ISS is the international Institute of Social Studies of Erasmus University Rotterdam

Employment, basic needs, structural adjustment, human development, poverty ….and Employment :

A Jolly wheel of time ??

 IDS-Sussex,

Thursday 17 November –Friday 18 November 2011

Rolph van der Hoeven ISS-EUR, The Hague ,Netherlands

Outline • Introduction: Why greater concern for

Employment : Poverty , Crises• Employment, the MDG’s and DAC • Six Important International Labour

markets Trend• National Employment Policies• Some examples of national policies• How can development aid be more

employment focussed?

Why need greater concern for Employment in Development and in

Development Aid debate?

1. Because employment is one of the main factors in poverty reduction

2. Economic crises have prolonged effect on employment and conditions of employment including wages

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Financial Globalization and Employment

(1.) In the absence of adequate institutions, capital account liberalization has little direct benefit for growth.

(2.) Even if capital account liberalization is managed prudently, it has cost to developing countries( e.g. Building up large reserves.)

(3.) Capital account liberalization has left developing countries vulnerable to crisis.

(4.) Negative effects of financial crises : Open unemployment typically rises substantially during a crisis, real wages often fall, underemployment rises, and workers shift from the formal sector to the informal economy and agriculture.

(5.) Labour markets typically lag the economic recovery by several years. This lag means that labour pays a disproportionate cost. Over the last 2 decades financial crises have a negative and persistent effect on the share of labour compensation in GDP ( RATCHET EFFECT )

(6.) financial openness and financial crises diminish labour’s share. Financial openness is associated with stronger bargaining power for capital vis-à-vis labour.

Recent past crises are highly relevant for an analysis of the current crisis at least two reasons:

• Firstly, several elements of globalization, especially the unfettered markets, (including the labourmarket) and the growing inequality (resulting for many households to indebt themselves) have given cause to the current crisis

...... therefore, policy recommendations pertaining to the analysis of the structure and nature of current globalization and its impact on employment and inequality have become even more relevant in times of crisis..

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•Secondly, employment, human and social effects of the financial crisis will last for a while:

a deceleration or decline in GDP growth will lead to rising unemployment with a much longer duration than the deceleration or decline in GDP itself . (4.8 years, compared 1.9 years).

•Also labourshares in national incomes manifest a ratchet. Labourshares decline during crises but in many cases do not return to their pre-crisis level.

• Indicators for human development exhibit a similar ratchet effect. In Africa child mortality increases during growth decelerations, but hardly falls during growth accelerations.

Policy LessonsRebalance Assymetry in treatment between Labour

and Capital!

Goverments at the 2008 crisis have been bankers of last resort, should have acted also as an employer of last resort

As goverments did coordinate internationally support to capital should now also coordinate internationally support to labour:

Further information on Crisis and Employment :

van der Hoeven, R ,2010 , Labour Markets Trends, Financial Globalization and the current crisis in Developing Countries, UN DESA Working Paper No.

99,UN ,New York ,USAweblink : http://www.un.org/esa/desa/papers/2010/wp99_2010.pdf

van Bergeijk, P. , A de Haan and R. van der Hoeven (eds.) ,2011, Crisis, What Crisis for whom?, Edward Elgar Aldershot UK

  

R. van der Hoeven, R ( ed.), 201, Employment, Inequality and Globalization: A Continuous Concern, Routledge,Abingdon , UK,

Employment and Development

MDG Progress and Youth Unemployment

• Employment as an ( International ) Development Objective ?

• Absent from Discussions and Negotiations around establishment MDGs

• Amsden: grassroots aproach improve supply side labourmarket but not demand side

• Mkandawire: Neoliberal thinking shift away from state policies engendering structural change, industrial policy and employment creation. Poverty alleviation associated with safety net and small scale interventions

2005 World Summit Outcome

 The World Summit 2005 outcome document, contains a reference (paragraph 47) to employment issues: We strongly support fair globalization and resolve to make the goals of full and productive employment and decent work for all, including for women and young people, a central objective of our relevant national and international policies as well as our national development strategies, including poverty reduction strategies, as part of our efforts to achieve the Millennium Development Goals. …………

Employment as MDG Goal

Paragraph 47 in the summit outcome document led to the inclusion of a new sub-goal under MDG1 : : Achieve full and productive employment and decent work for all, including women and young people with four indicators : 1 Growth rate of GDP per person employed 2 Employment-to-population ratio 3 Proportion of employed people living below $1 (PPP) per day and 4 Proportion of own-account and contributing family workers in total employment

But what are MDG’s all about ?

