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With high levels of self-employment in developing countries (see our recent blog “Self-Employment and Subsistence Entrepreneurs?”), policy makers are weighing various types of interventions to reduce poverty and improve productivity. The options for them fall into two key categories: (1) helping raise the returns for the self-employed in the activities and sectors where they are now; and (2) helping move them from self-employment into higher paying wage jobs. In this blog, we share the perspectives of three experts: David Margolis (Research Director, Centre National de la Recherche Scientifique, University of Paris), Tim Gindling, (Professor of Economics, University of Maryland), and Gary Fields (Professor of Economics, Cornell University).
Some Skills should Come Before Jobs, Others Develop with the Job
To be clear from the onset: I will not oversimplify the unemployment (or inactivity) problem in the Western Balkan countries as solely due to a lack of skills in the population. Low employment rates result from both insufficient creation of jobs by enterprises and too-high a fraction of the workforce that is ill-equipped to take on the jobs that a modern economy creates. Both issues are intertwined. Solutions, therefore, require efforts on several fronts to enable a more vibrant private sector –including improvements in the business environment, enterprise restructuring, integration in global markets and promoting entrepreneurship— as well as to prepare workers for new job opportunities.
Bangladesh has set an ambitious goal to become a middle-income country by 2021—the year it celebrates the 50th anniversary of its independence. Equally important to achieving the coveted middle income status is making sure that all Bangladeshis share in the accelerated growth required to achieve this goal, particularly the poor. The Government of Bangladesh’s Vision 2021 and the associated Perspective Plan 2010-2021 lay out a series of development targets that must be achieved if Bangladesh wants to transform itself to a middle income country. Among the core targets used to monitor the progress towards this objective is attaining a poverty head-count rate of 14 percent by 2021. Assuming population growth continues to decline at the same rate as during the 2000-2010 period, achieving this poverty target implies lifting approximately 15 million people out of poverty in the next 8 years. Can Bangladesh achieve this target? Not necessarily so. A simple continuation of the policies and programs that have proven successful in delivering steady growth and poverty reduction in the past decade will not be sufficient to achieve the poverty target set for 2021.
The Western Balkans Case
When I travel to the Balkans for work, the journey typically begins with a cab ride to the airport from my home in Vienna. The taxi company I use is run and operated by Serbs living in Austria. It’s a great company: very reliable, clean cars and friendly drivers who are always keen to discuss the politics and economics of the Balkans. When I arrive in Belgrade, I’m picked up by drivers who have very similar skills to those of their compatriots in Vienna. However, the former have better salaries and opportunities simply because the company they work for operates in an environment that is much more conducive to nurturing and growing a business. In Austria, unlike in Serbia, a company can operate efficiently, is subject to a relatively fair tax treatment and knows the industry standards it needs to comply with. In turn, this explains to a large extent why workers, at any given levels of skills, are more productive in Austria – a basic intuition which William Lewis develops in his book The Power of Productivity, projecting the gains that Mexican construction workers make when moving to the USA.
More than half of all workers in the developing world are self-employed, mainly in agriculture. But unlike in the developed world, self-employment is typically because of constraints (like a lack of available wage jobs) – not by choice. In other words, it’s a question of survival. In this blog, we share the thoughts of three experts on the challenges these people face: Gary Fields (Professor of Economics, Cornell University), David Margolis (Research Director, Centre National de la Recherche Scientifique, University of Paris), and Tim Gindling, (Professor of Economics, University of Maryland).
This is the third in our series of posts by students on the job market this year.
Economists tend to believe that travel and trade costs reduce welfare. Trade papers like Irwin (2005), Redding & Sturm (2008), Storeygard (2014), and Etkes & Zimring (2014) draw on evidence from the United States, West Germany, sub-Saharan Africa, and the Gaza Strip to support this idea. One might reasonably expect, therefore, that the welfare of Palestinian commuters declined during the Second Palestinian Uprising (2000-2007), when the Israeli army deployed hundreds of roadblocks and checkpoints along the West Bank’s internal road network in order to defend Israeli civilian settlements. Although these obstacles were intended to deter and intercept militants, they had the unintended consequence of delaying Palestinian civilian travel between Palestinian towns, and from Palestinian towns to Israel (B’Tselem (2007), World Bank (2007)). Two World Bank working papers (Cali & Miaari (2014), van der Weide et al (2014)) take advantage of this ‘natural experiment’ to study the effects of travel costs on commuters’ welfare, finding that economic outcomes of Palestinians declined in the face of obstacle deployment. My job market paper, however, finds a very different result: while obstacles reduced the welfare of laborers in some towns, laborers from other towns actually benefited from obstacles. The salient outcome of obstacle deployment was not welfare reduction, but rather welfare inequality.
The correlation is simple: Job creation is the hinge connecting the three pivotal elements of economic development: living standards, productivity gains, and social cohesion. Promoting access to the labor market for all, including traditionally marginalized groups, is therefore paramount to achieving real, sustainable growth.
Following the success story of "Women, Business and the Law," which focuses on legislative gender discrimination and its impact on the economy, the World Bank Group is now launching a new initiative that will develop a set of indicators measuring discriminatory legislation on the basis of racial and ethnic origin, religion and sexual orientation. The project was presented externally for the first time on November 11 by Federica Saliola, Program Manager and Task Team Leader of the project, speaking at Sexual Orientation and Gender Identity & Development: International Human and Economic Development, LGBT Rights and Related Fields conference, organized by The Williams Institute at UCLA.
In her speech, Ms. Saliola reminded the audience that, despite the rapid growth in emerging economies, not all sectors of society have benefitted equally, income inequality has risen, and 1 billion people are still left under the poverty line. In the coming three years, the new project will thus expand the knowledge base of laws, regulations and institutions that discriminate against ethnic, racial, religious and sexual minorities and will collect data across a number of economies covered by the Global Indicators Group.