1. IFC Jobs Study & Moving Towards Implementation Roland Michelitsch Global Head, Let’s Work More information: www.ifc.org/letswork 1 Thanks to the donors supporting the jobs study:

2. 2  Current dual jobs challenge: o Quantity: Currently 200M unemployed, and 621M young people neither working nor studying. Additional 600M jobs are needed by 2020. o Quality: ~50% of jobs are informal and 30% of workers are poor  Only the private sector can bring an answer, as it provides 90% of jobs worldwide – but the public sector needs to help.  IFC Jobs Study: o Assesses the effects of private sector activity on job creation o Elicits practical lessons for policy makers, IFC and other finance institutions focused on private sector – and private companies. Why Jobs Matter

3. 3 Key Findings: major constraints facing firms Four findings stand out:  Investment climate (IC): Informality is a key issue in middle-income countries and for SMEs; taxation is also important  Infrastructure (A2I): A reliable power supply is the most important issue for companies in low-income countries  Finance (A2F): A problem particularly for SMEs  Training/skills (T&S): A key challenge for larger businesses and businesses in higher- income countries Removing Constraints Creates Jobs:  IC: Business entry reforms can have large positive effects, particularly when combined with other reforms.  A2I: Most studies focus on immediate direct job creation, but effects through enabling economic growth are even larger.  A2F: Improvement can help create significant number of jobs.  T&S: Programs show mixed results, but involving private sector and combining education with on-the-job training works best.

4. Where are the jobs? 4  Particularly in poorer countries: Small businesses dominate Small firms have the highest share of employment. For higher country income groups, large firms become much more important. In addition: High informality … also small firms Signs of “stunted growth”  Impedes income growth Job growth rate of smaller companies is twice the average of all companies. However, small companies are more likely to go out of business. Source: IFC Jobs Study using Enterprise Surveys data

5. 5 Firms offering training to workers (%) by firm size and country income group Productivity  Larger firms tend to be more productive, pay higher wages, offer more training and often better working conditions. Source: WDR 2013 team based on Ayyagari, Demirguc-Kunt, and Maksimovic (2007), and on Montenegro and Patrinos (2012) Source: IFC Jobs Study using Enterprise Surveys data Larger firms pay higher wages Large is beautiful?

6. 6 Young firms that grow rapidly, Gazelles, are the engine of job creation Gazelle firms, 2006-2008 Source: World Bank’s calculations using data from Amadeus database. Gazelle firms are those that increased employment at least 20% on average during 2006-08. In Jobs Wanted: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank

7. Sector/Industry Total jobs (direct, indirect, induced) in the economy for each direct job in a sector Agriculture1.2 (Chile)2 (US and Scotland)3 (Tanzania) Mining2.5 (Scotland)5 ( US)7 (Chile)28 (Ghana) Financial Services14.9 (Indonesia)19 (Ghana) Oil and Gas7.5 (US)13.4 (Scotland)* Hotels1.24 (Scotland)2.66 (Tanzania) Retail1.27 (Chile)1.31 (Scotland)1.89 (US) Cement2.47 (Scotland)4.45 (US)** Large variation for indirect and induced job creation effects 7 * This number considers only petroleum refineries. ** This number is for California only, not the whole country. Source: Literature Review for IFC Jobs Study. IFC-supported supply-chain linkage and community development programs Multipliers … and how to strengthen them

8. Other selected findings  Direct job creation – net of losses - tends to be small  However, large job creation in supply/distribution chains (indirect), and in whole economy (induced jobs)  Indirect jobs tend to be unskilled, providing opportunities for the poor 8 Measuring job effects * Safal: multiplier calculated on total jobs provided instead of incremental jobs due to difficulties with attribution. Direct Jobs Indirect Jobs MultiplierSector, Country Mriya 2,5057,3903 Agribusiness, Ukraine Safal* 4,20024,0006 Steel, Africa PRAN 2942,1987 Agribusiness, Bangladesh Ecogreen 1773,64621 Chemicals, Indonesia OCL 2937,15624 Cement, India Micro-case studies in Manufacturing, Agribusiness and Services Total jobs, not just multiplier! Mriya 2009 vs. 2011: more direct jobs (increased quality), multiplier declined.

9. OCL, India: Jobs creating opportunities 9

10. Powerlinks Case Study 10  IFC invested in a power company that set up power transmission lines that helped bring power from a hydropower project in Bhutan to India.  Case study tried to estimate (1) direct (<2,000), indirect & induced (~8,000) employment effects (construction & maintenance); and (2) effects of improved power supply (~75,000 – much larger and potentially much more transformative for an economy).