The inclusion of Employment as a Goal reflects the somewhat ambivalent role the MDG’s have been and are playing in the current development discourse:

The MDG’s were designed to measure some important aspects of development without proscribing a concomitant development trajectory : all countries could agree with goals without being obliged to proscribe the same policy prescriptions

Yet, the MDG’s have no doubt led to a situation where those issues that were not explicitly mentioned ,like employment , received therefore less attention from the development aid community (Advisory Council on International Affairs of the Dutch government ( AIV)

So : useful that full employment has been added as one of the (sub) goals of the MDG’s .

• Can we discern from MDG Evaluation or DAC Statistics changing attitudes on Employment?

MDG Evaluation

A review of the MDG’s (UNDG,2010, Thematic paper on MDG1 , Eradicate Extreme Poverty and Hunger,) reports indeed on the progress or regress in employment issues globally as well as in some countries by means of a number of employment indicators .

It also gives some narratives of how certain development projects have contributed to more or better employment in individual countries. The examples mention successes of employment schemes, training schemes for entrepreneurs, training schemes for unemployed youth, improved collective bargaining etc.

However looking at the different examples chosen, it is not yet clear how development aid contributes to more and or better employment in general.

Absent is a full macro analysis of total volumes of aid on growth and on volume and structure of employment.

ODA by Sector 1990-2008

ODA by Region 2008

Social Sector ODA 1990-08

Ec Sector ODA 1990-09

What have been the major international labourmarket trends the last 20 years?

Six Important labourmarket trends in developing countries

• Decline in the employment-to-population rate, except ME and NA

• The changing pattern in production

• The “precarization” (casualization) of labour

• Declining wage share and growing wage inequality

• The internationalization of the production process

• International migration

Increasing and Declining (75 % Countries) wageshare 1995-2007

Growing inequality In 70% of countries, inequality between top and bottom wage

earners has increased since 1995

Wage inequalities

= more inequality

= less inequality

Annual growth of Employment, value Added and Exports TNT 1986-2007

Migrants as a percentage of population, 1960 and 2005

Policies for Employment Creation

• International Enabling Environment• National policies

Short Term : Capacity Utilization Long Term : Capacity Creation

• Quantity and Quality Matter: Good jobs , Bad jobs Working Poor Decent Work

Short Term Policies• Macro economic policy and Exchange

rate policy ( beyond the classic Trilemma) and inclusion of social pacts to control inflation

• Employment Target for Central Bank

• Minimum wages ( not to much not to little)

• Public Work Schemes

• Cash Transfers

Long Term Policies

24 Episodes of Growth, Employment and Poverty

However poor workers face various constraints in context of growth such as •Low output elasticity of demand for labour•Employment impact of high growth offset by countervailing contraction of employment induced by economic reform•Economic growth leading a high rate of growth in employment of a kind for which the poor do not possess necessary skills•Growth might also fail to reduce poverty if the distribution of scarce productive resources is and remains highly concentrated 

Employment Policies are successful for the poor:

(a) an increase in wage employment; (b) an increase in the real wage; (c) an increase in self-employment; (d) an increase in productivity in self-employment (e) an increase in the terms of exchange of the

output (real price) of self-employment.

Poverty declines if the aggregate of all these employment effects is favourable for the poor.

How to better Frame Aid policies for Employment Creation ?

Aid Policies and Employment

Aid policies can and have negatively effected employment creation : Analysis of UN/ILO Employment Missions in the 70’s

•Imported technologies labour replacing•Capital heavily subsidized•Urban bias •Big Industry Bias •No concern for Inequality

Useful Areas for Reserach

• The effects of aid on increasing demand in situations of under capacity and thus effecting employment,

• The effects of aid and the Dutch disease in changing the balance between trade-ables and nontrade-ables and the consequences for employment,

• The effect of aid in increasing infrastructure and thus removing bottlenecks of production in order to create more employment,

• The effects of aid in making capital more productive, with an ambivalent effect on quality and quantity of employment ,

• The increase of aid in increasing education and hence human capital ,

• The effect of aid on health issues so as to make work more productive ,

• The effects of aid on social security to make workers more productive and willing to adjust etc.

  

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Quote 1

“The consequences of mistakes in financial markets, where capital is volatile and mobile globally, far exceeds the consequences of mistakes in the labour markets, where labour is largely immobile across national lines.”

Richard Freeman (Harvard & LSE)