Transcript The Challenge of Jobless Growth in Developing Countries

The Challenge of Jobless Growth in
Developing Countries: An Analysis with
Cross-Country Data
By
Rizwanul Islam
28 February, 2010
Conference Room, BIDS
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Content
• Background and purpose of the study
• Some conceptual clarifications
• Possibility of a trade-off between employment and
productivity growth
• Employment and output growth: empirical evidence
• Decomposition of output growth into employment
and productivity growth
• Constraints on employment growth
• Concluding observations
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The Background and Purpose of the Study
• Low and declining employment growth in
relation to output
• Growth-poverty nexus:
No invariant relationship between growth and
poverty reduction
Strength of the nexus influenced by the
employment intensity of growth
• Hence the importance of addressing the
issue of employment intensity of growth
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Conceptual Clarifications
• What do we mean by jobless growth?
Can output growth be jobless in a literal sense?
Does the term “jobless growth” need to be
interpreted in a literal sense?
• Different possible combinations of
output and employment growth
Low output low employment (stagantion)
Low output high employment (growthless jobs)
High output low employment (jobless growth)
High output high employment (employment
intensive growth)
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Employment Growth
Combination of Output and Employment Growth
I
IV
High growth of
employment and low
growth of output
(growth-less jobs)
High growth of output and of
employment
(employment-intensive growth)
II
III
Low growth of output
and employment
High growth of output with
low growth of employment
(jobless growth)
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Output Growth
Possibility of Trade-off between
Employment and Productivity Growth
• Inverse relation between emp-elast and prody
• Hence the possibility of trade-off
• But both quantity of L input and prody can
contribute to output growth
• Consider the following accounting identity
∆Y = ∆ L + ∆ (Y/L)
• In a growing economy, both L and Y/L can grow
• The combination of L and Y/L would depend on a
variety of factors
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Employment and Output Growth:
Empirical Analysis
• Focus on Manufacturing
• Why manufacturing?
• Data source(s): UNIDO industry data, and other
data sources
• Periods: 1980s and 1990s
• Cross-country evidence on the relationship
between employment and output growth
• Has there been a shift in the relationship
between the two periods?
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Relationship between employment and
output growth (1980-89)
Annual Growth of Employment and Value Added: 1980-1989
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Botw
Mtius
Idn
10
Employment
Bgd
Kor
5
Thld
Ken
SAfr
0
-15
Arg
-10
-5
Mlwi
-5
0
Phil
Mex
Sgal 5
Pkst Mlsy
Srlk
y = 0.4458x - 0.0493
R2 = 0.2858
Ind
10
15
20
Nig
Value added
-10
Notes: Arg: Argentina; Bgd: Bangladesh; Botw: Botswana; Ind: India; Idn: Indonesia; Ken: Kenya; Kor: Korea; Mlwi: Malawi; Mlsy:
Malaysia; Mtius: Mauritius; Mex: Mexico; Nig: Nigeria; Pkst: Pakistan; Phil: Philippines; Sgal: Senegal; Safr: South Africa; Srlk: Sri
Lanka; T hld: T hailand.
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Source: Author's calculations based on Unido, Indstat 3, 2005.
Relationship between Employment and Output
Growth (1990-2002)
Annual Growth of Employment and Value Added: 1990-2002
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Nig
Employment
15
10
Bgd
Thld
Mex Mlsy
Bolv
Srlk
Sgal
Mlwi
Idn
Ghn
Botw
Ken
Ind
0
Phil
Arg
Pkst Mtius
Kor
0
5
10
Safr
Value added
-5
5
-5
y = 0.1561x + 2.5666
R2 = 0.0212
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Notes: Arg: Argentina; Bgd: Bangladesh; Bolv: Bolivia; Botw: Botswana; Ghn: Ghana; Ind: India; Idn: Indonesia; Ken: Kenya;
Kor: Korea; Mlwi: Malawi; Mlsy: Malaysia; Mtius: Mauritius; Mex: Mexico; Nig: Nigeria; Pkst: Pakistan; Phil: Philippines;
Sgal: Senegal; Safr: South Africa; Srlk: Sri Lanka; T hld: T hailand.
