Improving Global Economic Patterns of

Growth and Employment

Jan KregelSenior Scholar, Levy Economics Institute of Bard

CollegeAnd Research Professor, Center for Full Employment and Price Stability, University of Missouri Kansas City

Divergent Performance

• While Growth Rates for Developing Countries Have Improved– Divergence has continued to increase

• Yet, Employment Prospects have not improved• But, Employment is Key to

– Mobilising Domestic Resources– Meeting the Internationally Agreed Development

Goals

• A More Active Employment Policy is Required – Such as a Guaranteed Jobs Programme or ELR

Employment Performance has not been as Good

• Problem of Employment Elasticities

• Expansion in jobs relative to expansion in national output

• Has been falling in most countries

Total Employment Elasticities Stable in East Asia (youth rising)

Rising in SE Asia (but youth falling)Falling in South Asia (youth falling sharply)

Source: “The employment intensity of growth: Trends and macroeconomic determinants.” Steven Kapsos ILO 2005/12

Total Employment Elasticities Falling sharply in Latin America (youth negative)

Negative in the Caribbean (youth sharply negative)

Source: The employment intensity of growth: Trends and macroeconomic determinants Steven Kapsos ILO 2005/12

Total Employment Elasticities Falling sharply in the Middle East (youth also falling and female falling sharply)

Falling in North Africa (negative for youth, female falling sharply)Falling in SS Africa (youth falling sharply)

Source: The employment intensity of growth: Trends and macroeconomic determinants Steven Kapsos ILO 2005/12

Total Unemployment RatesSelected Latin American Countries 1980-2005

0

5

10

15

20

25

Argentina Bolivia

Brazil Chile

Mexico

Total UnemploymentSelected Latin American Countries 1980-2005

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Argentina Bolivia

Brazil Chile

Mexico

Total Unemployment Rates Selected Asian Countries 1980-2005

0

1

2

3

4

5

6

7

8

9

10ChinaIndiaIndonesiaKorea, Republic ofMalaysiaThailand

Total Unemployment Selected Asian Countries 1980-2005

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

China

India

Indonesia

Korea, Republic of

Malaysia

Thailand

Total Rates of Unemployment. Selected AfricanCountries 1980-2005

Cameroon

Egypt Egypt EgyptEgypt Egypt

EgyptEgypt

Egypt Egypt

Egypt Egypt Egypt

Egypt Egypt Egypt

GabonNamibia

Namibia

Rwanda

South Africa

Tunisia Tunisia Tunisia

Zambia

ZambiaZambia

Zambia

Zambia

Zimbabwe

Zimbabwe

ZimbabweZimbabwe

0

5

10

15

20

25

30

35

40

AlgeriaCameroonEgyptEthiopiaGabonNamibiaRwandaSouth AfricaTunisiaZambiaZimbabwe

Total Unemployment. Selected AfricanCountries 1980-2005

CameroonEgyptEgyptEgypt

EgyptEgypt

Egypt

EgyptEgyptEgypt

EgyptEgyptEgypt

EgyptEgyptEgypt

GabonGhanaGhanaGhanaGhanaGhanaGhanaGhana GhanaGhanaGhanaGhanaGhanaGhanaGhanaGhana

Kenya

NamibiaNamibia

South Africa

Tunisia

Tunisia TunisiaZambia

ZambiaZambia

ZambiaZambia

Zimbabwe ZimbabweZimbabwe Zimbabwe

0

500

1000

1500

2000

2500

3000

3500

Cameroon

Egypt

Ethiopia

Gabon

Ghana

Kenya

Namibia

South Africa

Tunisia

Zambia

Zimbabwe

This is not a New Problem

• In 1977 Gerald Meier wrote: • “The labor absorption problem is now the central

problem of development. In a group of 14 LDCs …from the late 1950s to 1970, the total of known unemployed grew an average of more than 8% a year -- about three times the population growth rate.

• The labor force of the developing market economy countries was approximately 700 million in 1975, but …almost 300 million (some 40%) were unemployed or underemployed. About 5% … were openly unemployed -- "persons without a job and looking for work." About another 35%, however, were "underemployed -- persons who are in employment of less than normal duration and who are seeking or would accept additional work" and" persons with a job yielding inadequate income".

And predicted that it would remain a central problem

• Not only is there already an extremely large pool of underemployed; even worse, the projected growth in the labor force portends to exacerbate the employment problem as never before. It is expected that the growth of the labor force will accelerate -- to some 2.7% a year, …in contrast with 2.0% a year in 1960-70. This would amount to a doubling of the labor force in LDCs in the last quarter of the century. It is striking that even a conservative estimate indicates that the LDCs will experience over 1970 -- 2000 an increasing labor force equivalent to double the size of the entire labor force that was in the developed countries as recently as 1950 -- some two centuries after the Industrial Revolution.”

• Gerald M. Meier, “Employment, Trade and Development: A Problem in International Policy Analysis”, A.W. Sijthoff, Leiden, Institut Universitaire de Hautes Etudes Internationales,Geneve, 1977.

Even After the Success of the First Development Decade

• Meier also noted that at “the midpoint of the Second Development Decade, the World Bank's influential study of Redistribution with Growth begins by recognizing that: – ‘It is now clear that more than a decade of rapid growth in

underdeveloped the countries has been of little or no benefit to perhaps a third of their population. Although the average per capita income of the Third World that has increased by 50% since 1960, this growth has been very unequally distributed among countries, regions within countries, and social -- economic groups. Paradoxically, while growth policies have succeeded beyond the expectations of the First Development Decade, the very idea of aggregate growth as a social objective has increasingly been called into question’.”

