IFC Jobs Study:
Findings , implications and next steps
Roland Michelitsch
Development Impact Department, IFC
More information: www.ifc.org/jobcreation
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Thanks to the donors supporting the jobs study:
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Current dual jobs challenge:
o Quantity: 200 million unemployed. Additional
600 million jobs are needed by 2020.
o Quality: About 50% of jobs are informal and 30%
of workers are poor worldwide
Only the private sector can bring an answer, as it provides ~90% of
jobs worldwide – but the public sector needs to help.
IFC Jobs Study:
o Assesses the effects of private sector activity on job creation
o Elicits practical lessons for policy makers, IFC and other
finance institutions focused on private sector – and private
companies.
Why jobs matter…(1)
Why jobs matter…(2)
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4
“If you were to ask me, from all the world polling Gallup has done for more
than 75 years, what would fix the world — what would suddenly create
worldwide peace, global well-being, and the next extraordinary
advancements in human development,
I would say the immediate appearance
of 1.8 billion jobs — formal jobs …
This raises an important distinction —
not only do we need to create more jobs,
we need to increase the number of good jobs.”
Jim Clifton, Chairman and CEO of Gallup
Why jobs matter … (3)
Enterprise Survey
Analysis
IFC Job Study: Components
Infrastructure case study
Macro-case studies
Micro-case
studies
Literature review
Meta evaluation IFC
Operational experience
Collaboration with WDR
Financial Markets
case study
IFC’s Smart Lessons
competition
Blog
WEF-IFC Youth essay competition
Website ifc.org/
jobcreation
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MSMEs FI study
Funds analysis
Data from IFC’s DOTS
Advisory panel
Three distinct layers of policies are needed
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Source: WDR
Jobs challenges vary by country
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Source: WDR
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Constraints vary by countries and firms
* For this analysis: Small = 5-20 employees, medium= 21-99 employees, and large >= 100 employees.
Source: World Bank Group’s Enterprise Surveys covering 46,566 enterprises in 106 countries.
Four findings stand out:
Finance (A2F): A problem
particularly for SMEs
Infrastructure (A2I): A
reliable power supply is
the most important issue
for companies in low-
income countries
Investment climate (IC):
Informality is a key issue
in middle-income
countries and for SMEs;
taxation is also important
Training/skills (T&S): A
key challenge for larger
businesses and businesses
in high-income countries
Selected findings: Removing constraints creates jobs IC: Business entry reforms can have large positive effects,
particularly when combined with other reforms.
o Mexican one-stop shops: Firm entry + 5%, jobs +2.8%.
A2I: Most studies focus on immediate direct job creation,
but effects through enabling economic growth are even larger.
o A reliable power supply could increase job growth in low income countries, by at
least 4-5% … and probably much more. Powerlinks: Effects from having power far
outweigh direct + indirect + induced effects of power transmission.
A2F: Improvement can create significant number of jobs.
o Significant extra job growth from bank loans (>3%) or external financing (>4%).
o “Footprint”: Jobs provided - in 2011 IFC clients “reached” 23M MSMEs …
which employed an estimated 100M+ people huge potential.
o Job created: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in
economy … but attribution is difficult, and more studies needed.
T&S: Programs show mixed results, but involving private sector and
combining education with on-the-job training works best.
o Programs that included both had 20% increase in probability of success
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Cumbersome and costly regulations prevent companies from entering,
operating and growing.
Investment Climate
Investment climate adds up to the most pressing issue for firms
Source: Enterprise Surveys
Top IC
constraints:
(1) Informal competition
(2) Tax rate
(3) Corruption
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Informal firms provide a large portion of jobs in developing countries.
Investment Climate
Source: ILO, Department of Statistics, and IMF, World Economic Outlook.
Info
rmal
em
plo
ym
ent
(% o
f to
tal non-a
gri
cult
ura
l
em
plo
ym
ent)
36 countries
High poverty
low
informality
High poverty high
informality Low poverty
high
informality
Low poverty
low
informality
Population living below the national poverty line (% of total population)
Informality is closely linked to poverty
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Business entry reforms: Evidence of job creation, particularly when
combined with other reforms.
Mexico one-stop shop reform increased jobs (including self-employed) by
2.8% in eligible industries in one year
Business entry reform alone may not be not enough to formalize :
Business owners “Out of aspiration” 14.3% more likely to register.
