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The 2013 World Development Report on Jobs: An elephant in the room?

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Rolph van der Hoeven

Professor of Employment and Development Economics, International Institute of Social Studies (ISS),  Erasmus University (EUR),  The Hague, The Netherlands
Date: 
16 November 2012
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Professor of Employment and Development Economics, International Institute of Social Studies (ISS),  Erasmus University (EUR),  The Hague, The Netherlands

The World Bank’s 2013 World Development Report on Jobs, prepared by a productive and enthusiastic team under Martin Rama and inspired by the new thinking of the Bank’s former Chief Economist Justin Yifu Lin, could not be timelier.

Well-paid and decent jobs are a challenge in all regions of the world. Not only does the global number of unemployed people stand at a record high, but many jobs have also become more precarious. 

The World Development Report (WDR) gives a good description of the different types of job, including non-wage jobs and the continuing informalisation of many economies. It emphasises that jobs drive development through various channels, such as increases in living standards, productivity and social cohesion.

This analysis advances thinking in the World Bank, which is noticeable in the ensuing policy sections. The report correctly observes that job creation is not the direct outcome of labour policies themselves, but depends on a wider array of fundamental policies. It also moves on from old arguments that the best labour-market policies are those that increase the flexibility of the labour market to improve efficiency.

Instead, the WDR proposes an ‘efficiency plateau’ for labour-market policies, arguing that either too little or too much intervention is bad for job creation. Like in the current debate on US fiscal policies, the report utilises the expression ‘falling off the cliff’ to characterise either scenario. It also argues that the parameters of the plateau are not constant.

In essence, the WDR espouses a more heterodox economic view that an optimum intervention is both time and context specific. It thereby rejects the ‘one size fits all’ approach to labour-market policies which characterized earlier editions of the World Bank’s Doing Business reports, where countries with fewer labour-market policies and interventions were rewarded with the highest rankings on ‘doing good business’. 

This more realistic policy stance calls for more careful design of policy interventions.

The discussion of labour-market policies in the 2013 WDR is more nuanced than in previous World Bank publications, acknowledging benefits and trade-offs of different interventions such as employment-protection legislation and minimum wages, collective representation, active labour-market programs, and social insurance. The report also argues that labour-market policies can contribute to redistributing incomes.

But, as the report explores, job creation is affected by a whole set of fundamentals. The report cites these as macro-economic stability, an enabling business environment, human capital, and the rule of law and respects for rights. In order to shape policy interventions that lead to job creation, the report proposes a decision tree where policy-makers are asked to identify and remove constraints in relation to a number of policies.

This puts the entire onus on the benevolent policy-maker and ignores two important things. First, that most countries don’t have benevolent policy-makers. Second, that shaping a social agenda is primarily the outcome of an internal political process and struggle between different groups in society: in short a process of social transformation, which is being increasingly informed by external influences as a result of globalisation.

The WDR does acknowledge that external influences shape the domestic labour agenda and discusses the international effect of rights and standards (making a strong point that voluntary labour initiatives cannot substitute for domestic efforts to implement legal protection), the benefits of liberalising trade while managing adverse impacts on labour, the advantages of migration policies, and the need for better international statistics on labour to inform all policies.

However, what is missing in this analysis of the international agenda is how financial globalisation, currently unchecked, is leading to job insecurity, a lower share of labour in national income, and greater inequality between workers. These are all well documented in various publications and literature.

Financial globalisation changes the nature of work. It means more flexible work in developed countries and continuing (sometimes even increasing) informal work in many developing and emerging countries. Globalisation is bringing more jobs to some fast-growing countries, but their remuneration and the security they offer are very unequally distributed. Averages of wellbeing in countries often conceal more than they reveal.

Financial globalisation has a major influence on livelihoods, working conditions and job security all over the world. Globalisation makes the power lines and tensions that dominate the national and international labour markets clear, and sharpens the contrast between those workers who are able to profit from globalisation and those who struggle to make ends meet, leading to less stable societies.

The fact that major international organisations and national policy-makers have failed to take strong measures to revert or counteract the trend of financial globalisation should not be an excuse for the WDR to ignore the strong influence of financial globalisation on jobs.

The elephant of financial globalisation is indeed in the room.