11. Macro-case studies: - Jordan: 9,100 jobs from IFC investment (0.6% of labor force) plus 3,200 from financing mobilized - All: Tradeoff between value added per job and number of jobs Invest in labor intensive sectors and Financial Institutions (FIs) Invest in larger non-FIs & sectors facing international competition Estimating effects … and tradeoffs Short-term job growth Long-term job growth Short-term job growth Long-term job growth 11 Transformations

12.  IFC’s Performance Standard 2: Labor and Working Conditions: IFC sets standards for the private sector  Through the Equator principles, other private sector actors and IFIs are adopting these standards too.  IFC works with clients to improve understanding of labor standards through training and advisory services  Business case for higher standards: Less accidents, less turnover, higher product quality, lower insurance premiums … higher profits  For maximum poverty reduction create good jobs in supply/distribution networks, e.g. Antea Cement, Albania; Mindanao Bananas, Philippines. 12 Not just number of jobs; quality matters Quality of Jobs Demonstrating that improved labor standards can not only increase worker satisfaction, but also worker retention, productivity, profits … and ultimately jobs. ILO-IFC Better Work program: Currently working with… 42 global apparel brands and 600 factories employing over 700,000 workers in 7 countries to improve compliance with labor standards and competitiveness

13. 13 Women face additional obstacles … Investment climate Access to Infrastructure Access to Finance Training and skills Legal differentiation in 102 of 141 countries makes women less likely to work, own or run a company Women often pay the price for poor infrastructure … which keeps them from getting a job Women are less likely to get a loan … and pay more if they do Women get less education … but even educated women earn less than their male peers Cultural norms, lacking access to childcare facilities … keep women from jobs.

14. 14 Some solutions:  Support women-friendly industries … and help women into leadership positions  Encourage female participation in non- traditional fields  Connect women to markets, support women- owned SMEs  Further develop business case for women as workers and leaders Benefits:  Women reinvest 90% of income in families  With women-friendly policies higher productivity … and profits  Turkey: Increase female participation in the labor force from 23% to 29%  Reduce poverty by 15% Removing the obstacles benefits women, their families, companies and society Recent research and analysis further strengthens the case, e.g. IMF study (benefits for society), WB study (Gender at Work), IFC study (Business Case for Women's Employment).

15. Preparing youth for jobs  Skills play a key role in improving access to economic opportunities for youth.  Mismatch between skills of (potential) workers and skills demanded by companies.  Despite increasing levels of formal education, the education system lags behind labor market needs. o Socio-emotional skills (30-40% of firms: responsibility & reliability; motivation & commitment; communication; customer care); >25% literacy and teamwork)  Many youth face additional (and often multiple) barriers to employability. o Women, ethnic minorities, youth from vulnerable backgrounds or lagging regions  Lessons from the international experience on what can be done. o Engage the private sector (needs assessment, curriculum design, final exams, combine formal with on-the-job training, private providers) o Start early, use a comprehensive approach, measure, learn and adapt 15

16. Some implications for IFC … and others  IFC’s overall strategic focus on IC, infrastructure, A2F, and training and skills is consistent with the key constraints to private sector … and job growth.  Use a “job lens” to identify and focus on the key constraints in the country, region or sector (including gender/youth issues).  Help strengthen client companies’ linkages to domestic suppliers and distribution networks  Opportunities to support people at base of pyramid.  Assess private sector needs on training and skills, and support private providers’ programs, particularly where education is combined with work experience. Focus on helping SMEs (upgrade skills of managers & workers).  Working conditions (through E&S standards): Affect IFC’s clients, but also look beyond: (1) work with “linked” companies; (2) industry standards (e.g. “Better Work”), (3) global standards (“Equator Principles”).  Reduce obstacles to formality, particularly in low-income countries, support emerging entrepreneurs … and create opportunities in formal enterprises.  Opportunities for collaboration – within the WBG, with IFIs and others. 16

17. Applying a jobs-lens to Serbia: Business Environment  Doing Business 2014: Serbia ranks 93 out of 189 countries (1=best). Worst: Construction permits (182 nd ), Paying taxes (161 st ), Enforcing contracts (116 th )  Top three obstacles identified by companies are political instability (20.7%), informality (19.9%) and finance (17.8%)-- Enterprise Surveys 2009. 17 Source: Enterprise Surveys.

18. 18 The jobs challenge is the most daunting in SEE countries Employment Rate (population aged 15+, first quarter 2013) Source: ILO and ECA Regional Jobs Report (2013) in World Bank JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank Notes: *denotes data for 2012. Data is not seasonally adjusted.

