employment and development: good jobs and bad jobs turin, monday, may 22, 2006 françois bourguignon...
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Employment and Development: Good Jobs and Bad Jobs
Turin, Monday, May 22, 2006
François Bourguignon
Senior Vice President and Chief Economist
The World Bank Group
May 22, 2006 Luca D’Agliano Lecture 2
Motivation
Increasing concern about the issue of employment both in developed and developing countries (even the most dynamic ones.)
But real concern is about potential increase in income inequality and slowdown of poverty reduction.
Need to assess not only quantity of jobs but also their “quality”
Standard labor market indicators must be complemented by monitoring ‘good’ and ‘bad’ jobs
How should we proceed?
May 22, 2006 Luca D’Agliano Lecture 3
Outline
1. Evidence on the evolution of inequality, poverty and the labor market.
2. The relationship between income distribution, poverty, employment and the structure of earnings
3. Defining ‘good’ and ‘bad’ jobs
4. Extended labor market indicators : 3 examples of application (Mexico, Ghana, Russia)
5. Conclusion
May 22, 2006 Luca D’Agliano Lecture 4
1. Evidence on the evolution of inequality, poverty and the labor market
May 22, 2006 Luca D’Agliano Lecture 5
International inequality is falling (although mainly because of strong growth in China and India) …
International inequality (weighted)
Source: Branko Milanovic, Worlds Apart: Measuring International and Global Inequality, Princeton University Press, 2006.
0.4
0.44
0.48
0.52
0.56
0.6
Gin
i c
oe
ffic
ien
ts v
alu
es
(b
as
ed
on
GD
I)
World without India and China
World
May 22, 2006 Luca D’Agliano Lecture 6
… while inequality is increasing in a number of countries …
Source: WIDER Income Inequality database, 2005
BELBGD(con)
BGR
CAN
CHL
CHN-U CHN-R
CZE
DEE DEW
DNK
ECU
EGY(con)
ESP(exp)
FIN
GBR
HUN
ISRITA
JAM(con) KGZ
LKA(con)LUX
MDG(con)MEX
MRT(con)
NLD
NOR
PER
POLROM
RUS
SVKSVN
SWE
TUN(con)
TWNTZA(con)
UGA(exp)
UKR
URY
USA
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70
1990 - 1993
2000 - 2
003
May 22, 2006 Luca D’Agliano Lecture 7
… And the labor share in GDP is declining
Source: UN national accounts
ABW
ANT
ARM
AUS
AUT
AZE
BGRBHR
BHS
BRA
CHL
COL
CRI
CZE
DEUDNK
DZA
ESPEST
FIN
FRAHKG
IND
IRL
IRN
ISL
ITA
JOR
JPN
KAZ
KGZ
KORLKA
LUX
LVA
MAC
MDA
MEX
MLT
NAM
NLD
NOR
NZL
OMN
PAN
PERPHL
POL
SVK
SWE
THA
TTO
TUN
USA
VEN
ZAF
.2.3
.4.5
.6.7
Labo
r sh
are
2002
-200
4
.2 .3 .4 .5 .6 .7Labor share 1992-1994
May 22, 2006 Luca D’Agliano Lecture 8
Growing within country income inequalities often are associated with widening disparities in earnings
Source: OECD
Earnings dispersion (P90/P10) in selected OECD countries
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
P90
-P10
rat
io
USA
UK
Japan
Germany
Sweden
May 22, 2006 Luca D’Agliano Lecture 9
Earning inequality may be increasing in fast growing developing countries too
Wage disparities in urban India
0
1
2
3
4
5
6
7
8
9
10
1983 1987/8 1993/4 1999/00
P90/P10
P80/P20
Source: Labor Markets in Asia: Issues and Perspectives, ADB, forthcoming
May 22, 2006 Luca D’Agliano Lecture 10
Growth becomes less labor intensive
Percent Increase in Employment associated with a 1 percent point increase in GDP
Bangladesh
China
IndonesiaIndia
Korea
Malaysia
Pakistan
PhilippinesSingapore
ThailandTaiwan
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0 0.2 0.4 0.6 0.8
1980s
19
90
s
Source: Felipe and Hasan 2006, “The Challenge of Job Creation in Asia”, ADB
May 22, 2006 Luca D’Agliano Lecture 11
Implications for poverty reduction
Increasing income inequality reduces the elasticity of poverty with respect to growth
Examples : China (1990+), India (1990+), Mexico (1984-94), Uganda (1993+), …
May 22, 2006 Luca D’Agliano Lecture 12
2. The relationship between income distribution, poverty, employment and the structure of earnings
May 22, 2006 Luca D’Agliano Lecture 13
The state of the labor market and the distribution of household incomes
Labor market
Job 1 : w1
