Full and Productive Employment in Developing Economies

Towards the Sustainable Development Goals

Rizwanul Islam

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351256346
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

The United Nation's Sustainable Development Goals include a specific target for full and productive employment. However, what constitutes full employment in developing countries is not yet clearly understood. And likewise, there is no clear direction for developing strategies and policies to address this challenge.

Drawing on the author's deep knowledge of employment and inclusive development, this book presents a broad framework which could enable us to pursue the challenging goal of full, productive employment in developing countries. It revisits the conceptual foundations of full employment and carefully examines the issue of suitable indicators for monitoring progress. It also examines the challenges created by globalized production chains and labour market fluctuations caused by economic crises. This book throws light on a major lacuna in development thinking on how the challenge of creating productive employment for all in developing countries needs to be addressed. It provides a solution by re-examining relevant theories and empirical evidence, and by bringing out their implications for development strategies and policies. Finally, the focus falls on the effective implementation of employment strategies and policies.

This authoritative work will appeal to a diverse readership of academic researchers, think-tanks, international organizations, and development partners.

1 Introduction

The background and purpose of the book

As labour power is often the only productive asset possessed by the poor, productive employment that provides them with a decent living can be an effective means of getting out of poverty. Hence such employment has to be the cornerstone of the process of inclusive development. So, it is not surprising that the post-MDG development agenda articulated in the Sustainable Development Goals (SDGs) includes full, productive employment and decent work as one of the 17 goals.

However, it is far from clear how full employment should be conceptualized in the context of developing countries, in many of which open unemployment by standard definition is very low, and yet many who work continue to struggle with a living below poverty. Moreover, the question whether economic growth would automatically lead to the required growth of employment or whether development strategies and policies need to be geared towards more job-rich growth remains unsettled. Slow growth of employment is often blamed on rigidities in the functioning of labour markets, and making the latter flexible is regarded as “employment policy”. But the disappointing record of employment in situations where sustained high growth has been attained clearly demonstrates the need for a re-thinking in this regard.

Despite the recognition of the issue of employment in formulating the SDGs, the debate surrounding the issue of jobs, especially on why economic growth often does not lead to job creation at an expected rate, has not been resolved. At one extreme, there is still a tendency to deny the existence of the problem of slow growth of jobs in relation to economic growth. For example, the World Bank’s World Development Report on jobs (World Bank, 2012) attempts to dispel the notion of jobless growth by pointing out that economic growth is always accompanied by some growth in employment (pp. 98–99). There is, however, empirical evidence to show that there have been cases of zero growth of employment when economic growth has been positive (Islam, 2010; Islam and Islam, 2015). Moreover, the term “jobless growth” need not be interpreted in a literal sense of zero employment growth; when employment growth remains low, despite substantial output growth, the situation may be termed as one of jobless growth.

A more important point to note is the approach adopted to explain the slow growth of jobs. In this respect, the conventional wisdom is to argue that distortions in the labour market and its imperfect functioning act as constraints on employment creation. This view equates employment policy with labour market policies – i.e., policies for making labour markets flexible. Influential studies like the report of the Commission on Growth (2008) and the IMF’s report on job growth (IMF, 2013) are examples of this strand of work, although there are differences in details. In addition to labour market flexibility, the Growth Commission’s report does talk about the need for measures to jump-start the process of job creation by encouraging the growth of new industries. Likewise, IMF (2013) talks about “selected policy interventions” that might lift barriers to private sector job creation. However, the debate on employment still seems to fall short of recognizing that economic growth and labour market flexibility alone cannot solve the problem of slow employment growth.

Although there has been some work (including by the present author) on the link between economic growth, employment, and poverty reduction, the framework for an employment strategy has not yet been fully articulated. Likewise, indicators that would be appropriate for monitoring the progress in attaining full employment in developing countries need to be formulated carefully. Gaps also exist in the analysis of issues relating to the strategy for employment in a world where production chain is globalized, labour markets are vulnerable to periodic economic fluctuations, and the pursuit of competitiveness often exposes labour to the danger of falling off the cliff. There is thus a gap in the existing literature on the challenge of employment, and the present volume intends to address that gap.

This book presents a broad framework within which the challenge of the goal of full productive employment in developing countries could be pursued and argues that a re-thinking of development strategies and policies is needed to attain this goal. In doing so, it re-visits the conceptual aspects of full employment as well as indicators for monitoring progress in attaining this goal in developing countries. In addition, challenges created by the pursuit of competitiveness in the globalized system of production, economic fluctuations and crises, and concerns about conditions in which work is carried out are examined. The challenge of implementing employment strategies and policies is also addressed.