19. 19 Unemployment is not the only problem among youth Notes: NEET= Not in employment, education or training. *Estimates MENA= Middle East and North Africa; SEE = Southeast Europe; SAR = South Asia Region; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; EAP = East Asia and Pacific; AFR = Africa Source: World Bank’s calculations.JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank

20. …and education and training systems are not equipping youth with the skills employers most value JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe The World Bank Skills that young workers are lacking according to FYR Macedonia employers (% of firms) Source: World Bank (2010) FYR Macedonia Labor Demand Study.

21. Specific challenges in South East Europe Fast population ageing makes the jobs challenge more pressing (sustainability of pensions and growth) Source: World Bank’s calculations. In JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe. The World Bank

22. Snapshot of the Serbian Economy: Industry Employment in 2011 22 Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

23. Small firms dominate by number Serbia: Number of Small, Medium and Large Firms 23 Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

24. But large firms also provide lots of jobs Serbia: Employment in Small, Medium and Large Firms 24 Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

25. Small: 10,739 Firms,Net 41,760 New Jobs Medium: 105 Firms, Net 3,064 New Jobs Large:30 Firms, Net 41,570 New Jobs 25 Few Large Firms Create as Many Jobs as Many Small Firms (Serbia 2005 Cohort) Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

26. Typical pattern: The smaller the firm, the fewer survive Serbia: Cumulative Survival by Initial Firm Size (Cohort 2006) Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

27. Southeast Europe: Very high unemployment, even higher among youth Source: World Bank based on LFS. In JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe The World Bank.

28. 28  Investment climate  Combine reforms: A business entry reform combined with other interventions, such as a taxation or inspections/governance strengthening  Infrastructure PPPs: Increase in transportation PPPs has –sometimes-- involved costly cancellations renegotiations. Limited “success stories” in ECA.  A2F for MSMEs  Eastern European countries, where private sector is only two decades old, microenterprises are source of 10-20% of manufacturing jobs, and 30-50% of jobs in services. Micro and small enterprises play critical role in job creation and destruction.  Comprehensive approach to address youth unemployment: “Supply” (skills) and “Demand” (jobs). Requires collaboration among relevant stakeholders such as the private sector, organizations working with youth, government, etc. Skills missing: Typically “softer skills” (reliability, motivation, communication, customer care)  Entrepreneurial skills are also lacking.  E.g. combine A2F or work with larger companies’ supply chains with building these skills.  Industry clusters or large companies as growth pole: Micro-case studies showed that supply and distribution networks are at the core of job creation and poverty reduction. How can we boost employment in ECA? Does this sound right?

29. 28 International Financial Institutions (IFIs) agree to collaborate: Creating More and Better Jobs 29 Joint IFI Communiqué:  Use expertise and act in a coordinated manner to maximize impact.  Learn from each other and spearhead efforts in knowledge and methodologies.  Complement high-level international efforts to promote job creation and improve quality of jobs.  Work together towards addressing the creation of more & better jobs, which requires joint efforts for lasting solutions  Commitment to promoting quality jobs and the inclusion of vulnerable groups, such as women, youth, and the poor.

30. Since the launch of the Jobs Study, there is strong demand and momentum to implement the Study’s findings from key partners: Private Sector Clients: Eager to articulate and strengthen job effects of their operations Countries: Eager to apply jobs focus on their agenda Donors: Want to be able to articulate the impact of their support on job creation IFIs: Want to agree on methodologies, better articulate their own impact and how to prioritize activities for maximum job creation Others: Desire to partner with IFC and some have already started to apply methodologies developed by IFC Where are we? We are moving urgently towards the implementation of the Jobs Study findings

31. 31 Let’s Work: A Global Partnership to Create More and Better Private Sector Jobs

32. Envisaged Governance & Structure 32 Steering Group Takes strategic decisions & finalizes the work program Program Coordination Unit Housed at IFC & coordinates the internal & external work program Technical Advisory Group Provides technical expertise & ensures excellence & credibility Support for Let’s Work: Many partners have already joined the partnership, while several others are expected to join soon.

33. Vision 2016 33 Demonstrated how we can help private sector companies articulate & strengthen their impact Exhibited business case for inclusive, high quality jobs (e.g. women, youth, quality of jobs) Prioritized jobs in strategies and operations (at the country, sector and company level) Applied methods to measure, articulate & strengthen job effects Positioned Let’s Work as leader on private sector jobs agenda

34. For more information: www.ifc.org/letswork