Structural transformation and productive employment, an imperative for Africa in the post-2015 development agenda

ISS is the international Institute of Social Studies of Erasmus University Rotterdam

STRUCTURAL TRANSFORMATION
AND PRODUCTIVE EMPLOYMENT, AN
IMPERATIVE FOR AFRICA IN THE
POST 2015 DEVELOPMENT AGENDA
UN-ECA, Addis Ababa, 1 July 2015
Rolph van der Hoeven
ISS-EUR, The Hague

Outline
• Why greater concern for Structural
Transformation and Employment ?
• Current Employment Challenges
• Structural Transformation
• Transformation and Employment in
Africa
• Space for national policies
• Implications for the 2015 Development
Agenda

Employment, Poverty and the MDGs
“To slay the dragon of poverty, deliberate and determined investments
in jobs above starvation wages must play a central role, whether for
self-employment or paid-employment.
The grass roots approach as advocated in the MDGs to solving poverty
doesn’t ’ t go far enough, because it aims only at improving the supply
side of the labour market, making job seekers more capable, and not
the demand side, making new jobs available for them.…
Employment generation is different from poverty alleviation because it
has a concept behind it, “ capital.”
This means that the labormarket is influenced by, and influences, all
flows through the savings-investment nexus, including accumulation,
distribution and innovation. It is at the heart of political conflict.”
(Amsden 2011 , 62)

There are many aspects of the linkage between
employment and poverty. The poor can escape
poverty when they have:
(a) an increase in wage employment;
(b) an increase in the real wage;
(c) an increase in self-employment;
(d) an increase in productivity in self-employment
(e) an increase in the terms of exchange of the
output (real price) of self-employment.
Poverty declines if one or the aggregate of these
employment effects is favorable for the poor.

Eight Important labourmarket
trends in developing countries
over the last 20 years
• Decline in the employment-to-population rate
• The changing pattern in production to services
• The “precarization” (casualization) of labour
• Youth unemployment
• Declining labour share in National Income
• Growing wage inequality
• The internationalization of the production process
• International migration
Source : van der Hoeven ,2014

The global labour market is rather different
today than 30 years ago.
Growing inequality has led to the concept of
‘working poor’: fulltime work that does not
generate sufficient income to live from and
to place one’s family above the poverty line
Employment and Work needs to be
redefined

Definition of (decent) work
The World Bank distinguishes between: “good jobs”
and “bad jobs”, largely based on income criteria.
The ILO uses decent work, with four vantage points:
employment, labour rights, social security and
social dialogue.
It was the intention to construct a decent work
index, but as different members of the ILO could not
agree on the precise elements of an index and the
measurement and weighting factors, the index was
never introduced.
Progress in decent work is now analysed through
yearly thematic reports at the International Labour
Conference.

Structural Transformation
• Structuralism : reallocation of resources (capital and labour) to
sectors that offer more benefits than other sectors in terms of
employment, growth, competitiveness, productivity and value
added, manufacturing sector offers better benefits for the
whole economy (e.g. in terms of labour absorption,
productivity growth) than other sectors
• Schumpeterism : process of technological innovation through
creative destruction
• Evolutionism: accumulation of knowledge and capabilities.
Ideal Structural transformation combines all three aspects

Transition and Structural
Change in Africa

McMillan et. al 2014
“From 2000 onward, we show that structural
change contributed positively to Africa’s overall
growth accounting for nearly half of it.
We also find that in over half of the countries in
our Africa sample, structural change coincided
with some expansion of the manufacturing
sector (albeit the magnitudes are small)
indicating that these economies may be
becoming less vulnerable to commodity price
shocks.
For the other regions, the results do not differ
significantly across periods.”

“For a sample of 19 African countries, we find that for
the period 2000-2010:
•the share of the labour force engaged in agriculture
declined by an average of 10.61 percentage points;
•the share of the labour force engaged in manufacturing
expanded by an average of 2.15 percentage points;
•The share of the labour force engaged in services
increased by an average of 8.23 percentage points.
Combining these data on employment shares with data
on value-added, we show that for the period 2000-2010,
structural change accounted for roughly half of Africa’s
growth in output per worker.”

