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More, Better Jobs

Nigel Twose's picture

Like every other development institution, The World Bank Group's International Finance Corporation (IFC) is deeply concerned with how to create more and better jobs. There’s no question that jobs are the key issue in any discussion about ending poverty.  The 60,000 poor people who participated in Deepa Narayan's Voices of the Poor study 13 years ago were right—jobs are the surest way out of poverty for people across the world.

Today, IFC publishes a report on the findings of a study about how jobs are created by the private sector.  Given the private sector provides 90 per cent of jobs, the estimated 600 million that   need to be created by 2020 will inevitably have to come from the private sector.Our report looks at the constraints that stop companies from creating jobs, and thus gives a sense of where IFC and others with IFC have to focus, if we are serious about making more of a dent on current unemployment figures and also, just as importantly, creating the millions of good quality jobs that will be needed for the young people who are entering the labor market.

It’s important to state upfront that IFC is not a research institution, and so our intention in carrying out the study is very much about how we can implement what we learn in our strategy and operations.

So what’s particularly striking?  Here’s my own, personal take:

1)    The firm size issue-- IFC gets lots of pressure to work with SMEs; but if  our overriding goal is poverty eradication, the report suggests we should focus on larger firms (they’re more productive, pay higher wages, create more and better jobs). At the same time, we need to help address the SME ‘stunted growth’ problem by tackling the obstacles preventing good SMEs from growing.  And then, yes, continue to support SMEs through Financial Intermediaries.

2)    Our focus on the number of direct jobs created by our clients is misleading. Far more jobs are indirect, meaning they get created in supply chains and distribution channels.  This suggests we should focus much more systematically on how to strengthen these channels through our investments and advice.  There’s one case study  on multipliers I thought was fascinating – in a mine in Ghana, 28 jobs were created in the surrounding economy for each job created in the mine itself.

3)    Training and skills are vital.  45 million people enter the work force each year, but more than a third of companies studied across the globe were unable to find employees with the skills they needed. Our current approach is investments in education providers  and  on-the-job training support, but it is a tiny amount of IFC's work.  This gives support to our MAS colleagues who want a more ambitious strategy on this, and a scale up of management attention.

4)    The nature of the jobs challenge varies by region and country. The unemployment rate is highest in MENA (10%), more than double EAP and South Asia.  Youth unemployment is also highest in MENA; vulnerable employment and working poor are the major challenges in South Asia and Africa.  This suggests we should consider a ‘jobs lens’ systematically applied in every operational strategy.  We have a high priority to design and test that tool, and also to put in place an implementation support team that can work with operational departments as they think through ways to strengthen their tailored jobs strategy.

5)    Finally, it’s important to note that not all jobs are created equal.  Jobs that don't meet environment and social standards have lower development impact, even negative development impact.

My job is to oversee IFC’s results measurement system and to help tease out the lessons for our work going forward.  We have a robust standardized system of measuring inputs, outputs and outcomes but, if we are honest with ourselves, it’s still a struggle to fully understand the sustained impact of our work. 

As we launch the jobs study, I’m wondering if jobs might be the best proxy indicator of impact for IFC.  Should we put job creation center stage in our strategy?  What would that mean? It certainly doesn’t mean we should try to count the total number of jobs IFC has created, which both internal and external experts have warned us against; nor does it mean setting ourselves a numerical target for job creation.

And how could we align this with our clients’ interests?  A successful firm is looking to maximize profits rather than the number of jobs it provides: can we see how to successfully link these two perspectives? How many of our clients are interested in the job creation effects of their business, and why? If we can understand this better, it might give us the key to the way forward.

I’d be interested in your thoughts.



 

Comments

Submitted by Anonymous on
The report states that "Small firms drive employment growth in developing countries, but they are also much more likely to enter and go out of business." However, your blog entry suggests that "they’re [large firms] more productive, pay higher wages, create more and better jobs." Do large or small firms create more jobs/drive employment growth?

Submitted by estephen B esteve on
i am here to suport for the fiegthing the poverty and i hope up to the END,...

to Anonymous: Thanks for your question. We need both- small firms as well as large. Small firms - as they drive employment growth, create more jobs and also face a phenomenon of stunted growth in which we see that they dont grow to their full potential because of constraints. But large firms in general tend to be more productive, create better quality jobs generally, and more importantly help spur growth of smaller firms through their value chains. So we need to work on both small and large. It is not either /or, but both. This is potentially important for IFC as we go forward.

Submitted by chimaobi okolo valentine on
Nigel Twose, your questions are good and of concern. However, there could be a way to do business, make profit and create jobs. I think IFC should consider the market strategy. Firms (large or small) meet at the market place. Even IFC has its own market. Its a place where buyers (large and small firms) and sellers (large and small firms and suppliers of labour) meet to exchange what they have for what they want. Large firms like Microsoft, Apple, Cocacola etc. Develop a product and create/ come to the market. When their market share and size increase, the demand on their product increase. They need more hands to meet the market's demand for their product. In order to do so, they come to the labour market in search of qualified persons for employment. As the market gets bigger, sales increase, profit increase,jobs are created and employment increase. While large firms are able to do this small firms scramble for crumbs that fall off the table. There is no way IFC or any organization or government can talk of job creation without focusing on small firms and SMEs. They are critical for development and reducing unemployment. IFC and the country government should help fund small firms and create market for their product. Unless they sell their product and remain in business, they cannot grow and cannot create jobs. A study on the effect of ank consolidation on SMEs access to credit in Nigeria showed that as banks consolidate and become bigger, they focus on bigger firms and neglect smaller ones. Microfinance banks were created to take care of SMEs but their capital and deposits are small to take care of all the emerging SMEs in the country. The study also revealed that as the deposit of microfinance banks increased, their lending increased. However, it is not yet enough to carter for the enormous number of SMEs in the country. If Microfinance banks in Nigeria and other developing countries are encouraged to quote and sell shares (source funds) in the capital market, their capital would increase as well as their deposit. Following the result of the study, when microfinance banks become buoyant, their lending will increase and SMEs will have more money to expand and employment will increase. Lastly, IFC can make profit and create jobs simultaneously if they help these firms (large or small) create and penetrate their markets.

Excellent post - and a great study too. Congratulations to the team and external contributors. Experts may have advised not to"try to count the total number of jobs IFC has created", but it seems to me that many development finance institutions are doing just this in their reporting (even reporting crude headline figures on jobs/$ invested). Since the DFIs jointly have investments in tens of thousands of firms, what we need is agreement on how to measure and disclose what types of investment in what size of firm in which sectors and locations generate most direct and indirect jobs, the strongest local supply chains and the best knowledge networks? Agreed, firm owners trade off between profitability and employment, but only to a limited extent. So it should be possible for DFIs to pool their knowledge and begin to choose between investment options that may generate similar financial returns but have very different employment multipliers.

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