A readers’ guide to the book

Chapter 2: Structural transformation and employment

This chapter addresses the issue of the type of structural transformation of an economy that would be effective from the point of productive employment. The process of economic growth and development involves transformation of the structure of economies in a way that is characterized by a reduction in the share of agriculture and a rise in the share of industries and services in total output. An important aspect of this process in economies with surplus labour is transfer of workers from sectors characterized by low productivity to sectors/activities with higher levels of productivity and a rise in the incomes of workers. Theoretical explanations of structural transformation of economies have been provided by a number of scholars – both in the context of economic growth in general and in the context of dualistic economies of developing countries. And they postulate that the process of development involves a transfer of labour from traditional sectors (e.g., agriculture) to modern sectors (e.g., industry). In the received economic theories, manufacturing plays the role of the engine of economic growth and is expected to play a major role in absorbing surplus labour.

The experience of countries (especially of East and South East Asia [ESEA], e.g., Republic of Korea, Malaysia, Taiwan-China) that have been successful in achieving economic growth shows that the process of development was indeed characterized by a transfer of labour from agriculture to industry and the attainment of the so-called “Lewis turning point” – the stage where surplus labour was fully absorbed and expansion of employment beyond that point involved rise in real wage rates.

But the process described above has not been the universal experience; in many developing countries, even respectable rates of economic growth have not been accompanied by similar rates of employment growth and transfer of workers to sectors with higher productivity. In fact, countries of South Asia, e.g., Bangladesh, India, and Nepal have been less successful than those in ESEA in absorbing surplus labour. Such divergence in experience raises the question as to whether there are alternative approaches to structural transformation and generation of productive employment. The present chapter attempts to address this issue. In doing so, it adopts a comparative approach and provides an overview of the experience of selected countries of Asia. For addressing the question of alternative pathways to structural transformation, the main focus is on selected countries of South Asia, viz., Bangladesh, India, and Nepal.

Chapter 3: Conceptualizing the goal of full employment and the SDG framework

The post-MDG development agenda (viz., SDGs – adopted in 2015, with 2030 as the terminal year for attaining the goals) includes full and productive employment and decent work as a goal in addition to the goal of economic growth. If this goal is to be pursued seriously by developing countries, it is important to start from how the notion of full and productive employment can be conceptualized from a practical point of view. Once the goal is defined in a concrete and realistic manner, the next task is to identify a set of indicators that can be used to monitor progress towards attaining the goal. Both are areas where work needs to be undertaken at the conceptual as well as empirical level.

This chapter addresses the question how the notion of full and productive employment can be conceptualized for economies with surplus labour where open unemployment does not capture the challenge of employment. Given the limitations of the concept of non-accelerating inflation rate of unemployment (NAIRU) from the perspective of developing countries, an expanded framework and a few indicators are suggested for examining the progress being made with regard to the growth of productive employment. Possible application of the proposed alternatives is illustrated with particular reference to selected countries of South Asia.

Chapter 4: Labour market outcomes and inclusive development

In this chapter, an attempt is made to examine whether labour market outcomes like employment, wages, returns to self-employment, and social protection are contributing to make economic growth inclusive in developing countries. Although the term inclusion may be conceptualized in different ways, it is important to focus on both the process and outcome. While the process of inclusion can be captured through measures relating to employment, the outcomes can be assessed in terms of poverty, inequality, or other dimensions of human development like education and health. Another important element of inclusion is the degree of social protection provided by a society. Characterized this way, labour market outcomes are of direct relevance for inclusive growth. A number of questions are raised in this context.

• Is economic growth leading to the growth of productive employment that is needed for absorbing the new members of the labour force and for transferring workers from sectors characterized by low productivity to those with higher productivity?
• Is sector composition of employment changing in a way that contributes to poverty reduction (through higher incomes of workers)?
• Is access to social protection expanding along with economic growth?
• Is economic growth associated with growth of labour productivity and rise in real wages?
• Are real wages rising to contribute to reduction in poverty and inequality?

The present chapter attempts to address some of the above questions with particular focus on the experience of the countries of South Asia. The concept of employment elasticity with respect to output growth is used to examine the labour absorptive capacity of various countries and how that has evolved over time. Challenges faced by these countries in the area of social protection are pointed out. What has happened to real wages and the share of wages in value added is also be examined. Based on the above-mentioned analysis, an attempt is made to assess whether labour market outcomes have helped make economic growth inclusive.