“Three factors for structural change to
contribute to productivity growth:
1.Economies with a revealed comparative
advantage in primary products are at a
disadvantage
2.Countries with a competitive or
undervalued exchange rate experience
more growth enhancing structural change
3.Countries with more dynamic labour
markets experience greater growth
enhancing structural change”

Intersectoral or variation
of productivity growth

Source: Page and Shimeles 2014

Appropriate Definitions of
Employment,Unemployment
and Work in Africa

The National Policy Context
Curbing poverty through employment generation demands
deliberate action. It requires coordinating the supply of and
demand for labour, because labour-intensive growth is
necessary but not sufficient.
Even if jobs are created, it is unlikely that the poor possess
sufficient skills to take advantage of new employment
opportunities.
Governments have the responsibility to encourage adequate
private- sector-led labour-intensive investment and ensure that
poor people have access to human capital development
programmes and the skills needed by the labour market.
ECA, 2010

The National Policy Context :
Challenges for Africa.
Africa will need coherent strategies and sustained reforms to
address both demand-side and supply-side constraints in the
labour market.
Demand-side policies must focus on stimulating private-sector
development and investment in labour-intensive high-value-
added manufacturing and services sectors as well as modern
agriculture.
This requires the design and implementation of effective
industrial strategies that reduce cost and improve
competitiveness in a globalized market.
Experience in East Asia provides a framework for African
countries to design and implement successful industrial
strategies that take into account their unique opportunities and
constraint
ECA,2010

Employment strategies:
Challenges for Africa
Employment strategies should aim at job opportunities and decent work to
reduce the working poor. Doing so requires detailed macroeconomic and
sectoral policies to influence labour demand and supply by promoting high
and sustainable growth and introducing labour market reforms.
An employment-focused growth framework is effective when it allocates
public investment to infrastructure and other projects that facilitate private
investment in high-productivity sectors in both urban and rural areas to
facilitate broad-based growth and economic transformation. But it should
also increase equity in the distribution of opportunities and income.
If the high-quality growth occurs in labour-intensive sectors, including
agriculture, labour-intensive manufactures, construction, textiles, and
services, the increase in employment has a positive effect on the working
poor and their non-working dependants as well as on the unemployed poor
in terms of higher productivity, higher incomes in existing employment or
from self-employment, or shift to new and more rewarding occupations.
ECA,2010

Examples of successes in Africa
Industrialization in Mauritius was boosted by investment
in export processing zones, which was initially dominated
by domestic capital.
The boom in sugar and export earnings in the 1970s
stimulated investment in joint ventures between domestic
and foreign investors in such zones, taking advantage of
promising conditions such as tax holidays and duty-free
imports as well as other reforms that created an attrac-
tive business climate.
Currently, Mauritius ranks high both in Africa and globally
in terms of ease of doing business, and its economic
transformation has benefited from an expanding tourism
sector.

Examples of successes in Africa
There are many examples in Africa that show that industrial policies
remain relevant and can be made effective with sustained and well-
targeted State intervention.
For example, Mauritius has substantially transformed its economy,
moving from a nearly single-good economy based on sugar to a
more diversified economy based on manufactured exports and
services.
Through education and technical skills development, credit and
export promotion and technology transfer strategies, the country
was able to stimulate huge investment in manufacturing and other
sectors and reduce dependence on agriculture to less than 7 per
cent of GDP by 2008.
Economic transformation in Mauritius eventually attracted huge
capital inflows and foreign investment and fostered rapid job
creation.

Structural transformation
should not neglect
continuous attention to
economic crises and
economic shocks

Reactions to Economic crises
In the context of the recent global financial and economic crises,
and, more generally, the high vulnerability of African economies
to external shocks, there is a need to design employment-
focused countercyclical interventions.
In reaction to the shock of the global contraction, an African
economy suffers a fall in aggregate demand due to lower export
prices and volumes.
For the countries with developed financial markets, the export
shock was accompanied by net outflows of portfolio capital. In
those countries for which remittances constitute a substantial
portion of foreign exchange inflows, especially small countries
the export decline was compounded by falls in international
transfer payments.

Public Works Schemes
In sub-Saharan countries with low population densities and limited
implementation capacity, governments could rely on temporary employment
schemes, “cash for work.” Appropriate activities for these would be rapidly
completed activities using employment-intensive techniques .
The projects would make a contribution to community welfare, though their
primary purpose is to increase aggregate demand through the expenditures of
those directly and indirectly employed.
To be effective, the employment schemes would have the following
characteristics:
1) identified and “stock-piled” prior to the need for them, with accounting
procedures in place to reduce the likelihood of misuse of funds;
2) easily initiated and quickly terminated, implying that they should be
implemented by the central government in order to avoid delays due to limited
administrative capacity of local governments; and
3) wages and salaries are the major element of expenditure, with a low
capital component.
Some issues that plague public works projects with controversy need not be
relevant for those, where the purpose is countercyclical.

