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Labor and Social Protection

What the 2004 WDR Got Wrong

Shanta Devarajan's picture

The three points made in my previous post—that services particularly fail poor people, money is not the solution, and “the solution” is not the solution—can be explained by failures of accountability in the service delivery chain.  This was the cornerstone of the 2004 World Development Report, Making Services Work for Poor People.  In a private market—when I buy a sandwich, for example—there is a direct or “short route” of accountability between the client (me) and the sandwich provider.  I pay him directly; I know whether I got a sandwich or not; and If I don’t like the sandwich, I can go elsewhere—and the provider knows that. 
 

Tax Reforms for Ageing Societies

Sebastian Eckardt's picture

Taxing Labor versus Taxing Consumption?

 Europe’s welfare systems face substantial demographic headwinds. Increasing life expectancy and the approaching retirement of “Baby Boomers” will increase public expenditures for years to come. Rightfully, much attention is focused on containing additional spending needs for pensions, health and long term care.  But how is all this being paid for?
 
Currently, the majority of social spending, including most importantly pension benefits, in most countries in Europe and Central Asia is financed through social security contributions, which are essentially taxes on labor.  This has two important implications. First, in terms of fiscal sustainability, the growth in spending is only a concern if expenditures grow faster than the corresponding revenues. Since labor taxes are the predominant source of financing for most welfare systems in both EU and transition countries, aging will not only increase spending, but simultaneously exert pressure on revenues. With the exception of countries in Central Asia and Turkey, the labor force, and hence the number of taxpayers that pay labor taxes will decline by about 20 percent on average across the region. Second, already today, labor taxes, including both personal income taxes and social security contributions account on average for about 40 percent of total gross labor costs in Europe and Central Asia (including EU member states), compared to an average of 34 percent in the OECD. This means that for every US$ 1 received in net earnings, employers on average incur a labor cost of US$ 1.67. And out of the 67 cents that are paid in labor taxes, 43 cents (or 65 percent) are directly used to finance social security benefits. By increasing the cost of labor, the high tax burden potentially harms competitiveness, job creation, and growth in countries in the region.

Is Economic Growth Good for the Bottom 40 Percent?

Mamta Murthi's picture
Also available in: Română

Lessons from the recent history of Central Europe and the Baltics


Economic growth has returned to Central Europe and the Baltics. With the exception of Slovenia, all countries are expected to see positive growth in 2014 - ranging from a tepid 0.8% in Croatia, to more respectable growth rates of 2.2% in Romania and 2.8% in Poland, to highs of 3-4.5% percent in the Baltic Republics. Europe, more broadly, is also turning the corner and is expected to grow at around 1.5%.

Amidst this much welcome growth, however, one question remains: will economic growth be good for the bottom 40 percent and can they expect to see their incomes grow?

Informality – a Blessing or a Curse?

Megha Mukim's picture

IN134S06 World Bank Governments (and donors alike) don’t like dealing with informality. It’s messy, dirty, essentially unmeasurable, and its character varies dramatically. From one industry to the next. From one city to the next. It’s also beset with fiendishly difficult problems – informal firms are often household enterprises (employing mainly family labour, and not hired labour). Thus, they have to make impossible trade-offs between production and consumption.
 
And yet – the size and the importance of the informal sector in most countries shows no signs of abating. On average the informal share of employment ranges from 24 per cent in transition economies, to 50 per cent in Latin America and over 70 per cent in sub-Saharan Africa. In India, employment within the informal sector is growing, while that in the formal sector remains stagnant. Yet - very little is known about the relationship, whether symbiotic or competitive, between the two sectors.
 
In a new paper, I notice that in India formal firms tend to cluster with informal firms – especially in industries like apparel, furniture and meal-making. The firms coagglomerate not only so that they can buy from and sell to one another – but importantly, also because formal firms tend to share equipment with and transfer technical knowledge to their informal counterparts. Such technical and production spillovers are found in clusters of domestic-foreign, exporter-non-exporter and high-tech-low-tech firms. It is no surprise then that formal and informal activity could be complementary. Informal can also be an outlet for entrepreneurial activity, especially in places with high levels of corruption, or where formal firms are often mired in complex regulations.

Should Government Give Money to Tanzania’s Poor?

Jacques Morisset's picture

Men tilling a rice paddie on an irrigation project When confronted with financial distress or some other difficulty, over 80 percent of Tanzanian families say they count on relatives and friends for the support needed to get through it. This is to be expected in African culture which is shaped by a strong sense of affinity with family and tribal ties. 

However, in a poll conducted by the World Bank and Twaweza by phone in November, almost half of Tanzanian households also expressed that they expect to receive some help from their Government (see details in the fourth Tanzania Economic Update). In a world characterized by rapid urbanization and structural changes, government assistance is increasingly viewed as critical. In cities, especially, traditional ties and safety nets are generally losing their force. With economic progress, income disparities tend to widen. For example, the proportion of people living in extreme poverty (i.e. with barely enough resources to afford a 2,000 calorie diet) is only one percent in Dar es Salaam but over 15 percent in most rural areas.

A Tale of Two Impacts: Minimum Wage Outcomes in South Africa

Haroon Bhorat's picture

Worker pruning fruit trees Economist and Nobel Prize laureate James M. Buchanan remarked to the Wall Street Journal in 1996 that "Just as no physicist would claim that "water runs uphill”, no self-respecting economist would claim that increases in the minimum wage increase employment."  Of course this statement remains broadly true today, but the advent of better data, improved statistal techniques and the proliferation of country studies – have made economists far more careful about pre-judging the impact of minimum wages on employment and wages.  Indeed, in a now famous study of fast food restaurants in New Jersey and Pennsylvania, David Card and Alan Krueger showed how the imposition of a minimum wage had no significant disemployment effects, and in some cases increased employment, arising out of a large enough increase in demand for the firms’ products.
 
