Structural transformation and the evolution to higher productivity and living standards

1. Structural transformation and the evolution to higherproductivity and living standards Duncan Campbell Director, Global Mega-Trends Team ResearchDepartment ILO

2. Somedefinitions, somereceivedwisdom

3. A few definitions • using World Bank groupingsbased on GNI per capita, i.e. lowincome, middle-lowincome, middle-highincome, highincome. a labour market discussion of eachiswarranted ! • « emerging », as defined by Antoine van Agtmael (IFC) • Embarked on economicdevelopment and reforms • Have begun to open theirmarkets and « emerge » • Fast-growingeconomies, in relative terms

4. First, the Lewisian basics • Developmentoccursthrough inter-sectoral change – from agriculture to light industry, to more advancedindustry, and the growth of services • The inter-sectoral shift yieldseconomies of scaleunavailable in traditional agriculture • This in turnresults in higherincomesthat inter alia fuel the growth of services

5. The decomposition of services • Manufacturinghadembodied services that have been beenoutsourced (e.g. custodial or restaurant services) • Thus, in causal terms, manufacturingcreates services initially … but the causalityis dual • Many services are local – a point to whichwe return • And many services are tradeable, thus not unlikemanufacturing

6. Where do we stand empirically?

7. Let’stake a look atwhatis happening empirically • Yes, developmenttheory has an empiricalfoundation, particularly in Asia • No, itis not capturing all of inter-sectoral change dynamics

9. a first distinction between « employment-led » and « growth-led » demand for labourmucheconomicactivity in developing countries is the search for demandcreationratherthandemandderivedfromproductmarkets

12. Regional economic and labour market prospectsEast Asia • ...as the economies in the region become more mature • Sharp increase in unemployment expected in the region from earlier low levels... Regional economic and labour market prospects

13. Economic Growth and the Service Sector

15. The middle class ($4-$13 ppp) per dayisgrowing in the developing world

16. A couple of upshots • Agriculture declines as share of GDP output, but much less as share of employment • Industrialization stymied in many countries (e.g. Philippines) • Industrialization when it occurs is capital intensive and less labor absorbing

17. Why all thismatters to the status of employment

18. a typology of status in employment paidemploymentis a developed-country phenomenon, exceptatitslowest end (casualwage labour by the rural landless) self-employment, with a significantsharebeing « survivalist » is a developing-country phenomenon variousforms of unpaidwork, and non-marketwork, are developing-country characteristics

21. Structural transformation is important becauseitaltersstatus in employment

23. A few (very few) words on Viet Nam

24. Growth but not many jobs?

25. Why? The viewfrom ILO and MOLISA in 2010 • The pace of restructuringistoo slow, from rural to urban, from agriculture to manufacturing, from public to private • Growth has been capital accumulation withlittle innovation … and capital intensive • Demographics: a population surgecoincidingwith a shortage of skilledlabor • Consideralsoexogenousconstraints to productivitygrowth

26. But Viet Nam has not faredpoorly relative to itsneighbors

27. What, in conclusion, seems to matter? «no country has made the arduousjourneyfromwidespread rural poverty to post-industrialwealthwithoutemployingtargeted and selectivegovernmentpolicies to modifyitseconomic structure and boostitseconomicdynamism.» In short, vertical and horizontal industrialpolicies

28. So, whatmattersis…. • Investment • Innovation • Capabilities • Productivity • Protection • And a pro-active state

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