Business owners “ Out of desperation” less likely to register, but 20.4%
more likely to become wage workers
Some evidence of benefits from IC reforms (e.g. competition reform);
but more data and impact evaluation needed.
Special economic zones (SEZs/EPZs), industry specific reforms:
Potential … and challenges
Selected Findings: Investment Climate (IC)
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Infrastructure: Increasing private investment
Source: Private Participation in Infrastructure Database.
Infrastructure investment by sector using PPP arrangements (US$ billions)
0
10
20
30
40
50
60
70
80
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Energy
Telecommunications
Transport
Water and sewerage
Need to
improve urban
infrastructure,
as more people
move to cities.
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Access to Infrastructure: Power
Second-order (“growth”) effects
Indirect and induced jobs
Direct
Improved/more firm services and inputs
(e.g. reliable power) more output/jobs
Indirect/induced jobs often larger than direct
jobs Important, but often ignored
Current focus on direct jobs, but larger job effects
through enabling economic growth
New power transmission lines in India, jobs created:
Construction and maintenance ~2K direct, and ~8K direct/induced in 25 yrs
Improved power supply: ~75K jobs from 2006-12
Reliable power supply could increase job growth in low income countries
by at least 4-5%
Powerlinks Case Study
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IFC invested in a power company that set up power transmission lines that
helped bring power from a hydropower project in Bhutan to India.
Case study tried to estimate (1) direct, indirect & induced employment effects
(construction & maintenance); and (2) effects of improved power supply (which
are much larger and potentially much more transformative for an economy).
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Selected findings: Infrastructure – other sectors
Telecoms/IT: Significant employment effects – especially for young
people – and use of technology can help spur job growth.
Strong job effects also from other infrastructure services (e.g.
water– irrigation), and huge needs from urbanization.
In LAC: water/sewer (100K), rural electrification (23K):
Strong direct job effects per $ billion invested – but regional/sectoral
variation.
Direct job creation is the focus of most studies, but “growth
effects” can be much larger – and women often benefit
disproportionately more.
Summary: Infrastructure – a big contributor to jobs, and the biggest
effects often come from improved infrastructure.
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Finance: Smaller firms have less access to financing
Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World.
Use of bank financing:
Small firms: 14%
Medium firms: 18%
Large firms: 25%
Sourc
e o
f fi
nancin
g f
or
work
ing c
apit
al and f
ixed
invest
ment
needs
(%)
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… and firms in poorer countries too
Ratio of domestic private sector credit to GDP
SMEs that have access to finance show significant job growth mainly
as a result of expansion of operations and technology investments
o 3.1% - 4.2% higher job growth with loans/overdraft, external financing
o “Footprint”: In 2011 IFC’s client FIs “reached” 23M MSMEs … which in turn
employed an estimated 100M+ people huge potential. Growth: Sri Lanka
case study – SMEs financed grew twice as fast (12%) as jobs in economy … but
attribution is difficult.
o Macro case studies: High job creation through FIs: Per $ million invested:
Estimated 228 jobs in Ghana, 107 jobs in Jordan
o From 2000 to 2010, 494 Firms financed by IFC’s private equity funds created,
net of job loss, ~300K jobs Strong growth compared to small portfolio.
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• Firms in developing countries: Less access to finance.
Financial markets are less developed.
• 45-55% of formal SMEs unserved, over 20% underserved,
70% don’t use external finance.
Gap: $2.5 trillion
Selected Findings: Access to Finance (A2F)
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Improve financial sector regulation: Liberalize to encourage entry and
lending … but enforce prudential regulations and protect property
rights (which helps lenders … and enterprises).
Improve financial infrastructure to improve information (e.g.
collateral registries). Example: 28%-40% higher likelihood for SMEs to
get a loan in countries with credit bureaus.
Step up competition – increases the incentive to reach out to SMEs.
Increase funding to FIs: Particularly for under-served groups, such as
MSMEs and women entrepreneurs.
How to improve access to finance?
Not enough workers for high-skilled jobs ~1/3 of companies can’t find the workers they need.*
Not enough jobs for low-skilled workers
Business owners/managers can lack skills to manage firms Limits potential for firm growth and job creation.
Training and Skills
29.3
43.8
67.1
27.2
38.7 42.8 43.4
0
20
40
60
80
Sm
all
Mediu
m
Larg
e
Low
Low
-m
iddle
Upper-
mid
dle
Hig
h
Firm size Income group % of
firms
offering
training
to their
workers
Source graph: IFC Jobs Study using Enterprise Surveys.