Nonetheless Emphasis Remained on a Lack of

Financial Resources• Constraints to development:– Domestic savings gap– Scarcity of domestic resources– External resource requirements

• How to Overcome constraints:– Increase domestic savings– Foreign savings -- external resources

• Official development assistance• Private aid and investment flows

• Development Decades– One per cent of developed country GDP to be

transferred to developing countries to achieve 5 per cent growth of GDP

– 0.3 per cent private flows, 0.7 per cent ODA

Net transfers of resources Becomes Measure of

Success

But for four UN Development Decades negative net transfers were the rule

• 1960s, • lost decade of the 1980s, • financial crises of the 1990s

• Private Flows have become dominant– Resource flows no longer subject to

development needs, but to private incentives

Negative Net Transfers of Resources Prevail

-600

-500

-400

-300

-200

-100

0

100

200

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

$ Bi

llions

Developing economies

Africa

Eastern and Southern Asia

Latin America

No Fifth Development Decade:

Millennium Declaration• Reduced emphasis on resource transfers• A directed aid strategy• Designed to meet time-bound, measurable

Social Development Goals• Goals are symptoms of underdevelopment• Still requires external resources:

– $100 billion per year to 2015– What happens after 2015?

2002 Financing for Development:

Global Development Partnership• Developing countries responsible for

their own development• Primary source of development

finance is Mobilising Domestic Resources

• Developed countries to provide additional resources required to support sound national development strategies

What are the available domestic resources?

• Most developing countries have abundant natural resources

• But all have unemployed, underemployed or under qualified domestic labour

• Increasing employment presents the greatest unexploited potential for mobilising domestic resources

Recognised in 2005 Summit Outcome

Employment47. 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 an MDG

• High-level segment of the 2006 substantive session of the Economic and Social Council Ministerial Declaration reinforced the 2005 World Summit position

• Make full and productive employment and decent work for all, including for women and young people, a central objective of relevant national and international policies and national development strategies and to be part of efforts to achieve the internationally agreed development goals, including the Millennium Development Goals.

Full and Productive Employment

• New Goal of full mobilization of domestic labour resources requires– suitable employment opportunities– provision of adequate basic education– vocational and occupational training to

improve skills and productivity– unemployment benefit scheme that

avoids moral hazard and fraud – migration policy - remittances

Traditional Approach undermines Domestic

Mobilisation• External resource transfers fill resource gap• Private flows and Official Aid create debt

service obligations• Earnings of foreign currency needed to meet

debt service– External surplus = negative net resource transfer– BWI Structural Adjustment Program

• Reduce domestic level of activity to free resources to meet debt service

• Policy is Pro Cyclical• External surplus produced via fiscal surplus• Reduces domestic absorption and resource utilisation• Creates unemployment• Absence of Social Safety Net creates social

marginalisation

Domestic Policy Space requires Fiscal Sovereignty

• Is fiscal surplus sound resource mobilsation policy?– Government spending creates private

sector assets in the banking system– Taxation creates private sector debts to

the government that must be financed with those assets

– If taxes exceed government spending the private sector is in net deficit, i.e. insolvent

– If the private sector holds assets for other convenience purposes financial stability requires a government deficit over time equal to the private sector’s demand for money balances

Domestic Policy Space requires Monetary Sovereignty• Government spending increases unborrowed

bank reserves• Excess reserves drive interbank rates to zero• To keep interest rates positive the government

must borrow• As borrower of last resort it can fix the interest

rate • Interest rates are thus not constrained by private

sector willingness to buy government debt or the size of the deficit

• The government does not have to borrow or issue debt in order to deficit spend

• It follows that the government can always set the short term policy interest rate independently of the size of the deficit -- viz. Japan

How to mobilise domestic labour resources and provide

Counter Cyclical Policy?

• Government takes responsibility to provide public sector employment to all those willing and able to “work” at or marginally below the prevailing informal sector wage

• Restores Automatic Counter Cyclical Stabilisers to Aggregate Demand

• Increases flexibility in the labour market by creating a ready supply of labour to meet demand

• Provides training and skills to human capital

What does “work” mean?

• Different according to level of development

• Primary goals: – Maintain and improve skill level of the labour

force – basic educational skills– Provide social safety net – income maintenance– Provide social inclusion for the

unemployed/unemployable – social services– Meet the needs of female heads of households

to combine work with family responsibilities– Improve the well-being of society – useful

public works

Is Such a Programme Feasible?

• Argentine experience with Jefes programme– Education an integral part of the

programme – primary schooling to occupational training

– Interministerial cooperation – Labour, Eduction and Social Development ministries cooperated in providing educational programme

– Promotes work practice and experience– Provides vocational skills– Improves marginal communities– Provided 500,000 workers to meet demand

in the recovery

Is Jefes a relevant example?

• Verified examples of success• Verified examples of fraud and corruption• Depends heavily on local government for

implementation• Depends heavily on local initiative • Depends on Federal government for

financing• Constrained by government budget goals–

but need not be given monetary and fiscal sovereignty that Argentina currently possesses

Jefes is not ELR

• The Jefes programme was close to the ELR proposal but was an emergency response to the crisis

• A suitably designed ELR can build on the success of Jefes

• It can be designed to integrate the MDGs as well as the other Internationally Agreed Development Goals to be included in the National Development Strategies mandated at the 2005 Global Summit

ELR as an MDG programme

• A suitably designed ELR programme to provide employment can also be designed to satisfy:

• MDG Goal 1: Eradicate Extreme Hunger and Poverty

• MDG Goal2: Universal Primary Education• MDG Goal 3: Promote Gender Equality and

Empower Women• MDG 4 and 5: Reduce Child Mortality and

Improve Maternal Health