumption: strong employment protection makes employers reluctant to hire workers

• Changes in benefits (level of benefits, duration, coverage, and tightness of the implementation criteria), viewed as important factors affecting the reservation wage

• Reduction of the tax wedge (tax-related difference between the cost to employ a worker and the worker's take-home pay) to improve the supply and demand for labor

• Changes in the wage bargaining institutions—the coverage and strength of trade unions and their ability to bargain for higher wages or to organize strikes are seen as determinants of unemployment

• The implementation of active labor market policies (training, employment subsidies, help with job matching and job applications, etc.) to increase the chances of the unemployed finding employment.

New policy recommendations are sensible but do not seem to address the problem

Summary by A. Krueger

Cyclical Policies• Labor retention in downturn (e.g., worksharing,

working time accounts)• Hiring subsidiesStructural Policies• Demand Side Policies (regulation)• Supply Side Policies (health; education; job training)• Entrepreneurship (start ups)• Infrastructure

Unemployment: Are we looking at the wrong place?

Source : A. Krueger

Perhaps the focus should be on Employment?

Source : A. Krueger

• Unemployment statistics shed little light on the anatomy of African labor markets:– Types of jobs available– Fastest/slowest job-creating industries – Relative shares of full-time and part-time workers,

formal/informal sectors– Wage earners and self-employed– Social groups and gender balance in the labor force,

and their dynamics over time• Employment statistics are more useful

– Less complicated to measure– Offers better insights on the policies needed

Few good jobs are being created in Africa

Survey results indicate that Sub-Saharan Africa has performed poorly compared to other regions

Source: Gallup 2009-2010

% Unemployed % Underemployed% Employed

Full Time for an Employer

Worldwide 7 19 40

Former Soviet Union 16 15 59

Europe 9 20 56

Americas 10 24 52

MENA 10 21 48

Asia 5 16 35

Sub-Saharan Africa 9 31 19

Gallup classifies workers as underemployed if they are either unemployed or working part time but wanting full-time work. A respondent is unemployed if he/she reports not being employed in the last 7 days, either for an employer or for himself or herself. The respondent must also report actively looking for a job in the last four weeks AND being able to begin work in the last four weeks.

A typical African story: agriculture and informal activities employ most of the labor force

Source: INS 2009

Anatomy of the Labor Force in a Sample of African Good Performers

Source: Fox 2011

Tanzania 2006 Rwanda 2006

Uganda 2005

71.7

2.6

11.9

6.7

4.8

2.2

7.0

9.7

2.7

2.0

0.9

20 0 20 40 60 80

77.7

100 80 60 40

agriculture

non-ag family worker

HE without outside of HH employees

wage without permanent contract

wage with permanent contract

employer

67.9

0.7

10.3

14.9

5.1

1.0

85.7

2.3

5.7

3.7

2.3

0.3

100 80 60 40 20 0 20 40 60 80

agriculture

non-ag. family worker

HE without outside HH employees

wage worker without secure contract

wage worker secure contract

employer

67.0

0.5

14.3

11.5

6.4

0.2

81.2

2.1

10.0

4.2

2.6

0.0

100 80 60 40 20 0 20 40 60 80

agriculture

non-ag. family worker

HE without outside HH employees

wage temp/casual

wage permanent contract

employer

Female Male

63.2

0.4

12.6

1.5

18.9

3.4

85.7

2.3

5.7

3.7

2.3

0.3

80 60 40 20 0 20 40 60 80

agriculture

non-ag. family worker

HE without outside HH employees

wage temp/casual

wage permanent contract

employer

Ghana 2005

Mal

awi

Burki

na F

aso

Moz

ambi

que

Rwan

da

Sier

ra L

eona

Tanz

aniza

Uga

nda

Camer

oon

Kenya

Cote

D'Iv

ore

Gha

na

Sene

gal

Zam

bia

Wei

ghte

d Ave

rage

0

10

20

30

40

50

60

70

80

90

100

67

8379

72 75 73 70

60

5259 56

5258

69

17

01

6 0 1 5

2

91

11

2

3

8 12

9 9 16 16 13

25

13

2626 31

23

15

53

8 10 4 7 9 9

23

1111 12 12

9

2 2 4 2 4 3 3 4 3 3 6 4 6 4

Wage PublicWage PrivateHousehold enterpriseWage AgricultureFamily farming

Dis

trib

uti

on

(%

)

Distribution of primary employment in Sub-Saharan Africa (%)

Source: Fox et al. 2012

Wage and Salary Workers (% of Male Employed)

• Most workers are trapped in very low productivity activities in subsistence agriculture and the informal sector

• About two-thirds of Africa’s population is under the age of 24 and is underemployed—including those with college and university degrees

• With population growth projected to be 2.2 percent in the next 25 years, the African private sector faces the challenge of creating employment opportunities to absorb the youth bulge.