*ManPower Group (2012) sample of 41 countries ; **McKinsey Global Institute (2012)
Small firms are less
likely to offer
training to their
workers, even
though many
identify skills as a
constraint
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Training and Skills
Training, technology, and innovation can create jobs
Innovating firms attain more productivity and job growth than non-innovative
firms. This employment growth is inclusive*
But programs show mixed results on jobs; combining training with work
experience works best
Employment effects more significant in longer-term, and focused on
disadvantaged groups (e.g. women, low-income youth).
Combination can increase probability of employment up to 25% in urban areas and
up to 20% in rural areas.**
Comprehensive approach is needed
Dual vocational training systems - Germany and Switzerland – successful examples
Requires collaboration with private sector and relevant stakeholders
Clusters facilitate investments in training, technology, and innovation
E4E Initiative for Arab Youth: Jointly supported by IsDB and IFC - focuses on preparing
young people for the work place.
Sources: *Dutz et al. (2011). **Fares, Puerto (2009).
Where are the jobs?
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Particularly in poorer countries: Small businesses dominate
Small firms have the highest share of employment. For higher country income groups, large firms become much more important.
In addition: High informality … also small firms
Signs of “stunted growth” Impedes income growth
Job growth rate
of smaller
companies is
twice the average
of all companies.
However, small
companies are
more likely to go
out of business.
Source: IFC Jobs Study using Enterprise Surveys data
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Productivity
Larger firms tend to be more productive
Gains in labor productivity tend to be positively associated with
more job growth than destruction.
Why growth - into larger companies – matters
Many firms are born small and grow little in India and Mexico
Source: Hsieh and Klenow (2011)
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25
29.3
43.8
67.1
27.2
38.8 42.8 43.4
0
20
40
60
80
Small Medium Large Low Lowmid
Uppermid
High
Country Income Group Firm size
Firms offering training to workers (%)
by firm size and country income group
Productivity
Larger firms tend to be more productive, pay higher wages, offer more
training and often better working conditions.
Source: WDR 2013 team based on Ayyagari, Demirguc-Kunt, and
Maksimovic (2007), and on Montenegro and Patrinos (2012) Source: IFC Jobs Study using Enterprise Surveys data
Larger firms pay higher wages
Large is beautiful?
Macro-case studies:
- Jordan: 9,100 jobs from IFC investment (0.6% of
labor force) plus 3,200 from financing mobilized
- All: Tradeoff between value added per job and
number of jobs
• Invest in labor intensive sectors and Financial Institutions (FIs)
• Invest in larger non-FIs & sectors facing international competition … and develop value chains
Estimating effects … and tradeoffs
Short-term job growth
Long-term job growth
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Transformations
Other selected findings Direct job creation – net of losses - tends to be small
However, large job creation in supply/distribution chains (indirect), and in
whole economy (induced jobs)
Indirect jobs tend to be unskilled, providing opportunities for the poor
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Multipliers in IFC Projects
* Safal: multiplier calculated on total jobs provided instead of incremental jobs due to
difficulties with attribution.
Direct
Jobs
Indirect
Jobs Multiplier Sector, Country
Mriya 2,505 7,390 3 Agribusiness, Ukraine
Safal* 4,200 24,000 6 Steel, Africa
PRAN 294 2,198 7 Agribusiness, Bangladesh
Ecogreen 177 3,646 21 Chemicals, Indonesia
OCL 293 7,156 24 Cement, India
Micro-case studies in Manufacturing, Agribusiness and Services
Total jobs, not
just multiplier! Mriya 2009 vs. 2011:
more direct jobs
(increased quality),
multiplier declined.
Sector/Industry Total jobs (direct, indirect, induced) in the economy
for each direct job in a sector
Agriculture 1.2 (Chile) 2 (US and Scotland) 3 (Tanzania)
Mining 2.5 (Scotland) 5 ( US) 7 (Chile) 28 (Ghana)
Financial Services 14.9 (Indonesia) 19 (Ghana)
Oil and Gas 7.5 (US) 13.4 (Scotland)*
Hotels 1.24 (Scotland) 2.66 (Tanzania)
Retail 1.27 (Chile) 1.31 (Scotland) 1.89 (US)
Cement 2.47 (Scotland) 4.45 (US)**
Large variation for indirect and induced job creation effects
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*This number considers only petroleum refineries. **This number is for California only, not the whole country.
Source: Literature Review for IFC Jobs Study.
