IFC Jobs Study:

Findings , implications and next steps

Roland Michelitsch

Development Impact Department, IFC

More information: www.ifc.org/jobcreation

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Thanks to the donors supporting the jobs study:

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Current dual jobs challenge:

o Quantity: 200 million unemployed. Additional

600 million jobs are needed by 2020.

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.

Why jobs matter…(1)

Why jobs matter…(2)

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4

“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

Why jobs matter … (3)

Enterprise Survey

Analysis

IFC Job Study: Components

Infrastructure case study

Macro-case studies

Micro-case

studies

Literature review

Meta evaluation IFC

Operational experience

Collaboration with WDR

Financial Markets

case study

IFC’s Smart Lessons

competition

Blog

WEF-IFC Youth essay competition

Website ifc.org/

jobcreation

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MSMEs FI study

Funds analysis

Data from IFC’s DOTS

Advisory panel

Three distinct layers of policies are needed

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Source: WDR

Jobs challenges vary by country

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Source: WDR

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Constraints vary by countries and firms

* For this analysis: Small = 5-20 employees, medium= 21-99 employees, and large >= 100 employees.

Source: World Bank Group’s Enterprise Surveys covering 46,566 enterprises in 106 countries.

Four findings stand out:

Finance (A2F): A problem

particularly for SMEs

Infrastructure (A2I): A

reliable power supply is

the most important issue

for companies in low-

income countries

Investment climate (IC):

Informality is a key issue

in middle-income

countries and for SMEs;

taxation is also important

Training/skills (T&S): A

key challenge for larger

businesses and businesses

in high-income countries

Selected findings: Removing constraints creates jobs IC: Business entry reforms can have large positive effects,

particularly when combined with other reforms.

o Mexican one-stop shops: Firm entry + 5%, jobs +2.8%.

A2I: Most studies focus on immediate direct job creation,

but effects through enabling economic growth are even larger.

o A reliable power supply could increase job growth in low income countries, by at

least 4-5% … and probably much more. Powerlinks: Effects from having power far

outweigh direct + indirect + induced effects of power transmission.

A2F: Improvement can create significant number of jobs.

o Significant extra job growth from bank loans (>3%) or external financing (>4%).

o “Footprint”: Jobs provided - in 2011 IFC clients “reached” 23M MSMEs …

which employed an estimated 100M+ people huge potential.

o Job created: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in

economy … but attribution is difficult, and more studies needed.

T&S: Programs show mixed results, but involving private sector and

combining education with on-the-job training works best.

o Programs that included both had 20% increase in probability of success

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Cumbersome and costly regulations prevent companies from entering,

operating and growing.

Investment Climate

Investment climate adds up to the most pressing issue for firms

Source: Enterprise Surveys

Top IC

constraints:

(1) Informal competition

(2) Tax rate

(3) Corruption

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Informal firms provide a large portion of jobs in developing countries.

Investment Climate

Source: ILO, Department of Statistics, and IMF, World Economic Outlook.

Info

rmal

em

plo

ym

ent

(% o

f to

tal non-a

gri

cult

ura

l

em

plo

ym

ent)

36 countries

High poverty

low

informality

High poverty high

informality Low poverty

high

informality

Low poverty

low

informality

Population living below the national poverty line (% of total population)

Informality is closely linked to poverty

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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

Selected Findings: Investment Climate (IC)

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Infrastructure: Increasing private investment

Source: Private Participation in Infrastructure Database.

Infrastructure investment by sector using PPP arrangements (US$ billions)

0

10

20

30

40

50

60

70

80

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Energy

Telecommunications

Transport

Water and sewerage

Need to

improve urban

infrastructure,

as more people

move to cities.

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Access to Infrastructure: Power

Second-order (“growth”) effects

Indirect and induced jobs

Direct

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

Current focus on direct jobs, but larger job effects

through enabling economic growth

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 2006-12

Reliable power supply could increase job growth in low income countries

by at least 4-5%

Powerlinks Case Study

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IFC invested in a power company that set up power transmission lines that

helped bring power from a hydropower project in Bhutan to India.

Case study tried to estimate (1) direct, indirect & induced employment effects

(construction & maintenance); and (2) effects of improved power supply (which

are much larger and potentially much more transformative for an economy).

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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.

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Finance: Smaller firms have less access to financing

Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World.

Use of bank financing:

Small firms: 14%

Medium firms: 18%

Large firms: 25%

Sourc

e o

f fi

nancin

g f

or

work

ing c

apit

al and f

ixed

invest

ment

needs

(%)

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… and firms in poorer countries too

Ratio of domestic private sector credit to GDP

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.

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• Firms in developing countries: Less access to finance.

Financial markets are less developed.

• 45-55% of formal SMEs unserved, over 20% underserved,

70% don’t use external finance.

Gap: $2.5 trillion

Selected Findings: Access to Finance (A2F)

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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.

How to improve access to finance?

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.