Chapter 5: Economic fluctuations and vulnerability of labour markets

Central planning has by and large been abandoned as a tool for pursuing economic growth, and dependence on markets has become the rule. In such situations, periodic economic fluctuations are quite common, and in some instances, such fluctuations turn into economic crises. Apart from periodic fluctuations arising out of business cycles, economic crises also occur due to a variety of factors. Labour markets face risks and vulnerabilities arising out of economic fluctuations and crises, and are often adversely affected by crises. Moreover, recovery in labour markets may take longer than economic recovery. Unless an economy builds resilience to face such crises and to protect their labour markets from their adverse effects, lives, and livelihoods of workers are likely to be affected seriously. The present chapter deals with this issue.

The chapter starts by providing an understanding of the risks and vulnerabilities faced by labour markets in the face of economic fluctuations and crises, and reviews the experience of how labour markets were affected by a few major crises, e.g., the Asian economic crisis of 1997–98 and the global economic crisis of 2008–09. Labour market instruments that can help build resilience and address the adverse effects of crises are outlined.

Chapter 6: Has employment-intensive growth become history?

As mentioned already, economic development in countries with surplus labour is often characterized as a process of structural transformation through which the surplus labour is absorbed in modern sectors – first in manufacturing, followed by services. As several countries of ESEA attained success by pursuing such a growth path, other developing countries were also advised to pursue the same through open (or export-oriented) economic and trade-policies – the expectation being that such strategies would enable them to achieve growth, absorb their surplus labour, and reduce poverty. It may, therefore, be quite legitimate to raise the question about the degree to which such countries with surplus labour have been able to achieve the kind of development that was attained by the initial set of countries mentioned above.

The analysis and discussion in Chapters 2–4 show that the countries of South Asia have not been able to attain the same degree of success attained by countries of ESEA in terms of the level or pattern of growth required for absorbing surplus labour and reaching the Lewis turning point. And that was despite their shift from inward-looking economic policies towards outward-looking and export-oriented policies. Such experiences, in turn, raise the question whether a repeat of the type of employment-intensive economic growth through industrialization achieved by the countries of ESEA is at all possible. This question becomes even more pertinent in the context of two recent strands of discussions. The first concerns the possibility of premature de-industrialization while the second is a concern arising out of the availability of new technology that is regarded as the hallmark of the fourth industrial revolution. If de-industrialization starts before a country’s economy has absorbed all its surplus labour, the task of further labour absorption would become correspondingly difficult. Likewise, a premature spread of new labour-saving technologies may make it difficult to attain the Lewis turning point.

The purpose of the present chapter is to address the two issues mentioned above. It starts with a brief outline of the notion of employment-intensive growth and the role of industrialization in achieving such growth. That is followed by a recapitulation of the East Asian experience from the perspective of the employment-intensity of economic growth that was achieved. Then the issues of de-industrialization and of new technology acting as a brake on employment growth are examined with particular focus on countries of South Asia. The concluding section points out the difficulties faced by contemporary developing countries of Asia in achieving development and employment through labour-intensive industrialization.

Chapter 7: Globalization of production and the world of work: is a race to the bottom inevitable?

Globalization of production has influenced the world of work in ways not seen before. While some impacts have been positive from the point of view of workers, others have given rise to serious concerns. On the positive side, new employment opportunities hitherto unknown in many developing countries have opened. On the other hand, serious pressure on the working class has come through the stagnation of real wages and adverse workplace conditions. The term “race to the bottom” has come into circulation in that context. But this does not have to be the only way forward because there are useful positive aspects from which workers could benefit alongside the rest of the global community. This chapter explores possible paths to such outcomes.

The chapter starts by providing a brief overview of the picture of the world of work in a globalized system of production which gives rise to the danger of a race to the bottom. It is argued that a static view of competitiveness is inadequate even from the point of view of profitability and of benefiting from advantages opened by the globalization of production. This argument is illustrated with practical examples. How the global supply chain creates pressure on workers is illustrated with the specific example of the ready-made garm...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication Page
• Table of Contents
• Preface
• Acknowledgements
• 1 Introduction
• 2 Structural transformation and employment
• 3 Conceptualizing the goal of full employment and the SDG framework
• 4 Labour market outcomes and inclusive development
• 5 Economic fluctuations and vulnerability of labour markets
• 6 Has employment-intensive growth become history?
• 7 Globalization of production and the world of work: is a race to the bottom inevitable?
• 8 Re-thinking development strategies and policies for productive employment
• 9 Implementation of Employment Strategies and Policies
• 10 Concluding observations
• Index