IFC-supported
supply-chain
linkage and
community
development
programs
Multipliers … and how to strengthen them
IFC’s Performance Standard 2: Labor and Working Conditions:
IFC sets standards for the private sector
Through the Equator principles, other private sector actors
and IFIs are adopting these standards too.
IFC works with clients to improve understanding of
labor standards through training and advisory services
Business case for higher standards: Less accidents, less turnover, higher
product quality, lower insurance premiums … higher profits
For maximum poverty reduction create good jobs in supply/distribution
networks, e.g. Antea Cement, Albania; Mindanao Bananas, Philippines.
Better Work (ILO/IFC) “Works” – Sector level (garments): Demonstrating
that improved labor standards can not only increase worker satisfaction, but
also worker retention, productivity, profits … and ultimately jobs.
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Not just number
of jobs; quality
matters
Quality of Jobs
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When there is greater legal differentiation
based on gender, fewer women work
Source: Women, Business and the Law database; World Development
Indicators; Enterprise Surveys.
Correlation between the two variables, after controlling for per capita income.
Gender: Unequal treatment …
Legal differences: 102 of 141 countries
Lack of access to finance: Less likely to get a loan … and paying more for it.
Cultural norms, less access to education, childcare …
Work in less productive areas, lower wages F
em
ale
labor
forc
e p
art
icip
ati
on
(r
esi
dual)
Number of legal differentiations (residual)
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Some solutions include:
Support women-friendly industries … and help women into leadership positions
Encourage female participation in non-traditional fields
Connect women to markets, support women-owned SMEs
Further develop business case for women as workers and leaders
Removing obstacles
benefits women, their
families, companies and
society
Women reinvest 90% of
income in families
With women-friendly policies
higher productivity … and
profits
Turkey: Increase female
participation in the labor
force from 23% to 29%
Reduce poverty by 15%
… and benefits from removing the obstacles
Some implications for IFC … and others IFC’s overall strategic focus on IC, infrastructure, A2F, and training and skills is
consistent with the key constraints to private sector … and job growth.
Use a “job lens” to identify and focus on the key constraints in the country,
region or sector (including gender/youth issues).
Help strengthen client companies’ linkages to domestic suppliers and
distribution networks Opportunities to support people at base of pyramid.
Assess private sector needs on training and skills, and support private
providers’ programs, particularly where education is combined with work
experience. Focus on helping SMEs (upgrade skills of managers & workers).
Working conditions (through E&S standards): Affect IFC’s clients, but also look
beyond: (1) work with “linked” companies; (2) industry standards (e.g. “Better
Work”), (3) global standards (“Equator Principles”).
Reduce obstacles to formality, particularly in low-income countries, support
emerging entrepreneurs … and create opportunities in formal enterprises.
Opportunities for collaboration – within the WBG, with IFIs and others.
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28 International Financial Institutions (IFIs) agree to collaborate:
Contributing to Creating More and Better Jobs
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Joint IFI Communiqué: Issued on the occasion of the launch of IFC’s Jobs Study: “Assessing Private Sector
Contributions to Job Creation and Poverty Reduction”, January 14th, 2013
“…
We will use the expertise and various tools each of our
institutions has developed, and act in a coordinated
manner, where appropriate, to maximize impact. We will
seek to learn from each other and spearhead efforts in
areas lacking knowledge and common methodologies, such
as job creation impact measurement and attributions. Our
efforts will complement other high level international
efforts seeking to promote job creation and to improve the
quality of jobs.
It is the time for all stakeholders to work together towards
addressing this major challenge, which will require all our
efforts to achieve lasting solutions. Together, we can
address this global challenge and find more effective ways
to create more and better jobs for the millions who need
them.”
Next Steps: Implementation( along with partners)
Emerging priorities
(based on ongoing consultations within the WBG, with IFIs and others)
1. Operational support: E.g. how best to strengthen jobs focus in
operations (e.g. applying a jobs lens at the country level; strengthening
value chains, making training more relevant for private sector needs,
etc.)
2. Better data: Apply, refine & harmonize methodologies; better under-
stand formalization; better data on employment effects and standards;
develop “business case” for better standards and monitoring, etc.
3. Enhanced collaboration: With IFIs and with others (e.g. ILO,
academia, private sector, civil society organization)
4. Improved communication: Improve ability to articulate contributions
of private sector activities to creating more and better jobs
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Consolidating a Joint Work Program along with interested
partners on creating more and better jobs
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