IFC Jobs Study: Findings , implications and next steps Thanks to - - PowerPoint PPT Presentation

IFC Jobs Study: Findings , implications and next steps

Roland Michelitsch Development Impact Department, IFC More information: www.ifc.org/jobcreation

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Thanks to the donors supporting the jobs study:

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 Current dual jobs challenge:

• Quantity: 200 million unemployed. Additional

600 million jobs are needed by 2020.

• Quality: About 50% of jobs are informal and 30%
• f workers are poor worldwide

 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:

• Assesses the effects of private sector activity on job creation
• Elicits practical lessons for policy makers, IFC and other

finance institutions focused on private sector – and private companies.

Why jobs matter…(1)

Why jobs matter…(2)

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“If you were to ask me, from all the world polling Gallup has done for more than 75 years, what would fix the world — what would suddenly create worldwide peace, global well-being, and the next extraordinary advancements in human development,

I would say the immediate appearance

• f 1.8 billion jobs — formal jobs …

This raises an important distinction — not only do we need to create more jobs, we need to increase the number of good jobs.” Jim Clifton, Chairman and CEO of Gallup

Why jobs matter … (3)

Enterprise Survey Analysis

IFC Job Study: Components

Infrastructure case study Macro-case studies Micro- case studies Literature review Meta evaluation IFC Operational experience Collaboration with WDR Financial Markets case study IFC’s Smart Lessons competition Blog WEF-IFC Youth essay competition Website ifc.org/ jobcreation

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MSMEs FI study Funds analysis Data from IFC’s DOTS Advisory panel

Three distinct layers of policies are needed

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Source: WDR

Jobs challenges vary by country

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Source: WDR

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Constraints vary by countries and firms

* For this analysis: Small = 5-20 employees, medium= 21-99 employees, and large >= 100 employees. Source: World Bank Group’s Enterprise Surveys covering 46,566 enterprises in 106 countries.

Four findings stand out:

 Finance (A2F): A problem particularly for SMEs  Infrastructure (A2I): A reliable power supply is the most important issue for companies in low- income countries  Investment climate (IC): Informality is a key issue in middle-income countries and for SMEs; taxation is also important  Training/skills (T&S): A key challenge for larger businesses and businesses in high-income countries

Selected findings: Removing constraints creates jobs

 IC: Business entry reforms can have large positive effects, particularly when combined with other reforms.

• Mexican one-stop shops: Firm entry + 5%, jobs +2.8%.

 A2I: Most studies focus on immediate direct job creation, but effects through enabling economic growth are even larger.

• A reliable power supply could increase job growth in low income countries, by at

least 4-5% … and probably much more. Powerlinks: Effects from having power far

• utweigh direct + indirect + induced effects of power transmission.

 A2F: Improvement can create significant number of jobs.

• Significant extra job growth from bank loans (>3%) or external financing (>4%).
• “Footprint”: Jobs provided - in 2011 IFC clients “reached” 23M MSMEs …

which employed an estimated 100M+ people  huge potential.

• Job created: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in

economy … but attribution is difficult, and more studies needed.

 T&S: Programs show mixed results, but involving private sector and combining education with on-the-job training works best.

• Programs that included both had 20% increase in probability of success

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 Cumbersome and costly regulations prevent companies from entering,

• perating and growing.

Investment Climate

Investment climate adds up to the most pressing issue for firms

Source: Enterprise Surveys

Top IC constraints: (1) Informal competition (2) Tax rate (3) Corruption

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 Informal firms provide a large portion of jobs in developing countries.

Investment Climate

Source: ILO, Department of Statistics, and IMF , World Economic Outlook.

Informal employment (% of total non-agricultural employment)

36 countries High poverty low informality High poverty high informality Low poverty high informality Low poverty low informality Population living below the national poverty line (% of total population)

Informality is closely linked to poverty

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 Business entry reforms: Evidence of job creation, particularly when combined with other reforms.

• Mexico one-stop shop reform increased jobs (including self-employed) by

2.8% in eligible industries in one year

 Business entry reform alone may not be not enough to formalize :

• Business owners “Out of aspiration” 14.3% more likely to register.
• Business owners “ Out of desperation” less likely to register, but 20.4%

more likely to become wage workers

 Some evidence of benefits from IC reforms (e.g. competition reform); but more data and impact evaluation needed.  Special economic zones (SEZs/EPZs), industry specific reforms: Potential … and challenges

Selected Findings: Investment Climate (IC)

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Infrastructure: Increasing private investment

Source: Private Participation in Infrastructure Database.

Infrastructure investment by sector using PPP arrangements (US$ billions)

10 20 30 40 50 60 70 80 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Energy Telecommunications Transport Water and sewerage

Need to improve urban infrastructure, as more people move to cities.

