This document discusses poverty reduction and employment trends in Azerbaijan. It finds that while economic growth driven by oil revenues has reduced poverty rates, this growth model risks crowding out other sectors and pushing many workers into informal, low-productivity jobs. Vulnerable groups like women and youth face higher unemployment and poverty risks. To sustain poverty reduction, Azerbaijan needs to promote faster employment growth in the non-oil sector through economic diversification and public and private investments beyond oil and gas extraction.

1. Empowered lives.
Resilient nations.
Employment and
poverty reduction
Ben Slay, Alessandra Bravi
Senior Economist Office
UNDP Regional Bureau for Europe and CIS
http://europeandcis.undp.org/senioreconomist
Baku
7 December 2011

2. Overview
• Poverty reduction in transition economies—
three drivers:
– Economic growth:
• Employment
• Labour productivity  wages
– Larger, better targeted social safety nets
– Remittances
• Poverty reduction in Azerbaijan has been due
primarily to economic growth
– Can this continue?

3. Poverty reduction has been driven by
the oil boom—Is this sustainable?
GDP trends (2004 = 100)
600 National income
40% poverty rate
Oil GDP
500
Non-oil GDP
29%
400
21%
300 16%
13%
2004=100
11%
200 9%
100
2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010
Source: State Statistical Committee. 2011 data are estimates.

4. Are oil and gas extraction “crowding
out” services, manufacturing?
51%
Sectoral origins of GDP
45% 45%
2000 2009
28%
16%
6% 5% 4%
Oil and gas extraction Services Agriculture Manufacturing
Source: State Statistical Committee.

5. Is labour being pushed into low-
productivity, informal-sector jobs?
48% GDP Employment
39% 40%
29%
25%
11%
7%
2%
Agriculture Services Manufacturing Oil and gas extraction
2007 data. Source: State Statistical Committee.

6. Labour market: Is growth losing
its pro-poor character?
• Population growth 120
increases size of
labour force 110
• Economic growth 2004=100
boosts 100
Labour force
employment—even
Employment
during 2008-2009 90
• Until 2008, effects Unemployment
of the oil boom 80
dominated effects of
population growth 70
• After 2008? 2004 2005 2006 2007 2008 2009 2010
Sources: State Statistical Committee, IMF.

7. Many workers remain in the
informal sector
Shares of workers covered, not
covered by formal contracts (2010) • Two thirds of
those employed
in 2010 were not
34% covered by
66% formal labour-
market contracts
• Informality is
heavily
concentrated in
Covered Source: State Statistical non-oil sector
Not covered Committee.

8. Gender matters
77%
Women
• Because they are 67%
less likely to be Men
employed, women
are:
– Less likely to 40%
benefit from 29%
employment
growth
– More likely to face
poverty risks 6.9% 4.4%
• But, youth
unemployment is a force participation (2008) under 25 (2008) rate (2010)
Labour Share of unemployed Unemployment
bigger problem for
men
Source: State Statistical Committee.

9. Implications
• Most employment is concentrated in non-oil
sector (informality, low wages)
– Many workers are without benefits, protection
– Threat to social insurance finances
• Labour market problems for vulnerable groups:
– Youth
– Women
• Importance—poverty linked to:
– Unemployment
– Low wages associated with informal employment

10. Towards more rapid employment
non-oil sector growth
• Needed: economic diversification
• How to do this?
– Conventional wisdom—attract public- , private-
sector investment to non-oil sector, via:
• Growth-promoting fiscal, monetary policies
• Improvements in business environment
• Investments in education, infrastructure
– Other possible measures:
• Public investments beyond infrastructure
• Regional development
• “Green economy”  climate change
mitigation, adaptation