• Sub-Saharan Africa will have to generate 7 -10 million jobs annually in order to accommodate the high rate of population growth

Population by age groups and sex (absolute numbers)

Source: United Nations

The UN projects dramatic demographic transitions

17

-15 -10 -5 0 5 10 15 20 25 30 35

-10

-5

0

5

10

15

20

25

30

35

LAC

Africa

Eastern Europe

East Asia

South Asia

Employment and Working Age Population Growth, 2010-2020

Employment Growth Rate

Wor

king

Age

Pop

ulati

on G

row

th R

ate

Note: Size of bubble is projected employment in 2020.Source: Population and Employment Statistics, UN and ILO

2. The Economic Magic of Manufacturing

• Virtually all countries that have achieved sustained growth and moved from low- to middle- and high-income status have gone through industrialization—except perhaps a few with abundant natural resources or land

• Manufacturing has been a key factor to the prosperity of nations, with over 70 percent of the income variations of 128 nations explained by differences in manufactured product export data alone (Hausman et al. 2011)

• Economic growth is indeed a process of continuous industrial and technological upgrading that also affects the dynamics of institutional change (Lin 2012)

• Manufacturing has evolved and changed the dynamics of the world economy

• Globalization of manufacturing due to:– Profound changes in geopolitical relations among world

nations– Widespread growth of digital information– Decline of transportation costs – Development of physical and financial infrastructure– Computerized manufacturing technologies– Proliferation of bilateral and multilateral trade agreements

• These developments have permitted the decentralization of supply chains into independent but coherent global networks that allow transnational firms to locate various parts of their businesses in different places around the world.

Burkina FasoMozambique

MadagascarEthiopiaTanzania

UgandaZambia

Sierra LeoneMali

KenyaCameroonZimbabwe

NigerGhanaLiberiaNigeria

BeninSenegal

BotswanaNamibia

MauritiusSouth Africa

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Series NameEmployment in agriculture (% of total employment)Employment in industry (% of total employment)

1951-1955

1956-1960

1961-1965

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

0%

5%

10%

15%

20%

25%

30%

35%

Western EuropeUnited States

Japan

Size-weighted share of global

growth

In the post war era, three poles have served as the engine of

global growth…

3. Opportunities in a Multi-polar World

Source: World Bank Prospects Group

1956-1960

1961-1965

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2008

-20%

-10%

0%

10%

20%

30%

40%

LatAm-3*

Russia

ASEAN-4** India

China

Size-weighted share of global

growth

…with several EM countries beginning to join the ranks of superpowers

USJapan

Germany UK

China0

5

10

15

20

25

30

1980-1990

China US India KoreaBrazil0

5

10

15

20

25

30

2000-2009

Top Five Contributors to Global Economic Growth by Decade (percentage)

Main sector of employment (in 58 countries)

24

Community, social and personal services

Services Manufacturing and Construction

Primary0

5

10

15

20

25

30

35

40

45

1980s2000s

Source: ILO Statistics

The changing structure of employment: a potential jackpot for lower-wage countries

Competing for good jobs?

.12

.14

.16

.18

.2th

eta_

man

4446

4850

5254

(sum

) man

_em

p

1990 1995 2000 2005Year

Manuf. Employment (millions)Manuf. share in tot. emp (%)

HI

.1.1

1.1

2.1

3.1

4th

eta_

man

4050

6070

80(s

um) m

an_e

mp

1980 1985 1990 1995 2000 2005Year

Manuf. Employment (millions)Manuf. share in tot. emp (%)

ASIA High-income countries Asia

Source: World Bank WDR Team--Data by Margaret McMillan

Going where now?

