The Role of Employment for Growth and Poverty Reduction

1
The Role of Employment for Growth and Poverty
Reduction

• PREM learning week 2007
• Catalina Gutierrez
• Pieter Serneels

2
Employment, poverty and growth

• Growing consensus growth translates into poverty
  reduction through employment
• Poor people live from their earnings from labor
• At the individual level, one can move out of
  poverty by
• Working more hours (for a constant level of
  earnings/hour) employment generation
• Increase effort per hour worked increase labor
  productivity in order to increase hourly earnings
• Moving to a job that gives higher earnings for a
  given level of productivity mobility

3

• But
• Policies emphasize (1) employment generation, not
  (2) changes in productivity or (3) labor mobility
• There is limited analysis on the links between
  growth, labor and poverty
• Why?
• Lack of data?
• No unifying theoretical framework for analysis
• segmented versus perfect labor market

4
How to proceed?

• Identify a useful theoretical framework
• Carry out empirical within-country analysis
• Carry out empirical cross-country analysis

5
How to proceed?

• Identify a useful theoretical framework
• Carry out empirical within-country analysis
• Carry out empirical cross-country analysis

6
Theoretical framework

• Two basic concepts
• Structural change (Chenery and Syrquin)
• Creative destruction (Schumpeter)
• Importance of
• The structure of the economy
• Labor mobility
• Labor institutions and regulations

7
Starting point multisector labor market

• The labor market exists of different segments
  offering qualitatively distinct types of
  employment
• Not everyone (with similar characteristics) gets
  access to the same type of job
• Segmentation can occur along different lines
  economic sector, formal / informal, rural / urban
• Need to go beyond dualism because of
  heterogeneity within a sector
• Analyze
• Each sector
• The link between the sectors

8
An operational framework for within-country
analysis

• Using aggregate data
• decompose growth
• decompose poverty
• Using household and firm data
• Employment and labor income profile
• How the labor market works segmentation, labor
  supply and demand and skills mismatch

9
An operational framework for within-country
analysis

• Using aggregate data
• decompose growth Ghana and Nicaragua
• decompose poverty Nicaragua
• Using household and firm data
• Employment and labor income profile Nicaragua
• How the labor market works segmentation, labor
  supply and demand and skills mismatch

10
Ghana Macro analysis
11
Ghana what we know

• Poverty has been reduced substantially

• Poverty reduction comes from growth, not from
  re-distribution (1991-98)

12
Ghana what we dont know

• How sustainable is growth and poverty reduction?
• What is the long term perspective?
• What is the role of the structure of the economy?
• What is the role of labor markets?
• We analyze what happened to
• productivity
• employment
• changes in the decomposition of the population

13
(No Transcript)
14
Decompose growth

• Y/N Y/E E/A A/N
• ?(Y/N) ?(Y/E E/A A/N)
• ?(Y/N) ?S(Y/E) ?S(E/A) ?S(A/N)

15
Decompose growth
16
Decompose growth
17
(No Transcript)
18
Conclusion

• Per capita growth is accompanied by
• an increase in output per worker (but
  contribution ?)
• a decrease in the dependency ratio (and
  contribution ?)
• a decrease in the employment share of the working
  age population in the first spell (and
  contribution now )

19
Decomposition by sector
20
Share of the sectors
21
Decomposition by sector
22
Decomposition by sector
23
Conclusion

• Classic growth story movement out of primary
  into secondary and tertiary sectors
• But output per worker in both secondary and
  tertiary sectors is decreasing.
  Informalization?
• And is increase in productivity in the primary
  sector due to out-movements only or due to
  technological change?

24
Nicaragua Macro and micro analysis
25
Value added growth
26
Nicaragua Aggregate Employment and Productivity
Profile of Growth
27
Nicaragua Employment and productivity profile of
growth by sector of economic activity
28
Sectoral contribution to growth
29
Linking employment and productivity growth with
poverty

• Identify sectors where the poor are
• Zoom into key employment/growth sectors
• Sectoral regression or decomposition approach

30
Nicaragua Employment shares by sector and
poverty level
31
Incidence of poverty by sector
32
Sectoral decomposition of changes in poverty by
household head
33
Zoom in

• Manufacturing Employment generated at very low
  wages. Maquila employment not for the poor
• Agriculture despite increases in income and
  prices, returns in agriculture still remain the
  lowest

34
Conclusions from macro analysis

• Demographic change presented a window of
  opportunity for poverty reduction
• Growth was mainly concentrated in the
  manufacturing sector
• Employment growth in manufacturing and
  Agriculture
• Employment generated in manufacturing did not
  benefit the poor.
• Employment in agriculture contributed to increase
  poverty, since the lowest returns are in this
  sector

35
Using Micro data the employment and labor income
profile of the population

• How important is labor income in total income,
  and how does this importance differ between
  income groups? How important are transfers in
  reducing poverty?
• How does the labor and demographic profile of
  households shape per capita labor income?
• Is poverty a result of a low earnings rate or of
  unemployment or underemployment?

36
Stylized facts

• Employment categories and earnings which type of
  employment do the poor have?
• Employment status by poverty level are the poor
  unemployed, employed or inactive?
• Structure of total income by quintile which is
  the main source of income of the poor?

37
Employment categories and earnings
38
Employment status by poverty level
39
Income structure
40
Growth in per capita household income by
quintiles in 2001 (panel)
41
Decomposition of changes in labor income
42
Conclusions from Nicaragua

• The demographic change presented an opportunity
  for poverty reduction but
• Despite the fact that the new population found
  jobs..
• Employment growth did not benefit the poor
• Growth was accompanied by increases in
  manufacturing and agricultural employment but by
  decreases in productivity in these sectors.
• Lowe productivity was reflected in lower wages in
  both sectors. Higher prices in agriculture
  increased income of self employed partially
  counteracting this negative effect in the income
  of the poor self employed in agriculture
• The poor have no access to manufacturing
  employment in maquila, which offers good wages

43
Policy implications

• Low education is restricting access of the poor
  the most dynamic sector in the economy
  manufacturing. It should become a policy priority
• Some evidence of segmentation agriculture/non
  agriculture suggests that rising productivity in
  agriculture should be at the forefront of policy
  initiatives