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The employment challenge

Print edition : Jan 14, 2005 T+T-

IN a world characterised by deep economic insecurity and employment instability, the notion of "decent work" may seem fatuous. But if economic stability is considered a desired goal for overall development, then the concept of decent work cannot be ignored. And central to the concept is productive employment, which in turn could result in poverty reduction.

The International Labour Organisation's "World Employment Report - 2004-05" has observed that if people are able to earn more from their work, poverty would decline. The report, which has employment, productivity and poverty reduction as its central themes, underscores the need to make employment a central objective of macroeconomic and social policies - rather than make it a "hoped-for-outcome" of policies that, more often than not, do not directly address the employment challenge.

The understanding that employment has to be central to policymaking stems from the concern that a substantial share of poor people in the world are already at work, mostly in conditions that may not be "decent". The theme of the report is based on strong conviction and empirical evidence that creating decent employment opportunities is the best way to take people out of poverty. A majority of the poor of working age do not get adequate incomes, which leaves them and their families below the poverty line. The global economic shift from the manufacturing sector to the service sector may not have exactly led to a sense of well-being among workers for ultimately it is the quality of employment that eludes a majority of them.

Current estimates, according to the ILO, show that 1.3 billion people in the world work, but are unable to lift themselves and their families above the poverty line, that is they earn less than $2 a day. Among them, 550 million cannot even lift themselves and their families above the extreme $1-a-day poverty threshold. Expressed in percentage, 49.7 per cent of the world's workers (and over 58.7 per cent of the developing world's workers) are not earning enough to lift themselves and their families above the $2 a day poverty line. In fact, it is in developing countries as well as the transition economies (countries that emerged as a result of the disintegration of the Soviet Union and the Balkanisation of Eastern Europe) where the ranks of the unemployed and "poorly" employed exist.

The report says that unemployment rates remained virtually the same in 2002 and 2003. Over the past decade, the industrialised economies were the only ones to experience falling unemployment rates, while in the others the rates either remained stable or increased. The transition economies have been the worst-hit in the past ten years, notwithstanding globalisation. They saw a sharp increase in unemployment from 6.3 to 9.2 per cent while in South-East Asia unemployment increased from 3.9 to 6.3 per cent (even though the rate of unemployment may have decreased).

Stable or even decreasing employment to population ratios, argues the report, can show that there is no additional demand for employment; but unemployment per se means that people are actively looking for work and cannot find work. In most developing countries, including India and most in South-East Asia, only few people voluntarily opt out of the labour market - if they do so, it is most likely because they have given up hope. But the fact remains that even a rise in the employment to population ratio does not indicate whether the work being done falls under the category of decent and productive jobs.

And, more interestingly, in West Asia and North Africa, where employment to population ratios have gone up, it is largely owing to the increasing participation of women in the labour markets of the region.

The crisis of employment is a visible one. Its manifestation may range from an anxiety to hold on to a low-paid job to the concern that grips highly paid analysts and programmers who face the threat of outsourcing. But evidence shows that even in the United States, the largest outsourcer among the industrialised economies, estimates of job losses on account of outsourcing represent only a small fraction of the jobs lost. And the level of insourced business is much higher than that outsourced.

But as labour markets get more integrated on a global scale, anxieties have also gone up amongst workers who cannot relocate in order to find employment; the globalisation of production has driven down wages in some sectors of developed economies in the face of increased competition from cheaper labour in low-wage economies. The ILO report contends that the indications of deficit of decent work in the global labour market are many - the absence of social protection and basic rights at work, and so on. A key economic indicator of that deficit is that men and women do not earn enough to lift themselves out of poverty.

The report recommends that policymakers go beyond a narrow focus on "unemployment" and "employment" to describe labour market conditions and, instead, adopt a broader, non-technocentric approach to productivity and employment.

Workers are consumers too. Wage gains arising from improvements in productivity make them spend more. The assumption is that productivity contributes to a country's standard of living. The most fundamental barometer of living standards is the earnings of people, determined by the level of their productivity.

The report says that policies ensuring basic property rights and enforcement of contracts can play a role in improving productivity. As examples, the report cites the 1978 rural reforms in China, which saw an explosive growth of town and village enterprises up to the mid-1990s and the tenurial security provided by the land reforms implemented by the Left Front government in West Bengal, which had a positive effect on agricultural productivity. Land reform laws in Indian States alone accounted for 10 per cent in the overall fall in poverty between 1958 and 1992. The issuance of property titles to urban households in Peru led to an increase in labour hours and a shift in labour supply from work at home to work in the outside market. All these examples mean that productivity, far from being an abstract, intangible entity, can be actually experienced if work-related realities are changed through policy interventions.

But notions of productivity differ. The report says that in recent months, companies in Europe, on the plea of remaining cost-competitive, expanded working time with no change in the level of remuneration.

The report in a sense goes beyond examining the links between poverty, employment and productivity. The impact of Information Communication Technology (ICT) on the labour market worldwide is a phenomenon under study and any generalisations about the concerns over "out-sourcing" are at best premature. But there is no doubt that the gains of "outsourcing" are immense for the country engaged in it. The report recommends a "supply-side" preparedness which means accessing the skills relevant to the future demand of labour.

The report also debunks the notion that a labour-intensive development strategy is low on productivity. It emphatically says that both theory and evidence from successful Asian economies suggest that countries should stress on the factor in which they have comparative advantage - and the easy availability of low-cost labour is a common factor in the developing world.

Labour-intensive economies are often agricultural economies as well and the World Employment Report cautions against ignoring this sector. It suggests that economies that are predominantly agricultural should not ignore this sector if the focus is on poverty reduction. The 1990s, says the report, has been a decade of neglect of rural policy. And China, despite becoming the "world's manufacturing base", saw a rise in both agricultural output and employment as also a substantial decline in poverty.

The report makes a strong case for good, stable employment. Growth, the ILO report stresses, is a function of not only productivity but also of employment. The logic is simple: if more people work, there will be more production. Despite this, many development initiatives fail to focus on employment.