For counter cyclical schemes wage is a secondary consideration
because these are not long-term employment schemes.
The appropriate wage will vary across regions, guided by the principle
that the primary purpose of the projects is to increase demand quickly.
This would be best achieved by hiring as many people as possible,
which implies paying wages at or below prevailing rates.
These programs are to be introduced when labour is in excess supply,
thus making them unlikely to affect prevailing wage rates.
But clear rules should be established for the initiation and termination
of countercyclical projects.
A “countercyclical” expenditure that becomes permanent will distort
the labourmarket and negates its purpose.
Initiation and termination should thus be triggered by a policy rule
based on appropriate macroeconomic indicators and not on a political
basis .

Good results can be achieved when choices (e.g. between
addressing short-term shock-induced unemployment or
structural under-employment) are made explicit and reflected in
design; and when arrangements are institutionalised
Infrastructure created through Ethiopia’s Safety Nets Programme
(PSNP) has reduced vulnerability to drought, while providing
direct support that is more helpful to vulnerable households. This
is provided at lower cost than earlier emergency food aid.
India has piloted an approach which guarantees each rural
household up to 100 days of public works employment per year.
Although effectiveness varies with state-level differences in
capacity and implementation, the guarantee serves as a form of
unemployment insurance and has exerted upward pressure on
extremely low rural wages.
DFID, 2011

Employment policies in context of
crises
A successful outcome of the employment-focused stimulus
requires a careful balance between fiscal expansion and
exchange rate adjustment. It would be dangerous to seek the
necessary balance by trial and error.
The policy package should be based on empirical estimation of
key parameters, which could be used to construct a basic
simulation model.
Such a model has been constructed to guide the stimulus
package implemented by the government of Sierra Leone.
The fact that it was possible to construct a model for such an
underdeveloped country with extremely limited statistics owing to
a decade of conflict indicates that it can be done for almost all
countries.

Example of an employment oriented
stimulus model ( Weeks, 2010)

It is necessary to give special attention to employment
during and after economic crisis because employment,
human and social effects of the financial crisis will last for a
while:
a deceleration or decline in GDP growth will lead to rising
unemployment with a much longer duration than the deceleration
or decline in GDP itself . (4.8 years, compared 1.9 years).
Also labourshares in national incomes manifest a ratchet.
Labourshares decline during crises but in many cases do not
return to their pre-crisis level.
Indicators for human development exhibit a similar ratchet effect.
In Africa child mortality increases during growth decelerations,
but hardly falls during growth accelerations.

Policy Lessons from the 2008 crisis
Rebalance Assymetry in treatment between Labour and
Capital!
Goverment has been banker of last resort, should not become
employer of last resort but give employmnet as much attention
as it gave the banks :
Nationally
• Minimum wages combined with employment guarentee
schemes
• Minimum social floor
• Make stimulus packages contribute to employment creation
Internationally
• As goverments did coordinate support to capital should now
also coordinate internationally support to labour:
• Tax coordination to avoid beggar neighbour investment

40
Quote
“The consequences of mistakes in
financial markets, where capital is
volatile and mobile globally, far exceeds
the consequences of mistakes in the
labour markets, where labour is largely
immobile across national lines.”
Richard Freeman (Harvard & LSE)

Employment and
transformation in a post
2015 development
agenda, with special
relevance for Africa

2005 World Summit
Outcome
The World Summit 2005 outcome document,
contains a reference (paragraph 47) to employment
issues:
We strongly support fair globalization and resolve to
make the goals of full and productive employment
and decent work for all, including for women and
young people, a central objective of our relevant
national and international policies as well as our
national development strategies, including poverty
reduction strategies, as part of our efforts to achieve
the Millennium Development Goals. …………

Employment as MDG
Goal
Paragraph 47 in the summit outcome document led
to the inclusion of a new sub-goal under MDG1 :
Achieve full and productive employment and decent
work for all, including women and young people
with four indicators :
1 Growth rate of GDP per person employed
2 Employment-to-population ratio
3 Proportion of employed people living below $1
(PPP) per day and
4 Proportion of own-account and contributing
family workers in total employment

But what are MDG’s all
about ?
This remark reflects the somewhat ambivalent role the MDG’s
have been and are playing in the current development discourse,
namely that the MDG’s were designed to measure some
important aspects of development without proscribing a
concomitant development trajectory so that all countries could
agree with goals without being obliged to proscribe the same
policy prescriptions
Yet the MDG’s have no doubt led to a situation where those
issues that were not explicitly mentioned ,like employment ,
received therefore less attention from the development aid
community
So in that respect it has been and it is useful that full
employment has been added as one of the (sub) goals of the
MDG’s .