Training and Skills

29.3

43.8

67.1

27.2

38.7 42.8 43.4

0

20

40

60

80

Sm

all

Mediu

m

Larg

e

Low

Low

-m

iddle

Upper-

mid

dle

Hig

h

Firm size Income group % of

firms

offering

training

to their

workers

Source graph: IFC Jobs Study using Enterprise Surveys.

*ManPower Group (2012) sample of 41 countries ; **McKinsey Global Institute (2012)

Small firms are less

likely to offer

training to their

workers, even

though many

identify skills as a

constraint

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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).

Where are the jobs?

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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

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Productivity

Larger firms tend to be more productive

Gains in labor productivity tend to be positively associated with

more job growth than destruction.

Why growth - into larger companies – matters

Many firms are born small and grow little in India and Mexico

Source: Hsieh and Klenow (2011)

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25

29.3

43.8

67.1

27.2

38.8 42.8 43.4

0

20

40

60

80

Small Medium Large Low Lowmid

Uppermid

High

Country Income Group Firm size

Firms offering training to workers (%)

by firm size and country income group

Productivity

Larger firms tend to be more productive, pay higher wages, offer more

training and often better working conditions.

Source: WDR 2013 team based on Ayyagari, Demirguc-Kunt, and

Maksimovic (2007), and on Montenegro and Patrinos (2012) Source: IFC Jobs Study using Enterprise Surveys data

Larger firms pay higher wages

Large is beautiful?

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

• Invest in labor intensive sectors and Financial Institutions (FIs)

• Invest in larger non-FIs & sectors facing international competition … and develop value chains

Estimating effects … and tradeoffs

Short-term job growth

Long-term job growth

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Transformations

Other 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

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Multipliers in IFC Projects

* Safal: multiplier calculated on total jobs provided instead of incremental jobs due to

difficulties with attribution.

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 3,646 21 Chemicals, Indonesia

OCL 293 7,156 24 Cement, India

Micro-case studies in Manufacturing, Agribusiness and Services

Total jobs, not

just multiplier! Mriya 2009 vs. 2011:

more direct jobs

(increased quality),

multiplier declined.

Sector/Industry Total jobs (direct, indirect, induced) in the economy

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)**

Large variation for indirect and induced job creation effects

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*This number considers only petroleum refineries. **This number is for California only, not the whole country.

Source: Literature Review for IFC Jobs Study.

IFC-supported

supply-chain

linkage and

community

development

programs

Multipliers … and how to strengthen them

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

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.

Better Work (ILO/IFC) “Works” – Sector level (garments): Demonstrating

that improved labor standards can not only increase worker satisfaction, but

also worker retention, productivity, profits … and ultimately jobs.

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Not just number

of jobs; quality

matters

Quality of Jobs

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When there is greater legal differentiation

based on gender, fewer women work

Source: Women, Business and the Law database; World Development

Indicators; Enterprise Surveys.

Correlation between the two variables, after controlling for per capita income.

Gender: Unequal treatment …

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 F

em

ale

labor

forc

e p

art

icip

ati

on

(r

esi

dual)

Number of legal differentiations (residual)

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Some solutions include:

Support women-friendly industries … and help women into leadership positions

Encourage female participation in non-traditional fields

Connect women to markets, support women-owned SMEs

Further develop business case for women as workers and leaders

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%

… and benefits from removing the obstacles

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.

Opportunities for collaboration – within the WBG, with IFIs and others.

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28 International Financial Institutions (IFIs) agree to collaborate:

Contributing to Creating More and Better Jobs

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Joint IFI Communiqué: Issued on the occasion of the launch of IFC’s Jobs Study: “Assessing Private Sector

Contributions to Job Creation and Poverty Reduction”, January 14th, 2013

“…

We will use the expertise and various tools each of our

institutions has developed, and act in a coordinated

manner, where appropriate, to maximize impact. We will

seek to learn from each other and spearhead efforts in

areas lacking knowledge and common methodologies, such

as job creation impact measurement and attributions. Our

efforts will complement other high level international

efforts seeking to promote job creation and to improve the

quality of jobs.

It is the time for all stakeholders to work together towards

addressing this major challenge, which will require all our

efforts to achieve lasting solutions. Together, we can

address this global challenge and find more effective ways

to create more and better jobs for the millions who need

them.”

Next Steps: Implementation( along with partners)

Emerging priorities

(based on ongoing consultations within the WBG, with IFIs and others)

1. Operational support: E.g. how best to strengthen jobs focus in

operations (e.g. applying a jobs lens at the country level; strengthening

value chains, making training more relevant for private sector needs,

etc.)

2. Better data: Apply, refine & harmonize methodologies; better under-

stand formalization; better data on employment effects and standards;

develop “business case” for better standards and monitoring, etc.

3. Enhanced collaboration: With IFIs and with others (e.g. ILO,

academia, private sector, civil society organization)

4. Improved communication: Improve ability to articulate contributions

of private sector activities to creating more and better jobs

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Consolidating a Joint Work Program along with interested

partners on creating more and better jobs