Employment and Development: Good Jobs and Bad Jobs Turin, Monday, May 22, 2006 François Bourguignon...

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?


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


1. Evidence on the evolution of inequality, poverty and the labor market


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


… 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


… 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


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


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


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


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+), …


2. The relationship between income distribution, poverty, employment and the structure of earnings


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



Job 1 : w1

Job 2 : w2

Job 3 : w3

Job k : wk

Job N : wN




Household 4 (1 unemployed): (wN+1+y4)/n4 Poor


Etc…

Job N +1: wN+1

Labor market Households’ income (per capita)


“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


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


3. Defining “good” and “bad” jobs


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)


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.


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)


4. Examples of application : extended labor market indicators in Ghana, Mexico and Russia


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


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


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


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


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


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



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


Russia, 1994-2003


5. Conclusions


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.


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?

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