Potential jobs benefits for African countries of a multi-polar world

120 million manufacturing jobs, most of them to be relocated

Brazil China India Indonesia Total

Population 192 1.324 1.140 277 2.934

Manufacturing Jobs (million)

13.1 85 8.7 12.6 119.3

Outward FDI ($, billion)

11.5 68 14.6 2.7 96.8

The Dying Golden Goose? Questions about the future of manufacturing

• New export pessimism– Weak demand in HICs due to recession– Need for global rebalancing– New forms of protectionism– Existence of large and powerful industrial complexes

benefitting from agglomeration economies, particularly in China, which makes it difficult for new entrants to compete (H. Pack)

• Concerns about the viability of labor-intensive industries as an economic model of development—innovation and automation

As a region, Sub-Saharan Africa has had limited structural transformation in 40 years

1965 1985 20050%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Sh

are

of s

ecto

r in

GD

P (

%)

GD

P p

er c

apit

a

(199

0 In

tl. G

eary

-Kh

amis

$)

Services Industry Manufacturing Agriculture

GDP per capita

In nearly 50 years, the contribution of manufacturing to GDP in most SSA countries has been negligible

Source: Monga 2012

0

20

40

60

1960 2008

Cote d'Ivoire

0

20

40

60

80

1960 2008

South Africa

0

20

40

60

80

1960 2008

Kenya

0

20

40

60

80

1968 2007

Mali

0

10

20

30

40

50

1965 2005

Ghana

0102030405060

1960 2008

Botswana

0

20

40

60

1960 2005

Togo

0102030405060

1965 2008

Cameroon

0

20

40

60

80

1960 2007

Congo

Agriculture Industry ServicesManufacturing

Sectoral Composition of GDP, 1960-2008/2008

Changing Patterns of Exports and Industrialization in China

Average Monthly Wage Including Benefits, by Industry (USD) Sector Tanzania

All workers Ethiopia Unskilled-skilled

Nigeria Unskilled-skilled

Vietnam Unskilled-skilled

China Unskilled-skilled

Food 84 26-141 87-135 78-363 192-442 Garments 80 26-185 54-85 79-181 237-370 Textiles 61 71-120 Machinery &Equipment 60-151 125-163 Wood, wood products 67 37-119 67-102 85-259 206-442 Metal and Metal products 124 89-181 82-107 117-233 192-369 Other manufacturing 168 67-154 87-130 Average Manufacturing 181 Note: Since Tanzania Survey does not distinguish unskilled or skilled workers, we had to use the wages for both unskilled and skilled workers from other countries.

Lessons from the WB Light Manufacturing Study (Ethiopia)

  Input industries Land FinanceEntrepreneurial

skillsWorker

skillsTrade Logistics

ApparelSmaller Important Critical Critical Important Important 

Large Important     Important Critical

Leather productsSmaller Critical Critical Critical Important

Large Critical     Important Important

Wood productsSmaller Critical Important Important Important Important

Large Critical Important Important Important  Important

Metal productsSmaller Critical Important Important Important Important

Large Critical Important Important Important  Important

Agribusiness

Smaller Critical Critical Critical Important    

Large Critical Critical Important    

Constraints in Ethiopia, by importance, size of firm, and sector

Source: Dinh et al. 2012.

Practical Recommendations to addressconstraints

Source: Dinh et al. 2012. Note: Blank cells are not a priority.

  Input industries

Land Finance Entrepreneurial skills

Worker skills Trade logistics

“Plug-and-play” industrial parks

  X X X X X

(if close to port)

Bank collateral     X      

Immediate and free access to foreign exchange

X   X     X

Green channels at customs X         X

Reduced cost of letters of credit

X   X     X

Zero tariffs on inputs for all firms

X         X

Support to SME clusters   X X X X  

Support to strategic first movers

X X X X X X

Output and input agriculture markets liberalized

X          

Access to agricultural land facilitated

X X X      

A Strategic Approach to Job Creation and economic transformation

Use of Industrial policy to foster competitive industries (consistency with comparative advantage)

Exploiting low wages, facilitating supply chains, and building logistics Taking advantages of industrial clusters — in which producers,

specialized suppliers, and workers huddle together to their mutual benefit

More strategically targeted infrastructure and skills formation

Pragmatic government intervention to overcome issues of coordination and externalities, which no individual firm can address alone effectively.

Key principles: