Published on Jobs and Development

From structural adjustment to structural change: why jobs are the key to development

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ImageAs a professional economist for 25 years, I’m intrigued to see academic thinking towards growth and development swing back to where it was when I was a boy; structural change. As development partners, we need to re-think structural policy priorities to achieve shared prosperity by looking at countries through a jobs lens. The Bank has developed a jobs diagnostic tool kit to help with that process.

My personal journey as a development economist began in 1989 when all the talk was of structural adjustment.  It has brought me from structural adjustment to structural transformation, and from structural policy frameworks through growth diagnostics, to jobs diagnostics.  A coherent thread is that transforming economic structure through growth matters for development. Today, I believe that by taking a jobs lens to country diagnostics, we can and will prioritize better solutions for economic growth with transformation. 

Adopting a jobs lens to diagnosing policy priorities helps us to refocus growth priorities on the bottom 40% of income earners. These are people whose livelihoods rely heavily on their incomes from labor.  It makes us look at a country’s economic structure, because we need to start the prioritization process by profiling the characteristics of jobs and workers.  It connects real GDP value added to the labor productivity of individual men and women working in individual firms, or for themselves.  It focuses us on growth paths, demographics, mobility and geography, because we have to think about where young men and women will enter the workforce, how employable they are, and where they will find work.  And it connects us to transformation, or structural changes as drivers and desirable outcomes of economic growth.

There are a number of channels through which growth happens through jobs:
  • More people get work                  -> accumulation of labor through participation and employment
  • People get better at their job    -> labor productivity rises from within firms and sectors
  • People move to better jobs        -> labor productivity rises as people move to better jobs in better firms, and/or by migrating to towns and cities in more productive areas (or countries).
I’m not for a moment trying to take issue with the primacy of capital or innovation in the growth of production.  I’m not questioning the fundamental importance of stability for growth.  Nor am I putting forward a structuralist challenge to liberalization and privatization.

But I am suggesting that by following jobs and workers and by building a diagnostic framework that is consistent with labor market, industrial organization, and macroeconomic growth theory, we can be in a better place to prioritize between solution areas. 

Taking a jobs lens to structural transformation and labor productivity leaves us facing what Ricardo described as the ‘principle economic problem’; the functional distribution of incomes.  It is the relationship between capital and labor, and in particular who receives the returns to labor productivity gains which will determine the inclusiveness of growth.  Brynjolfsson and McAffee, Jeffrey Sachs, and now even the most macro of economists Larry Summers, have recently described how the race against the machine is going to affect the principle economic problem. It will also determine what future jobs look like.

I am now more convinced than at any time in my career that to achieve our twin goals of eliminating extreme poverty and increasing shared prosperity we need to get better at helping countries find solutions for growth-enhancing structural change (not policies for continuous adjustment).  And not just any path of growth: we have to find solutions that create growth with more, better, and inclusive jobs.

The 2013 World Development Report (WDR) on Jobs explains why.  Sure, growth is good for the poor, and yes, growth in production happens through time with capital accumulation and innovation.  But development happens through jobs.  It’s true: people escape poverty through working hard, and in all societies our basic concept of fairness is premised on the belief that hard work should be rewarded.  These are profound thoughts - with solid foundations in growth and equity - on which to build a search for solutions.  Personally I find these much more profound intellectual foundations for finding development priorities than the search for efficiency in markets, or the perpetual quest for stabilization (a temporary, and a growth and equity-independent condition).

Almost a generation since the 1991 WDR tried to unpack the Challenge of Development, I believe that by adopting a jobs lens to policy prioritization and formulation in our systematic country diagnostics we can find the real priority solutions to deliver the twin goals of poverty elimination and shared prosperity.

It was to help the Bank pursue this agenda that I joined Nigel’s team here in the World Bank’s Jobs Group, and it is why I start 2015 as hopeful as I have been in 25 years as a professional economist.
Dino Merotto is Lead Economist at the Jobs Cross Cutting Solution Area (CCSA) of The World Bank Group.


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