Job 2 : w2
Job 3 : w3
Job k : wk
Job N : wN
Households’ income (per capita)
Household 1 (1 earner) : (w1) /n1
Household 2 (1 earner) : (w2+y2)/n2
Household 3 (2 earners): (w3+w78)/n3 Poor
Household 4 (1 unemployed): (0+y4)/n4 Poor
Household 5 (1 earner + 1 unemployed): (w5+0)/n2
Etc…
Job N +1: wN+1
May 22, 2006 Luca D’Agliano Lecture 14
The state of the labor market and the distribution of household incomes
Job 1 : w1
Job 2 : w2
Job 3 : w3
Job k : wk
Job N : wN
Household 1 (1 earner) : (w1) /n1
Household 2 (1 earner) : (w2+y2)/n2
Household 3 (2 earners): (w3+w78)/n3 Poor
Household 4 (1 unemployed): (wN+1+y4)/n4 Poor
Household 5 (1 earner + 1 unemployed): (w5+0)/n2
Etc…
Job N +1: wN+1
Labor market Households’ income (per capita)
May 22, 2006 Luca D’Agliano Lecture 15
The state of the labor market and the distribution of household incomes
Job 1 : w1
Job 2 : w2
Job 3 : w3
Job k : wk
Job N : wN
Household 1 (1 earner) : (w1) /n1
Household 2 (1 earner) : (w2+y2)/n2
Household 3 (2 earners): (w3+w78)/n3 Poor
Household 4 (1 unemployed): (wN+1+y4)/n4 Poor
Household 5 (1 earner + 1 unemployed): (w5+0)/n2
Etc…
Job N +1: wN+1
Labor market Households’ income (per capita)
May 22, 2006 Luca D’Agliano Lecture 16
“Quality” of jobs as a complement to standard labor market indicators
Monitoring poverty requires:
- Monitoring the labor market: quantity and quality of jobs being created (or destroyed)
- Following changes in participation, non-labor incomes, family size, conditionally on changes in labor market
Caution : Jobs may be created (or destroyed) by firms or by the households themselves (self-employment or family business)
Aggregate unemployment/employment rates may not be very relevant labor market indicators in developing countries
May 22, 2006 Luca D’Agliano Lecture 17
The two sides of the labor market unemployment and working poor (ILO), 2004
0
10
20
30
40
50
60
Middle East& NorthAfrcia
Sub-SaharanAfrica
LatinAmerica &Caribbean
East Asia SoutheastAsia
South Asia Transition Industrialized World
Unemployment rate
Extreme working poor as %of total employment
ILO, World Employment Report, 2005
May 22, 2006 Luca D’Agliano Lecture 18
3. Defining “good” and “bad” jobs
May 22, 2006 Luca D’Agliano Lecture 19
How to assess the “quality” of jobs
Job quality is a multi-dimensional concept (Somavia’s ‘decent job’).
Job attributes include: Occupational health and safety Employer’s adherence to Core Labor Standards Affiliation to statutory social security schemes Other employee benefits Employment and earnings stability Number of hours of work Formal/Informal Level of earnings (‘working poor’, this
paper)
May 22, 2006 Luca D’Agliano Lecture 20
Alternative definitions of “working poor”
EU-ILO definition (using micro data): working poor are those individuals in the labor force living in poor households.
ILO definition (using aggregate statistics): poverty rate for the population adjusted for different factors - demographics and participation rates.
In the calculation of the worldwide count of working poor, ILO uses the poverty headcount ratio for the population times the size of the labor force.
Both EU and ILO use the household as the unit of reference and assess links between household poverty and the employment status of its members. This makes it impossible to isolate the role of labor market in the evolution of poverty.
May 22, 2006 Luca D’Agliano Lecture 21
Low pay as the definition of ‘bad jobs’
In the present study, bad jobs are defined as workers with earnings insufficient to maintain the median family above an arbitrary poverty line.
Low pay threshold = 50% of the median per capita consumption expenditure * median dependency ratio (total household size/employed members)
May 22, 2006 Luca D’Agliano Lecture 22
4. Examples of application : extended labor market indicators in Ghana, Mexico and Russia
May 22, 2006 Luca D’Agliano Lecture 23
Methodological issues in implementation
Data source : Household Survey or Labor Force Surveys at two points of time.