The evidence for South Africa, some twenty years after the demise of apartheid, is equally compelling.  In a two-part study, my co-authors and I find an intriguing set of contrasting economic outcomes, from the imposition of a series of sectoral minimum wage laws.  In South Africa, the minimum wage setting body, known as the Employment Conditions Commission (ECC), advises the Minister of Labour on appropriate and feasible minimum wages for different sectors or sub-sectors in the economy.  Currently, the economy has in place 11 such sectoral minimum wage laws in sectors ranging from Agriculture and Domestic Work, to Retail and Private Security.

Migration as Structural Transformation

Shanta Devarajan's picture
IN024S05 World Bank When a poor person moves from a low-productivity job to a higher-productivity one, we usually celebrate.  The worker is clearly better off; the hiring firm is no worse off; and it’s good for the economy as a whole.  Indeed, development is often described as the process of structural transformation, where low-productivity workers (typically in agriculture) move to higher-productivity jobs in manufacturing or services. 

But when that same worker happens to cross a national border, we call it “migration” and, instead of celebrating, we start investigating the effects on workers, firms and public finances in the new environment; and on those left behind (the so-called “brain drain”).  Instead of promoting structural transformation, we look for policies to manage it.

الحوار المفقود: كيف يمكن بناء رأسمالية أخلاقية في العالم العربي

Ishac Diwan's picture
Also available in: English

A young Egyptian holding a flag  تتصدى دول التحول العربي التي تضم تونس ومصر واليمن وليبيا حاليا لقضايا معقدة تتعلق بالقيم الفردية، ومدى حرية التعبير، والحقوق الشخصية، والأمور العائلية التي تدور جميعا حول القضايا الجوهرية المتمثلة في الهوية والأدوار التي يلعبها الفرد والدولة والمجتمع. وهذه الحوارات الاجتماعية بناءة من حيث إنها تعكس ثراء الرؤى وتعددها في مجتمعات كانت مسايرة الموجة هي السمة السائدة في كنف النظم الديكتاتورية. لكن للأسف، تؤدي هذه الحوارات إلى الاستقطاب في المجتمع بما يؤدي إلى العنف والتهديد بالفوضى واحتمال العودة إلى الاستبداد. في الحقيقة، يعكس الاستقطاب الاجتماعي الحالي إلى حد بعيد محاولات السياسيين استغلال الانقسامات الاجتماعية، بل وتأجيجها، بطريقة تذكي حماس أنصارهم المحتملين لملء الفراغ السياسي الذي نجم عن رحيل طغاة العصر. وتختلف حالات الحراك التي يشهدها المغرب والأردن والجزائر ولبنان بعض الشيء، إلا أنه في هذه الحالة أيضا يؤدي التركيز المكثف والاستثنائي على الهوية إلى تزاحم التحديات الاجتماعية والاقتصادية بطريقة أكثر أهمية وأكثر سرعة.
 

The Missing Conversation: How to Build a Moral Capitalism in the Arab Region

Ishac Diwan's picture
Also available in: العربية

A young Egyptian holding a flag The Arab transition countries, Tunisia, Egypt, Yemen, and Libya, are grappling with complex issues relating to personal values, the extent of freedom of speech, individual rights,  family matters, that all orbit around deep issues of identity and the respective roles of the individual, the state and society. These social conversations are constructive in that they reflect a rich pluralism of views in societies where conformity was the rule under dictatorship. But unfortunately, these dialogues are polarizing society, leading to violence and threatening chaos and a possible return to authoritarianism. In fact, the current social polarization to a large extent reflects attempts by political entrepreneurs to use existing social fault lines, and even exacerbate them, in ways that mobilize passions among possible supporters, driven to over-reach by the political vacuum created by the departure of the historical autocrats. The dynamics in Morocco, Jordan, Algeria, and Lebanon are slightly different, but here too, the intense and exclusive focus on identity is crowding out more important and immediate social and economic challenges.

Inclusive Growth in Turkey – Can it Be?

Martin Raiser's picture
Also available in: Türkçe


Turkey-21406200003 World BankThe issue of social inclusion in Turkey is a controversial one. In this blog, I want to present some data that suggest Turkey experienced inclusive growth over the past decade or so. My colleagues and I have shared this basic story with a number of audiences in Turkey and often the reaction is disbelief. So what does the data say?

The bottom 40 percent can look up

I use three pieces of evidence to make my case.  The first is based on recent work by Joao Pedro  Azevedo and Aziz Atamanov of the World Bank on shared prosperity. Joao Pedro and Aziz’s work is ongoing and much richer than what I want to present here. So let me just focus on the following chart, which shows the growth of consumption of the bottom 40 percent in Turkey between 2006-2011 and in a number of other countries during roughly the same period. Turkey looks reasonably good albeit not exceptional. The rate of consumption growth of the bottom 40 percent was just over 5 percent, around 0.2 points below the rate of growth for the average. What this means is that during this period of significant global economic turbulence the average welfare of the bottom 40 percent improved by more than one quarter. This was better than India, Indonesia, or Mexico, albeit worse than Brazil, China and Russia.

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