Improving Global Economic Patterns of Growth and Employment

1
Improving Global Economic Patterns of Growth and
Employment

• Jan Kregel
• Senior Scholar, Levy Economics Institute of Bard
  College
• And Research Professor, Center for Full
  Employment and Price Stability, University of
  Missouri Kansas City

2
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

3
(No Transcript)
4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
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

9
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
10
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
11
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
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
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".

19
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,Gen
  eve, 1977.

20
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.

21
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

22
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

23
(No Transcript)
24
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?

25
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

26
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

27
Recognised in 2005 Summit Outcome

• Employment
• 47. 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.

28
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.

29
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

30
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

31
(No Transcript)
32
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 sectors demand for money balances

33
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

34
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

35
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

36
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

37
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

38
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

39
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