Structural transformation and the evolution to higher

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Structural transformation and the
evolution to higher productivity and
living standards
Duncan Campbell
Director, Global Mega-Trends Team
Research Department
ILO
Some definitions, some received
wisdom
A few definitions
• using World Bank groupings based on GNI per
capita, i.e. low income, middle-low income,
middle-high income, high income. a labour
market discussion of each is warranted !
• « emerging », as defined by Antoine van Agtmael
(IFC)
– Embarked on economic development and reforms
– Have begun to open their markets and « emerge »
– Fast-growing economies, in relative terms
First, the Lewisian basics
• Development occurs through inter-sectoral
change – from agriculture to light industry, to
more advanced industry, and the growth of
services
• The inter-sectoral shift yields economies of
scale unavailable in traditional agriculture
• This in turn results in higher incomes that
inter alia fuel the growth of services
The decomposition of services
• Manufacturing had embodied services that
have been been outsourced (e.g. custodial or
restaurant services)
• Thus, in causal terms, manufacturing creates
services initially … but the causality is dual
• Many services are local – a point to which we
return
• And many services are tradeable, thus not
unlike manufacturing
Where do we stand empirically?
Let’s take a look at what is happening
empirically
• Yes, development theory has an empirical
foundation, particularly in Asia
• No, it is not capturing all of inter-sectoral
change dynamics
a first distinction between
« employment-led » and « growthled » demand for labour
much economic activity in developing
countries is the search for demand
creation rather than demand derived from
product markets
The “Dual Economy” is divided into a “traditional” and a “modern”
economy
The “traditional” Economy
The “Modern” Economy
is relatively more …
informal
Formal
Vulnerable in employment status
Likely to have a higher share of wage-earners
Rural
Urban
Likely to be less productive
Likely to more productive
Credit-insufficient
Access to credit
Likely to have a low capital-to-labour ratio
Likely to have a higher capital-to-labour ratio
Oriented to domestic, even local markets
Oriented to domestic and international markets
Sheltered from the impact of macroeconomic
policies
Exposed to macroeconomic policies
Deficient in the quality of jobs
Deficient in the quantity of jobs
Likely to be less or un-protected
Likely to have at least de jure protection
Prone to greater earnings instability
Stable and predictable in earnings and income
Unemployment rate
220
6.6
210
6.4
6.2
200
6.0
190
5.8
180
5.6
170
5.4
160
5.2
150
5.0
140
4.8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Unemployment rate (per cent)
Unemployment (millions)
Total unemployment
Regional economic and labour market prospects
East Asia
•
•
...as the economies in the region become more mature
Sharp increase in unemployment expected in the region from earlier low levels...
Regional economic and labour market
prospects
12
Economic Growth and the Service Sector
GNI p er capita and imp ortance o f services
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GNI per Capita (US$)
40000
30000
20000
10000
0

World Bank Classification Index
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20
40
60
Service (% of GDP)
80




Low i ncome countries (<$735)
Lower middle income countries ($736-2935)
Upper middle income countries ($2936-9075)
High income countries (>$9076)
The middle class ($4-$13 ppp) per day
is growing in the developing world
2,700,000
Above middle class
Employment by economic class (thousands)
2,400,000
2,100,000
1,800,000
Middle class
1,500,000
Near poor
1,200,000
Moderately poor
900,000
600,000
Extremely poor
300,000
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
A couple of upshots
• Agriculture declines as share of GDP output,
but much less as share of employment
• Industrialization stymied in many countries
(e.g. Philippines)
• Industrialization when it occurs is capital
intensive and less labor absorbing
Why all this matters to the status of
employment
a typology of status in employment
• paid employment is a developed-country phenomenon,
except at its lowest end (casual wage labour by the rural
landless)
• self-employment, with a significant share being « survivalist »
is a developing-country phenomenon
• various forms of unpaid work, and non-market work, are
developing-country characteristics
Agriculture, value added (% of GDP)
50
y = -8.92ln(x) + 43.876
R² = 0.457
40
30
20
10
0
0
20
40
60
80
Share of workers with secondary education or above
(% of total labour force)
100
Structural transformation is important
because it alters status in employment
A few (very few) words on Viet Nam
Growth but not many jobs?
Why? The view from ILO and MOLISA
in 2010
• The pace of restructuring is too slow, from
rural to urban, from agriculture to
manufacturing, from public to private
• Growth has been capital accumulation with
little innovation … and capital intensive
• Demographics: a population surge coinciding
with a shortage of skilled labor
• Consider also exogenous constraints to
productivity growth
But Viet Nam has not fared poorly
relative to its neighbors
What, in conclusion, seems to matter?
«no country has made the arduous journey from
widespread rural poverty to post-industrial
wealth without employing targeted and
selective government policies to modify its
economic structure and boost its economic
dynamism.»
In short, vertical and horizontal industrial
policies
So, what matters is….
•
•
•
•
•
•
Investment
Innovation
Capabilities
Productivity
Protection
And a pro-active state
Thank you!
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