The Globalization Jackpot Jobs Dividends from a Multi-polar World

1. The Globalization JackpotJobs Dividends from a Multi-polar World CélestinMonga World Bank IEA-WB Roundtable, Pretoria, July 3, 2012

2. 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. Smartindustrial policy can helpAfrica can reap job dividends from a multi-polar World—especially in labor-intensive manufacturing industries

3. 1. The Elusive Theoretical Search for Jobs • 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?

4. 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.

5. New policy recommendations are sensible but do not seem to address the problem Cyclical Policies • Labor retention in downturn (e.g., worksharing, working time accounts) • Hiring subsidies Structural Policies • Demand Side Policies (regulation) • Supply Side Policies (health; education; job training) • Entrepreneurship (start ups) • Infrastructure Summary by A. Krueger

6. Unemployment: Are we looking at the wrong place? Source : A. Krueger

7. Perhaps the focus should be on Employment? Source : A. Krueger

8. 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

9. Few good jobs are being created in Africa

10. Survey results indicate that Sub-Saharan Africa has performed poorly compared to other regions 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. Source: Gallup 2009-2010

11. A typical African story: agriculture and informal activities employ most of the labor force Source: INS 2009

12. Anatomy of the Labor Force in a Sample of African Good Performers Female Male Tanzania 2006 Rwanda 2006 0.3 employer 1.0 employer 0.9 2.2 wage worker secure contract 2.3 5.1 wage with permanent contract 2.0 4.8 wage worker without secure contract 3.7 14.9 wage without permanent contract 2.7 6.7 HE without outside HH employees HE without outside of HHemployees 5.7 10.3 9.7 11.9 non-ag. family worker 2.3 0.7 non-ag family worker 7.0 2.6 agriculture 85.7 67.9 agriculture 77.7 71.7 100 80 60 40 20 0 20 40 60 80 100 80 60 40 20 0 20 40 60 80 Ghana 2005 0.2 0.0 Uganda 2005 employer employer wage permanent contract 6.4 2.6 0.3 3.4 wage permanent contract wage temp/casual 4.2 11.5 2.3 18.9 wage temp/casual HE without outside HH employees 14.3 10.0 HE without outside HH employees 3.7 1.5 5.7 12.6 non-ag. family worker non-ag. family worker 2.1 0.5 2.3 0.4 agriculture agriculture 81.2 67.0 100 80 60 40 20 0 20 40 60 80 85.7 63.2 Source: Fox 2011 80 60 40 20 0 20 40 60 80

13. Distribution of primary employment in Sub-Saharan Africa (%) Source: Fox et al. 2012

14. Wage and Salary Workers (% of Male Employed)

15. 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

16. Population by age groups and sex (absolute numbers) Source: United Nations

17. The UN projects dramatic demographic transitions

18. 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)

19. 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.

21. 3. Opportunities in a Multi-polar World In the post war era, three poles have served as the engine of global growth… Source: World Bank Prospects Group

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

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

24. The changing structure of employment: • a potential jackpot for lower-wage countries Main sector of employment (in 58 countries)

25. Competing for good jobs? High-income countries Asia Source: World Bank WDR Team--Data by Margaret McMillan Going where now?

26. Potential jobs benefits for African countries of a multi-polar world 120 million manufacturing jobs, most of them to be relocated

27. 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

28. As a region, Sub-Saharan Africa has had limited structural transformation in 40 years Services Industry Manufacturing Agriculture GDP per capita

29. In nearly 50 years, the contribution of manufacturing to GDP in most SSA countries has been negligible Sectoral Composition of GDP, 1960-2008/2008 Source: Monga 2012

30. Changing Patterns of Exports and Industrialization in China

32. Lessons from the WB Light Manufacturing Study (Ethiopia) Constraints in Ethiopia, by importance, size of firm, and sector Source: Dinh et al. 2012.

33. Practical Recommendations to addressconstraints Source: Dinh et al. 2012. Note: Blank cells are not a priority.

34. A Strategic Approach to Job Creation and economic transformation Key principles: • 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.