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Source: Author's calculations based on Unido, Indstat 3, 2005.
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Employment and Output Growth in
Selected Countries of Asia
Growth of Manufacturing Output and Employment in Selected Countries
of Asia
y = 0.4607x + 0.207
R2 = 0.5722
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12
Malaysia (1990-95)
Cambodia (1994-2004)
Indonesia (1975-96)
Employment
10
8
Bangladesh (1991-2002)
Thailand (1990-96)
Thailand (1980-89)
Malaysia (1995-2000)
Sri Lanka (1980s) China (1995-99)
India (2000-2005)
China(1990s)
(1985-90)
Sri Lanka
Thailand (2001-04)
India (1993-99)
India (1983-93)
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4
2
0
0.0
-2
Indonesia (2000-03)
5.0
10.0
15.0
Malaysia (1985-90)
China (1990-95)
20.0
25.0
30.0
Output
Source: Except Bangladesh, the figures from other countries have been obtained from in-depth country level studies that are
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referred to in Khan (2007). The figures for Bangladesh are from Ahmed, et al. (2009).
Relationship between Employment and
Output Growth: Overview by Region
• Asia:
 High output and employment growth: Bangladesh,
Indonesia (1980s and first half of 1990s), Malaysia,
Thailand
 High output growth with low employment growth:
China, India, Indonesia (after economic crisis)
 Decline in the employment intensity of growth: China,
India
 Bangladesh: Contradictory evidence:
 UNIDO data show improvement
 Earlier studies (e.g., ADB, 2005, Rahman and Islam,
2006)show decline in employment intensity
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Employment and Output Growth:
Overview by Region (contd.)
• Sub-Saharan Africa:
 Decline in employment intensity during the 1990s
compared to the 1980s: Botswana, Malawi and
Mauritius
 Improvement in employment intensity of growth:
Nigeria and Senegal
 Negative employment growth with positive output
growth: South Africa (1990-02)
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Employment and Output Growth:
Overview by Region (contd.)
• Middle East and North Africa
 Large variation: emp-elast. 0.14 in Egypt and 1.27 in
Jordan
 High employment elasticity (0.5-0.8): Morocco, Syria,
Tunisia and Yemen
 Low output growth (less than 5%) is a more serious
problem: (Algeria, Egypt, Iran, Morocco, and Tunisia)
• Latin America
 Argentina and Mexico: very little change in
employment intensity of growth
 Brazil: decline in employment intensity during the
1990s compared to the 1980s.
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Decomposition of Output Growth into
Employment and Productivity Growth
• Periods:
 Manufg : 1980-89 and 1990-2002
 Overall GDP: 1980-90, 1990-96, 1996-2002
• Balanced contribution of employment and productivity
growth: Korea, Malaysia, Taiwan, Thailand
• In South Asia, the contribution of labour productivity
growth is higher than expected
• The contribution of Labour productivity increased in
Bangladesh, China, India, Indonesia, Malaysia
• The pattern of growth in South Asia and China less
conducive to employment growth compared to East and
South East Asia
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Constraints on Employment Growth
• The notion of “binding constraints” used in
growth diagnostic literature (Hausman, Rodrik
and Velasco)
 Marginal welfare benefit of reducing distortion
• Possible constraints on employment growth
 The neoliberal approach and the blame on labour
market interventions
 Choice of technology and capital deepening
 Going beyond technology: start from the pattern of
growth
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Constraints on Employment Growth
(contd.)
• There is no conclusive evidence on the adverse
effects of LM interventions on employment
 Bean (1994, JEL): Evidence do not show that
generous unemployment benefits in Europe was the
cause of persistent unemployment
 Nickel (1997, JEP): Unemployment benefits do not
have an adverse effect on unemployment rates
 Forteza and Rama (2002, ADB report 2005) covering
119 countries: minimum wages and mandated
benefits do not hinder economic growth
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Constraints on Employment Growth
(contd.)
