1. Employment and Development: Good Jobs and Bad Jobs Turin, Monday, May 22, 2006 François Bourguignon Senior Vice President and Chief Economist The World Bank Group

2. May 22, 2006Luca D’Agliano Lecture2 Motivation  Increasing concern about the issue of employment both in developed and developing countries (even the most dynamic ones.)  But real concern is about potential increase in income inequality and slowdown of poverty reduction.  Need to assess not only quantity of jobs but also their “quality”  Standard labor market indicators must be complemented by monitoring ‘good’ and ‘bad’ jobs  How should we proceed?

3. May 22, 2006Luca D’Agliano Lecture3 Outline 1. Evidence on the evolution of inequality, poverty and the labor market. 2. The relationship between income distribution, poverty, employment and the structure of earnings 3. Defining ‘good’ and ‘bad’ jobs 4. Extended labor market indicators : 3 examples of application (Mexico, Ghana, Russia) 5. Conclusion

4. May 22, 2006Luca D’Agliano Lecture4 1. Evidence on the evolution of inequality, poverty and the labor market

5. May 22, 2006Luca D’Agliano Lecture5 International inequality is falling (although mainly because of strong growth in China and India) … International inequality (weighted) Source: Branko Milanovic, Worlds Apart: Measuring International and Global Inequality, Princeton University Press, 2006.

6. May 22, 2006Luca D’Agliano Lecture6 … while inequality is increasing in a number of countries … Source: WIDER Income Inequality database, 2005

7. May 22, 2006Luca D’Agliano Lecture7 … And the labor share in GDP is declining Source: UN national accounts

8. May 22, 2006Luca D’Agliano Lecture8 Growing within country income inequalities often are associated with widening disparities in earnings Source: OECD Earnings dispersion (P90/P10) in selected OECD countries

9. May 22, 2006Luca D’Agliano Lecture9 Earning inequality may be increasing in fast growing developing countries too Source: Labor Markets in Asia: Issues and Perspectives, ADB, forthcoming

10. May 22, 2006Luca D’Agliano Lecture10 Growth becomes less labor intensive Source: Felipe and Hasan 2006, “The Challenge of Job Creation in Asia”, ADB

11. May 22, 2006Luca D’Agliano Lecture11 Implications for poverty reduction Increasing income inequality reduces the elasticity of poverty with respect to growth Examples : China (1990+), India (1990+), Mexico (1984-94), Uganda (1993+), …

12. May 22, 2006Luca D’Agliano Lecture12 2. The relationship between income distribution, poverty, employment and the structure of earnings

13. May 22, 2006Luca D’Agliano Lecture13 The state of the labor market and the distribution of household incomes Labor market Job 1 : w 1 Job 2 : w 2 Job 3 : w 3 Job k : w k Job N : w N Households’ income (per capita) Household 1 (1 earner) : (w 1 ) /n 1 Household 2 (1 earner) : (w 2 +y 2 )/n 2 Household 3 (2 earners): (w 3 +w 78 )/n 3 Poor Household 4 (1 unemployed): (0+y 4 )/n 4 Poor Household 5 (1 earner + 1 unemployed): (w 5 +0)/n 2 Etc… Job N +1: w N+1

14. May 22, 2006Luca D’Agliano Lecture14 The state of the labor market and the distribution of household incomes Job 1 : w 1 Job 2 : w 2 Job 3 : w 3 Job k : w k Job N : w N Household 1 (1 earner) : (w 1 ) /n 1 Household 2 (1 earner) : (w 2 +y 2 )/n 2 Household 3 (2 earners): (w 3 +w 78 )/n 3 Poor Household 4 (1 unemployed): (w N+1 +y 4 )/n 4 Poor Household 5 (1 earner + 1 unemployed): (w 5 +0)/n 2 Etc… Job N +1: w N+1 Labor marketHouseholds’ income (per capita)

15. May 22, 2006Luca D’Agliano Lecture15 The state of the labor market and the distribution of household incomes Job 1 : w 1 Job 2 : w 2 Job 3 : w 3 Job k : w k Job N : w N Household 1 (1 earner) : (w 1 ) /n 1 Household 2 (1 earner) : (w 2 +y 2 )/n 2 Household 3 (2 earners): (w 3 +w 78 )/n 3 Poor Household 4 (1 unemployed): (w N+1 +y 4 )/n 4 Poor Household 5 (1 earner + 1 unemployed): (w 5 +0)/n 2 Etc… Job N +1: w N+1 Labor marketHouseholds’ income (per capita)