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Access to Infrastructure: Power

Second-order (“growth”) effects Indirect and induced jobs Direct

Improved/more firm services and inputs (e.g. reliable power)  more output/jobs Indirect/induced jobs often larger than direct jobs  Important, but often ignored

Current focus on direct jobs, but larger job effects through enabling economic growth

 New power transmission lines in India, jobs created:

• Construction and maintenance ~2K direct, and ~8K direct/induced in 25 yrs
• Improved power supply: ~75K jobs from 2006-12

 Reliable power supply could increase job growth in low income countries by at least 4-5%

Powerlinks Case Study

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• 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, indirect & induced employment effects

(construction & maintenance); and (2) effects of improved power supply (which are much larger and potentially much more transformative for an economy).

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Selected findings: Infrastructure – other sectors

 Telecoms/IT: Significant employment effects – especially for young people – and use of technology can help spur job growth.  Strong job effects also from other infrastructure services (e.g. water– irrigation), and huge needs from urbanization.  In LAC: water/sewer (100K), rural electrification (23K): Strong direct job effects per $ billion invested – but regional/sectoral variation.  Direct job creation is the focus of most studies, but “growth effects” can be much larger – and women often benefit disproportionately more.  Summary: Infrastructure – a big contributor to jobs, and the biggest effects often come from improved infrastructure.

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Finance: Smaller firms have less access to financing

Source: IFC (2010). Scaling-up SME Access to Financial Services in the Developing World.

Use of bank financing:

• Small firms:

14%

• Medium firms:

18%

• Large firms:

25%

Source of financing for working capital and fixed investment needs (%)

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… and firms in poorer countries too

Ratio of domestic private sector credit to GDP

SMEs that have access to finance show significant job growth mainly as a result of expansion of operations and technology investments

• 3.1% - 4.2% higher job growth with loans/overdraft, external financing
• “Footprint”: In 2011 IFC’s client FIs “reached” 23M MSMEs … which in turn

employed an estimated 100M+ people  huge potential. Growth: Sri Lanka case study – SMEs financed grew twice as fast (12%) as jobs in economy … but attribution is difficult.

• Macro case studies: High job creation through FIs: Per $ million invested:

Estimated 228 jobs in Ghana, 107 jobs in Jordan

• From 2000 to 2010, 494 Firms financed by IFC’s private equity funds created,

net of job loss, ~300K jobs  Strong growth compared to small portfolio.

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• Firms in developing countries: Less access to finance.

Financial markets are less developed.

• 45-55% of formal SMEs unserved, over 20% underserved,

70% don’t use external finance. Gap: $2.5 trillion

Selected Findings: Access to Finance (A2F)

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Improve financial sector regulation: Liberalize to encourage entry and lending … but enforce prudential regulations and protect property rights (which helps lenders … and enterprises). Improve financial infrastructure to improve information (e.g. collateral registries). Example: 28%-40% higher likelihood for SMEs to get a loan in countries with credit bureaus. Step up competition – increases the incentive to reach out to SMEs. Increase funding to FIs: Particularly for under-served groups, such as MSMEs and women entrepreneurs.

How to improve access to finance?

 Not enough workers for high-skilled jobs

• ~1/3 of companies can’t find the workers they need.*

 Not enough jobs for low-skilled workers  Business owners/managers can lack skills to manage firms

• Limits potential for firm growth and job creation.

Training and Skills

29.3 43.8 67.1 27.2 38.7 42.8 43.4 20 40 60 80 Small Medium Large Low Low- middle Upper- middle High Firm size Income group

% of firms

• ffering

training to their workers

Source graph: IFC Jobs Study using Enterprise Surveys. *ManPower Group (2012) sample of 41 countries ; **McKinsey Global Institute (2012)

Small firms are less likely to offer training to their workers, even though many identify skills as a constraint

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Training and Skills

 Training, technology, and innovation can create jobs

• Innovating firms attain more productivity and job growth than non-innovative
• firms. This employment growth is inclusive*

 But programs show mixed results on jobs; combining training with work experience works best

• Employment effects more significant in longer-term, and focused on

disadvantaged groups (e.g. women, low-income youth).

• Combination can increase probability of employment up to 25% in urban areas and

up to 20% in rural areas.**

 Comprehensive approach is needed

• Dual vocational training systems - Germany and Switzerland – successful examples
• Requires collaboration with private sector and relevant stakeholders
• Clusters facilitate investments in training, technology, and innovation

 E4E Initiative for Arab Youth: Jointly supported by IsDB and IFC - focuses on preparing young people for the work place.

