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 GNI per Capita (US$) 40000 30000 20000 10000 0 World Bank Classification Index 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! Stay connected with us at www.facebook.com/Vietnam.ILO