16. May 22, 2006Luca D’Agliano Lecture16 “Quality” of jobs as a complement to standard labor market indicators Monitoring poverty requires: - Monitoring the labor market: quantity and quality of jobs being created (or destroyed) - Following changes in participation, non-labor incomes, family size, conditionally on changes in labor market Caution : Jobs may be created (or destroyed) by firms or by the households themselves (self-employment or family business) Aggregate unemployment/employment rates may not be very relevant labor market indicators in developing countries

17. May 22, 2006Luca D’Agliano Lecture17 The two sides of the labor market unemployment and working poor (ILO), 2004 ILO, World Employment Report, 2005

18. May 22, 2006Luca D’Agliano Lecture18 3. Defining “good” and “bad” jobs

19. May 22, 2006Luca D’Agliano Lecture19 How to assess the “quality” of jobs  Job quality is a multi-dimensional concept (Somavia’s ‘decent job’).  Job attributes include : Occupational health and safety Employer’s adherence to Core Labor Standards Affiliation to statutory social security schemes Other employee benefits Employment and earnings stability Number of hours of work Formal/Informal Level of earnings (‘working poor’, this paper)

20. May 22, 2006Luca D’Agliano Lecture20 Alternative definitions of “working poor”  EU-ILO definition (using micro data): working poor are those individuals in the labor force living in poor households.  ILO definition (using aggregate statistics): poverty rate for the population adjusted for different factors - demographics and participation rates. In the calculation of the worldwide count of working poor, ILO uses the poverty headcount ratio for the population times the size of the labor force.  Both EU and ILO use the household as the unit of reference and assess links between household poverty and the employment status of its members. This makes it impossible to isolate the role of labor market in the evolution of poverty.

21. May 22, 2006Luca D’Agliano Lecture21 Low pay as the definition of ‘bad jobs’ In the present study, bad jobs are defined as workers with earnings insufficient to maintain the median family above an arbitrary poverty line. Low pay threshold = 50% of the median per capita consumption expenditure * median dependency ratio (total household size/employed members)

22. May 22, 2006Luca D’Agliano Lecture22 4. Examples of application : extended labor market indicators in Ghana, Mexico and Russia

23. May 22, 2006Luca D’Agliano Lecture23 Methodological issues in implementation  Data source : Household Survey or Labor Force Surveys at two points of time.  Time varying low pay threshold so as to define ‘bad jobs’ in relative terms  Distinguishing between employment and price effects  Definition of universe and earnings Unpaid family workers (+unreported earnings) Self-employed/wage workers Hourly vs. monthly earnings Urban/Rural

24. May 22, 2006Luca D’Agliano Lecture24 The importance of low-pay jobs

25. May 22, 2006Luca D’Agliano Lecture25 Changes in labor market conditions in Ghana, 1991-1998

26. May 22, 2006Luca D’Agliano Lecture26 Net job creation in the urban wage sector : Ghana 1991-1998

27. May 22, 2006Luca D’Agliano Lecture27 Composition of the change in low- pay jobs, Ghana, 1991-1998

28. May 22, 2006Luca D’Agliano Lecture28 Changes in labor market conditions in Mexico, 1994-2002

29. May 22, 2006Luca D’Agliano Lecture29 Changes in labor market conditions in Russia, 1994-2003

30. May 22, 2006Luca D’Agliano Lecture30 5. Conclusions

31. May 22, 2006Luca D’Agliano Lecture31 General conclusions  Raising inequality and employment problems endanger development.  Growth with little poverty reduction and possibly increasing relative poverty is possible  Redistribution may mitigate the problems. What form should it take? What are its limits?  Close monitoring of labor market outcomes including job quality indicators necessary.

32. May 22, 2006Luca D’Agliano Lecture32 Methodological conclusions  Pay-based bad jobs/good jobs distinction is a way forward: conceptually clear and relatively easy to quantify.  Alternative definitions to be explored and discussed  Usefulness and policy relevance still to be explored  How much of observed changes in poverty does this distinction explain?