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

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 ElasticitiesStable 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 ElasticitiesFalling 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 ElasticitiesFalling 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

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,Geneve, 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

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

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 sector’s 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