. Despite strong growth, job creation remains weak and is often of poor quality.
This is especially true for India, which grew at a rate of 7.2 percent in 2017 and which managed to reduce the number of poor people considerably.
But the growth of new job opportunities is below what many had hoped for; . Strong population growth also puts pressure on labor markets, with millions of Indians entering the job market every year.
. And those who work often do so only in the informal sector, which is larger than in any other region in the world. Some groups, like women or workers in rural areas, are at particularly high risk of having to work in the informal economy, where wages are often lower.
Meanwhile, trade in goods as a share of the economy is much lower than in other regions. The trends in India and much of South Asia differ from other regions, where trade, growth, and jobs are directly connected and go hand in hand.
This South Asian paradox raises the question of how governments can boost job growth, and how to raise the quality of new jobs so that economic development brings more shared prosperity.
, job creation and shared prosperity.
Traditionally, economic research on the relationship between globalization and labor markets has focused on the impact of falling tariffs or rising imports, with few studies examining the growth of local labor market opportunities and challenges that follow from increased exports.
The new World Bank-ILO report takes a novel analytical approach by combining household-level or worker-level surveys with trade data to construct a unique dataset that bolsters our understanding of how big changes in trade can impact local labor markets. .
In short, the report quantifies the potential benefits of trade to address the South Asian paradox. It finds that increasing exports per worker could lead to higher wages and better jobs, including more formal-sector jobs for women. It also shows that the impacts of trade are geographically localized, and the effects do not easily disseminate across all regions and all groups of workers.
Increased exports can explain the conversion of about 800,000 jobs from informal to formal between 1999 and 2011, representing 0.8 percent of the labor force. Increased exports also could result in a shift in workers, particularly low-skilled, from the informal sector to formal-sector jobs with greater wages and benefits. They could also lead to greater formalization rate for females than for males. In India, more than 90 percent of workers are in the informal sector.
To expand and widely share the benefits of exports, .
. This would require reducing economic and social obstacles to women joining the workforce in India, such as changing potentially discriminatory regulations now in place.
Boosting exports in labor-intensive industries, which is a comparative advantage for South Asia, could also significantly lower informal-sector employment, particularly for rural and less-educated workers.
Other steps to extend labor market gains more widely include investing in infrastructure, removing trade barriers, and increasing the ability of workers to move to areas and into occupations where new jobs are being created.
Regional challenges also must be addressed. Intra-regional trade accounts for just over five percent of South Asia’s total, compared with 50 percent in East Asia.
Greater global integration provides an opportunity to help address the South Asian paradox of remarkable growth with persistent labor market shortfalls and a stagnant or declining openness to trade.