• Kapsos (2005, ILO WP): Rigidities in the labour
market do not have a negative effect on
employment elasticity
 The coefficient of the World Bank’s employment
rigidity index is not statistically significant and the sign
is opposite (cross section, 100 countries)
 Rigidity of employment index is the average of
three indices:
 difficulty of hiring
 difficulty of firing
 rigidity of hours
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Pattern of Growth and Employment
• Sector composition of output: Manufacturing
and others
 Growth of manufacturing in relation to GDP growth has been
much higher in countries of ESEA compared to those in South
Asia
• Sector composition of output: within
manufacturing
 In Malaysia and Korea, share of labour intensive industries
increased up to 1990
 In Thailand, this happened till 2002
 India witnessed a decline in the share of labour-intensive
industries
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Pattern of Growth and Employment
(contd.)
• Bangladesh:
 The share of both top five labour intensive and top
five capital intensive industries increased
 The share of ready made garments increased very
rapidly
 The share of a major labour intensive industry, viz.,
leather and leather products declined
• Sri Lanka:
 Similar to Bangladesh
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Pattern of Growth and Employment
(contd.)
• Pattern of demand: external
 Theory of comparative and the impact of trade openness
 India: Trade openness has not resulted in an increase in the
share of labour intensive sectors in exports
 Pakistan: Increase in the share of capital intensive exports
alongside high growth labour intensive exports
• Pattern of demand: domestic
 India: expenditure elasticity of demand for labour intensive
products higher for lower and middle income growps
 Difference in average expenditure on consumer durables more
marked than for basic items
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Pattern of Growth and Employment
(contd.)
• Pattern of demand: domestic
 Bangladesh: Income elasticity of demand for labour
intensive goods lower for richer people
 Some labour intensive goods (e.g., gur, firewood) are
“inferior goods” for the richer people
(See Table in the following slide)
• Implication of the domestic pattern of demand:
Importance of the level of income of the poor
and the distribution of income
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Income Elasticity of Demand for Selected
Consumer Goods in Bangladesh (1005-06)
Items
Income elasticity of demand
Top 10% of the
households
All households
Gur
-0.001
0.164
Firewood
-0.031
0.179
Lungi
0.100
0.231
Shirt and pant
0.353
0.616
Mill made cloth
0.149
0.306
Handloom cloth
1.453
0.338
Leather shoes
0.328
0.516
Kitchen items
0.502
0.438
Regrigerator, pressure
cooker, etc.
1.169
0.566
Furtniture
0.623
0.743
Note: Estimated from Household Income and Expenditure Survey data of 2005-06.
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Concluding Observations
• The term jobless growth should not be interpreted
literally
• Employment intensive growth implies high growth of
both output and employment
• The relationship between employment and output growth
is not invariant
• Empirical evidence points to a decline in the employment
intensity of growth in many developing countries
• Growth in ESEA has been more employment intensive
than in South Asia
• In some countries (e.g., China and India), high output
growth associated with low and declining employment
intensity
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Concluding Observations (contd.)
• In a dynamic economy, employment and labour
productivity can grow together
 Countries of ESEA has done better than those of South Asia
• Pattern of growth (sector composition) is important for
employment intensive growth
 In countries of ESEA, sector composition has been more
conducive to employment
 Trade openness does not necessarily lead to an employment
intensive pattern of growth
 Income distribution and the income of the poor are important
from the point of view of growth of labour intensive sectors
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Concluding Observations (contd.)
Policy
 Importance of overall policies shaping the pattern of
income distribution
 Possible distortions in incentive structure
 Capital made cheaper (India)
 Policy environment (including stimulus measures)
encouraging the consumption of capital-intensive items
(China, Indonesia)
 Absence of any measure to encourage the use of labour
 Identification of constraints operating on the supply
side for the labour intensive sectors
 Possibility of positive support
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