Sources: *Dutz et al. (2011). **Fares, Puerto (2009).

Where are the jobs?

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 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

• f smaller

companies is twice the average

• f all companies.

However, small companies are more likely to go

• ut of business.

Source: IFC Jobs Study using Enterprise Surveys data

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Productivity  Larger firms tend to be more productive  Gains in labor productivity tend to be positively associated with more job growth than destruction.

Why growth - into larger companies – matters

Many firms are born small and grow little in India and Mexico

Source: Hsieh and Klenow (2011)

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29.3 43.8 67.1 27.2 38.8 42.8 43.4

20 40 60 80 Small Medium Large Low Low mid Upper mid High Country Income Group Firm size

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?

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 … and develop value chains

Estimating effects … and tradeoffs

Short-term job growth Long-term job growth

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Transformations

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

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Multipliers in IFC Projects

* Safal: multiplier calculated on total jobs provided instead of incremental jobs due to difficulties with attribution.

Direct Jobs Indirect Jobs Multiplier Sector, Country Mriya 2,505 7,390 3

Agribusiness, Ukraine

Safal* 4,200 24,000 6

Steel, Africa

PRAN 294 2,198 7

Agribusiness, Bangladesh

Ecogreen 177 3,646 21

Chemicals, Indonesia

OCL 293 7,156 24

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.

Sector/Industry Total jobs (direct, indirect, induced) in the economy for each direct job in a sector

Agriculture 1.2 (Chile) 2 (US and Scotland) 3 (Tanzania) Mining 2.5 (Scotland) 5 ( US) 7 (Chile) 28 (Ghana) Financial Services 14.9 (Indonesia) 19 (Ghana) Oil and Gas 7.5 (US) 13.4 (Scotland)* Hotels 1.24 (Scotland) 2.66 (Tanzania) Retail 1.27 (Chile) 1.31 (Scotland) 1.89 (US) Cement 2.47 (Scotland) 4.45 (US)**

Large variation for indirect and induced job creation effects

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*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

 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.  Better Work (ILO/IFC) “Works” – Sector level (garments): Demonstrating that improved labor standards can not only increase worker satisfaction, but also worker retention, productivity, profits … and ultimately jobs.

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Not just number

• f jobs; quality

matters

Quality of Jobs

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When there is greater legal differentiation based on gender, fewer women work

Source: Women, Business and the Law database; World Development Indicators; Enterprise Surveys. Correlation between the two variables, after controlling for per capita income.

Gender: Unequal treatment …

 Legal differences: 102 of 141 countries  Lack of access to finance: Less likely to get a loan … and paying more for it.  Cultural norms, less access to education, childcare …  Work in less productive areas, lower wages

Female labor force participation

(residual)

Number of legal differentiations (residual)

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 Some solutions include:

• Support women-friendly

industries … and help women into leadership positions

• Encourage female

participation in non- traditional fields

• Connect women to

markets, support women-

• wned SMEs
• Further develop business

case for women as workers and leaders

 Removing obstacles benefits women, their families, companies and society

• 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%

… and benefits from removing the obstacles

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.

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28 International Financial Institutions (IFIs) agree to collaborate: Contributing to Creating More and Better Jobs

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Joint IFI Communiqué:

Issued on the occasion of the launch of IFC’s Jobs Study: “Assessing Private Sector Contributions to Job Creation and Poverty Reduction”, January 14th, 2013

“… We will use the expertise and various tools each of our institutions has developed, and act in a coordinated manner, where appropriate, to maximize impact. We will seek to learn from each other and spearhead efforts in areas lacking knowledge and common methodologies, such as job creation impact measurement and attributions. Our efforts will complement other high level international efforts seeking to promote job creation and to improve the quality of jobs. It is the time for all stakeholders to work together towards addressing this major challenge, which will require all our efforts to achieve lasting solutions. Together, we can address this global challenge and find more effective ways to create more and better jobs for the millions who need them.”

Next Steps: Implementation( along with partners)

Emerging priorities (based on ongoing consultations within the WBG, with IFIs and others) 1. Operational support: E.g. how best to strengthen jobs focus in

• perations (e.g. applying a jobs lens at the country level; strengthening

value chains, making training more relevant for private sector needs, etc.) 2. Better data: Apply, refine & harmonize methodologies; better under- stand formalization; better data on employment effects and standards; develop “business case” for better standards and monitoring, etc. 3. Enhanced collaboration: With IFIs and with others (e.g. ILO, academia, private sector, civil society organization) 4. Improved communication: Improve ability to articulate contributions

• f private sector activities to creating more and better jobs

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Consolidating a Joint Work Program along with interested partners on creating more and better jobs