EMPLOYMENT
(Shobika Ravichandran )

Work is the best way to reduce poverty – yet more than one billion people have no job or are underemployed. In the fight against rising unemployment, new approaches and policy ideas are needed, explains David Robalino, a labour market expert at the World Bank.

We often think of a job as a source of income for workers. But jobs represent much more for society and individuals. Countries grow, for instance, when more people work, when each job in the economy becomes more productive, and when people move from low to higher productivity jobs.
A good portion of the reduction in poverty that we have seen worldwide can be explained by an increase in the labour income of the poor, their main source of income. Jobs also contribute to the accumulation of human capital and promote social stability.

NEW TECHNOLOGIES WILL CONTINUE TO DISPLACE JOBS

Demographics and technological change will complicate things further. In countries in Africa and South Asia with young populations, there will be many new entrants to the labour market.
It is estimated that middle and low-income countries will need to create 530 million jobs by 2030 to absorb them, yet at the current pace they may create only 400 million. At the same time, in high-income countries where populations are getting older, the challenge is to get people to work for longer in order to keep afloat strained social security systems. This is not easy to do, particularly in the face of fast technological change. New technologies are displacing – and will continue to displace – jobs not only on the factory floor but also in the services sector. From accountants and travel agents to paralegals and soon drivers.

GROWTH DOES NOT AUTOMATICALLY MEAN NEW JOBS

First, even with stability and the right business environment, private investments do not happen on the scale needed if there is not enough entrepreneurial capacity, which is often the case in developing countries. More importantly, in situations in which countries need to achieve social objectives through employment, it is unlikely that private entrepreneurs or investors alone can generate the right number and distribution of jobs.

This is what we have seen even in countries such as Georgia and Chile, which have been prolific with the adoption of structural reforms. The data shows, in fact, that many growth episodes across countries have taken place with little to show in terms of job creation or without addressing issues related to poverty, the informal sector, youth unemployment and low female labour force participation.

THE PROPOSAL: A FUND FOR MORE JOBS

Taxing job destruction is also not as crazy as it sounds. Many countries do it implicitly through labour regulations that restrict dismissals and require the payment of severance to workers who lose their jobs. But current policies discourage innovation, can harm the competitiveness of firms and eventually reduce job creation without necessarily offering good protection to workers.
The proposal, instead, is to let firms manage their human resources as needed, and then replace severance pay (paid by employers) with unemployment insurance (paid by the government) and introduce a modest, explicit dismissal tax. The revenue generated by this tax would flow into a fund that could be used to finance active programmes that help workers connect to jobs or move from low to high-quality jobs.