GREAT insights Magazine

Creating More and Better Jobs: The Defining Issue of Our Time

20-02-2014

Michelitsch, R. 2014. Creating more and better jobs: The defining issue of our time. GREAT Insights, Volume 3, Issue 2. February 2014.

Hundreds of millions of people do not have jobs today and several hundred millions more will seek jobs by 2020. Most of these unemployed are under the age of 25 and live in developing countries. Whether these young people find jobs affects global security and well-being. 

Seeking solutions to global unemployment is an urgent and pressing development issue. Studies have shown that jobs are the most important pathway out of poverty. 

However, it is not just about the quantity of jobs produced. At the World Bank Group, working with our partners in development, we are also particularly concerned about creating quality jobs; these are ‘good’ jobs that are sustainable, offer fair pay, have good working conditions and provide opportunities for employees to advance. We also support quality jobs that provide opportunities for groups that are often marginalised – women, youth, the long-term unemployed and the poor. 

The World Bank Group is implementing an ambitious strategy to help us achieve our two development goals: ending extreme poverty by 2030 and boosting shared prosperity for the bottom 40%. Central to achieving these goals is how we can support the creation of more and better jobs. We know that the private sector – which provides 90% of the jobs in emerging markets and the majority of jobs in advanced countries – offers the only sustainable solution to global unemployment. The public sector also has an important role in creating a business environment in which the private sector can grow and thrive, as well as providing important social safety nets for the poor.

Job growth in emerging markets is essential for global demand, but as we have learned through the study ‘Assessing Private Sector Contributions to Job Creation and Poverty Reducation’ (1) published last year by the International Finance Corporation (IFC), the private sector arm of the World Bank Group, too many obstacles keep private companies from growing. Removing these obstacles can significantly increase job growth. 

Key factors for job creation

Some of the key findings of the IFC Jobs Study are:

• Investment climate: While some regulations are clearly important and useful, too much regulation “red tape’’ can hamper job growth. In Mexico, we learned that making entry easier for firms can add almost 3% to annual job growth. Combining entry with other regulatory reforms can have even greater impact. Brazil has demonstrated that by simplifying taxes a country can significantly lower the burden, particularly for small and medium sized enterprises (SMEs), while maintaining or even increasing tax revenues. Many tax systems today tax labour but subsidise capital.
• Infrastructure: Infrastructure is a critical constraint, particularly power in lower income countries. Many people focus only on the direct job effects of infrastructure, but we learned – in the case of India – how the effects of having access to power can be a large multiple of these direct job effects – in this case almost 40:1. The World Bank Group is now focusing much more on what we call “transformational projects”, and many of them are in the power sector. We are also learning how large the job effects are in other infrastructure areas, including ports.
• Access to Finance: Supporting particularly SMEs – which provide about two-thirds of the formal jobs in developing countries and the majority of jobs overall – can significantly add to job growth. Larger companies are important too as they tend to be more productive, offer higher wages, more training and better working conditions. Through their value chains, they typically offer a large multiple of the jobs they provide directly, reaching many SMEs and poorer citizens. For example, through a mining company in Ghana, we learned that by combining our investment with advice to strengthen local impacts, a firm can achieve much higher job multipliers than usual in the industry.
• Skills Mismatch: Often workers don’t have the skills companies are looking for. Engaging the private sector is critical for addressing this skills mismatch. Combining formal with on-the-job training significantly increases the chances of finding a job, and the private sector needs to be more systematically involved in curriculum design and also as training providers. This is the approach we have already started to implement in the Middle East and North Africa (MENA) region under the E4E Initiative for Arab Youth.
• Gender: Women face specific obstacles in many of these areas. For example, many legal differences still disadvantage women – in terms of owning property, or even bank accounts. Women are less likely to get a loan – and pay more if they do. All these obstacles result in fewer women working and running companies, and removing these obstacles is not only good for women, but also their families, companies and societies. For example, increasing female labour force participation in Turkey just marginally (from 23% to 29%) could help reduce poverty by 15%.
• Labour and Working Conditions: We have found that by setting global standards – through the Equator Principles, modeled after IFC’s Environmental and Social Performance Standards, helping individual clients improve their practices, and by improving industry standards – such as through the ILO/IFC Better Work program – we can successfully contribute to high quality and inclusive job growth that is also sustainable.

What the World Bank Group is doing to foster more and better jobs

When we launched the Jobs Study, twenty-seven international financial institutions (IFIs) signed a communique pledging to work with IFC on private sector job creation. This was in addition to efforts across the World Bank Group to collaborate on jobs to leverage our collective strengths. 

Since that time, the World Bank Group has continued to strengthen its focus on jobs. Instrumental to the success of our strategy is the establishment of Global Practices and Cross-Cutting Solution Areas, which will bring all technical staff together, making it possible for us to expand our knowledge and better connect global and local expertise for transformational impact. Job creation is central in all this and we are now putting in place a cross-cutting solution area on jobs, which will help provide seamless assistance to countries and companies seeking to create more and better jobs. 

Another key action to multiply our impact on job creation is working with other international financial institutions, the private sector, donors and other key players, like the International Labour Organization (ILO). Unemployment is too big and important an issue for one development institution to tackle alone. We will achieve the fastest and most sustainable results by working with other partners, than we would working separately and in parallel. To this end, IFC is coordinating a global partnership to create more and better jobs called Let’s Work (2).

Building on the findings of the Jobs Study and the experiences of our partners, Let’s Work will address the needs of various companies, sectors and countries on this pressing issue. Let’s Work will help further improve knowledge and develop practical approaches to tackle the jobs agenda that would serve as a public good for the development community. 

Roland Michelitsch is Global Head of the Let’s Work partnership at International Finance Corporation (IFC).

Image: photos.com

This article was published in GREAT Insights Volume 3, Issue 2 (February 2014).

Footnotes

1. See full report at http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/IDG_Home/JobCreation
2. See www.ifc.org/letswork