Jobs as a Gateway to Prosperity

The global spotlight is on jobs. Headlines last Friday highlighted the US jobless rate, which fell to 7.8 percent, the lowest level in four years. There was a sense of hope as the decline came primarily from an unexpected rise in the creation of new jobs, rather than people leaving the labor force.

Jobs are also front and center in the case of emerging markets. Last week the World Bank’s Job Trends reported that employment outcomes in major emerging market countries continued to perform well in the second quarter of this year, despite slowing economic growth. This can be interpreted as an indicator of resilience of those economies. I had suggested earlier that jobs could be used as a scorecard to gauge the balance between sources of strength in emerging economies, versus global slowdown trends.

Yet jobs remain a global concern. As this year’s World Bank’s World Development Report – (WDR 2013 – Jobs) – reckons, around 200 million people are formally unemployed in the world. Furthermore, there are many among 1.5 billion people working in farming and small household enterprises who could certainly be better-off by being occupied in better-paid wage jobs.

Jobs are much more than a scorecard of an economy’s macroeconomic heart beat. They are a vehicle for poverty reduction. In Latin America and the Caribbean, for instance, they have been responsible for lower figures of poverty and inequality of labor earnings since 2000, according to another World Bank report released last week: The labor market story behind Latin America’s transformation.

Jobs are also a channel to increase productivity and acquisition of skills through learning by doing and on-the-job training. A fifth to a quarter of world youth is currently neither studying nor searching for work, leading to a major loss in terms of foregone human capital. In addition, jobs are also a gateway to enhance social capital. Lack of hope on reaching prosperity through jobs can undermine the social fabric, leading to violence and erosion of social cohesiveness.

What to do about jobs? Let me select just three of the takeaway messages about policies contained in the WDR 2013 – Jobs. Firstly, despite the fact that jobs are primarily created in the private sector – 90% in developing countries – their numbers and the extent to which they are productive and inclusive depend on the environment established by the public sector. In addition to fundamentals like macroeconomic stability, the rule of law, appropriate regulatory policies, property rights and respect to basic human rights are requisites. The equation also includes essential infrastructure, access to finance, and basic human capital – adequate nutrition, literacy and numeracy – all of which are necessary for development-friendly job creation. The provision of these elements is an outcome of the work done by the public sector.

Secondly, unless labor market policies are extremely binding or lax, they are very rarely a major impediment to the creation of development-friendly jobs. Job-creation performance depends more strongly on policies elsewhere. This finding runs against two radical positions that often polarize an ideology-laden debate, one of them arguing for total scrap of regulations, while the other neglects that labor market regulation cannot be such as to suffocate the hen that lays golden eggs.

Thirdly, there is no one-size-fits-all policy for jobs. As in many cases illustrated by the WDR, policies need to be multi-sectoral, and provide complementary sufficient conditions. The package of required policies will vary over time and place.

Jobs are a gateway to poverty reduction, higher productivity, social inclusion and thus to shared prosperity. The WDR estimates that there is a global need to create 400 million jobs by 2020, just to match the growing world population. Going forward, job creation will be a topic that will define the current era of economic history.