Time varying low pay threshold so as to define ‘bad jobs’ in relative terms
Distinguishing between employment and price effects
Definition of universe and earnings Unpaid family workers (+unreported earnings) Self-employed/wage workers Hourly vs. monthly earnings Urban/Rural
May 22, 2006 Luca D’Agliano Lecture 24
The importance of low-pay jobsExtended labor-market indicators (whole country)
0
5
10
15
20
25
30
35
Ghana 1998 Mexico 2002 Russia 2003
Unemployed
Unpaid and unreported
Bad (low-pay) jobs
Per
cent
May 22, 2006 Luca D’Agliano Lecture 25
Changes in labor market conditions in Ghana, 1991-1998
1991 (in millions)
Change, 1991-1998 (in millions)
Working age population (WAP) 7.83 1.64Labor force (LF) 5.98 0.27 % change (Y/P) 2.3Unemployed (U) 0.05 -0.03 % change (Y/E) 4.4Employed (E) 5.93 0.15 % change (E/WAP) -2.2Unpaid and unreported 1.93 -0.42Employed with positive 4.00 0.57 % change (WAP/P) 0.2Actual earnings Good jobs 1.98 -0.11 Bad (low-pay) jobs 2.02 0.68Counterfactual earnings Good jobs 1.98 0.08 Bad (low-pay) jobs 2.02 0.50
Ghana, 1991-1998
Growth decomposition
May 22, 2006 Luca D’Agliano Lecture 26
Net job creation in the urban wage sector : Ghana 1991-1998
1991 (in millions)
Change, 1991-1998 (in millions)
Unemployed (U) 0.03 0.09Wage and salaried employees 0.55 -0.01Unreported earnings 0.03 0.03Wage and salaried employees with positive earnings data 0.52 -0.01Actual earnings Good jobs 0.39 -0.08 Bad (low-pay) jobs 0.13 0.07Counterfactual earnings Good jobs 0.39 -0.09 Bad (low-pay) jobs 0.13 0.09
May 22, 2006 Luca D’Agliano Lecture 27
Composition of the change in low-pay jobs, Ghana, 1991-1998
1991 1998 Change 1991-1998(in millions) (in millions) (in millions)
GenderMale 0.926 1.212 0.285Female 1.099 1.495 0.397
Place of residenceUrban 0.476 0.620 0.143Rural 1.548 2.087 0.539
Age group15-24 years 0.350 0.341 -0.00925-34 years 0.601 0.803 0.20235-49 years 0.617 0.964 0.34750-64 years 0.456 0.598 0.142
Highest schooling levelNo schooling 1.160 1.360 0.200Primary 0.265 0.388 0.123Lower secondary 0.546 0.810 0.264Upper secondary 0.032 0.094 0.062Tertiary 0.002 0.008 0.006
May 22, 2006 Luca D’Agliano Lecture 28
Changes in labor market conditions in Mexico, 1994-2002
1994 (in million)
Change 1994-2002 (million)
Working age population 52.90 9.98Labor force 31.72 8.49 % change (Y/P) 1.2Unemployed 1.25 -0.03 % change (Y/E) -0.5Employed 30.47 8.53 % change (E/WAP) 1.0Unpaid and unreported 3.29 0.34Employed w/ positive earnings 27.18 8.19 % change (WAP/P) 0.7Actual earnings Good jobs 22.27 7.11 Bad (low-pay) jobs 4.91 1.08Counterfactual earnings Good jobs 22.27 7.92 Bad (low-pay) jobs 4.91 0.21
Mexico, 1994-2002
Growth decomposition
May 22, 2006 Luca D’Agliano Lecture 29
Changes in labor market conditions in Russia, 1994-2003
1994 (millions)
Change, 1994-2003 (millions)
Working age population 105.68 3.62Labor force 77.78 0.59 % change (Y/P) 2.9Unemployed 6.22 -0.81 % change (Y/E) 2.3Employed 71.56 1.40 % change (E/WAP) -0.2Unpaid and unreported 21.54 -2.86Employed w/ positive earnings 50.02 4.27 % change (WAP/P) 0.7Actual earnings Good jobs 26.31 9.73 Bad (low-pay) jobs 23.71 -5.47Counterfactual earnings Good jobs 26.31 10.77 Bad (low-pay) jobs 23.71 -6.50
Growth decomposition
Russia, 1994-2003
May 22, 2006 Luca D’Agliano Lecture 30
5. Conclusions
May 22, 2006 Luca D’Agliano Lecture 31
General conclusions
Raising inequality and employment problems endanger development.
Growth with little poverty reduction and possibly increasing relative poverty is possible
Redistribution may mitigate the problems. What form should it take? What are its limits?
Close monitoring of labor market outcomes including job quality indicators necessary.
May 22, 2006 Luca D’Agliano Lecture 32
Methodological conclusions
Pay-based bad jobs/good jobs distinction is a way forward: conceptually clear and relatively easy to quantify.
Alternative definitions to be explored and discussed
Usefulness and policy relevance still to be explored
How much of observed changes in poverty does this distinction explain?