The right focus? Project versus
Macro approach
A review of the MDG’s , five years after the inclusion of the (sub)goal of
employment in the MDG’s , (UNDG,2010, Thematic paper on MDG1 ,
Eradicate Extreme Poverty and Hunger,) reports indeed on the
progress or regress in employment issues globally as well as in some
countries by means of a number of employment indicators .
It also gives some narratives of how certain development projects
have contributed to more or better employment in individual countries.
The examples mention successes of employment schemes, training
schemes for entrepreneurs, training schemes for unemployed youth,
improved collective bargaining etc.
However looking at the different examples chosen, it is not yet clear
how development aid contributes to more and or better employment in
general. Absent is a full macro analysis of total volumes of aid on
growth and volume and structure of employment.
Some attempts are made but this is the biggest challenge.

Macro Approach: Foreign resources,
Structural Change, Growth and
Employment
We need to look at various employment effects of Foreign
resources on
•increasing demand in situations of under capacity and thus
effecting employment,
• the Dutch disease in changing the balance between trade-ables
and nontrade-ables and the consequences for employment,
•increasing infrastructure and thus removing bottlenecks of
production in order to create more employment ,
•making capital more productive , with an ambivalent effect on
quality and quantity of employment ,
•increasing education and hence human capital ,
• the effect of aid on health issues so as to make work more
productive ,
• the effects of aid on social security to make workers more
productive and willing to adjust etc.

Employment in the post 2015 development
agenda
In discussing national policies for employment
creation, it is important to distinguish between short-
term (macroeconomic) policies and longer-term
structural policies.
The first should strive for full capacity utilization, so
that all productive forces, including labor, can be fully
engaged in the production process.
The second should strive for an expansion of
capacity and in the employment content of growth, to
the extent that increasing the employment content of
growth does not jeopardize growth itself (or at least
not to the extent that the economy arrives at a
declining growth and employment trajectory).

Global Governance and policy coherence for
Employment
Although the Millennium Declaration had a
paragraph on strengthening the role of the United
Nations and on improved global governance in
general, the MDGs did not contain explicit
references to global governance, except some
vague references in MDG8.
An important element of an improved global
governance system is better policy coherence in
areas of employment, economic, social and
environmental policies at the national and
international level.
(van der Hoeven, 2014)

Ocampo and Stiglitz (2011) suggest using the
increased acknowledgment for improved policy
coherence and momentum of support for a
body like the G20 to strive for a Global
Economic Coordination Council (GECC) which
would have more global political legitimacy.
A GECC would be an ideal forum to foster the
necessary policy coherence for a post-2015
framework of development.

Financing for Development not
only about price tags for SDGs
Fundamental changes needed in
International financial system.
1.Less volatile, less need for costly foreign
reserves which then can be used for
investment.
2.No illicit tax and other outflows.
3.Sovereign Debt Reduction Mechanism.

Literature
Amsden, A. 2011. “Say’s law, Poverty Persistence, and Employment Neglect.” Employment, Inequality and Globalization: A Continuous
Concern, edited by R. van der Hoeven. London: Routledge.
Astorga et al.,2014,The role of Industrial and exchange rate policies in promoting structural change ,productivity and employment, in J.M.
Salazar et.al. Transforming Economies, Geneva, ILO
Bergeijk, P., A. de Haan and R. van der Hoeven,2012, The financial crisis and developing countries, Cheltenham, Edward Elgar
DFID,2011,Cash Transfers: Evidence Paper , London
ECA, 2010, Promoting High-level Sustainable Growth To Reduce Unemployment In Africa Addis Ababa
ECA,2014, Dynamic Industrial Policy in Africa, Addis Ababa
Grimm, M. et. al, 2012, Constrained Gazelles: High Potentials in West Africa's Informal Economy, World Development 40(7)
Martins, P., and P. Lucci. 2013. Recasting MDG 8: Global Policies for Inclusive Growth. London: ODI
McMillan and Rodrik,2014, Globalization, Structural Change, and Productivity Growth,with an Update on Africa, World Development Vol. 63,
Van der Hoeven, R., 2014, Full Employment Target: What Lessons for a Post-2015 Development Agenda? Journal of Human Development and
Capabilities, DOI: 10.1080/19452829.2014.883370
Ocampo, J. A., and J. Stiglitz. 2011. From the G20 to a Global Economic Coordination Council. New York: Columbia University
Page, J. and A. Shimeles,2014, Aid, employment, and poverty reduction in Africa, WIDER 2014/043, Helsinki
La Porta, R. and Shleifer, A.,2014, Informality and development , Journal of Economic Perspectives 28(3):
Weeks, J.,2010, Policies Options for Reducing Unemployment and Mitigating the Social Impact of the Global Financial Crisis ECA , Addis
Ababa.

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