How do we create jobs?Roland Michelitsch, 2/17/2012 11:48:20 AM
This is arguably the most pressing question for policymakers across the world today. According to the International Labour Organization, more than 200 million people in the world were unemployed in 2011—three-quarters of them in developing countries. The most affected are those between the ages of 15 and 24, who are three times more likely to be unemployed than adults.
There is reason for concern. Unemployed people are often unable to care for themselves and their families, and the lack of jobs has contributed to the recent social and economic unrest around the world.
The World Bank estimates that between 2005 and 2020, more than 700 million jobs must be created to halve the global unemployment rate, mainly to keep up with population growth.
So the question is: Why are there so many unemployed people in developing countries and how do we create large numbers of jobs (and not just any jobs, but good jobs with sound working conditions, benefits, and opportunities for advancement)?
Jobs are scarce for many reasons—inadequate policy making, poor infrastructure, and limited access to finance. For young people the mismatch between education and the needs of the labor market is a major hurdle. (For more detailed analysis, see the report by the Education for Employment (e4e) initiative, sponsored by the Islamic Development Bank and IFC)
When it comes to possible long term solutions for unemployment, the private sector—which provides about 90 percent of jobs in developing countries—offers an excellent starting point (World Bank 2005).
IFC works with private sector in developing countries and emerging markets. In 2010 our investment clients provided around 2.4 million direct jobs (IFC 2011). This may not appear to make a dent in unemployment figures, but jobs created by our clients between 2008 and 2010—net of job losses--increased by 10 percent, an important trend in an environment where job losses were the norm, and these only relate to direct jobs provided by IFC’s clients.
The indirect and induced effects on job creation of our investments and advisory are much harder to estimate--but also much larger. For instance, data from a gold mining company in Ghana—an IFC client—demonstrated that for every direct job provided in the mine, 28 more jobs were provided in the economy (Steward Redqueen 2011).
Another area where job creation effects are hard to determine is in projects that increase access to finance. Lack of finance is routinely cited by companies as one of the key constraints to growth, particularly for micro, small, and medium-sized companies (MSMEs). In 2010, IFC clients provided almost 10 million loans to MSMEs (IFC 2011). Estimating how many jobs these enterprises provided or created is much more difficult.
We also know that better investment climates have positive effects, for example on business entry, but there is much less evidence on how this translates into more jobs.
All this to say that the private sector is an important contributor to job creation in the developing world and our work with clients has taught us something about how jobs are created. But there is much more we need to learn. For instance, we need to better understand how investing in different sectors, strengthening supply chains, providing better access to finance and infrastructure, improving skills, and the investment climate help create jobs—and what works best under what circumstances.
To help answer some of these questions IFC is conducting a study to assess private sector contributions to job creation. Click here for more information. Using data from our clients, literature reviews, and case studies we aim to deepen our knowledge and use what we learn to influence decision making.
But we will not have all the answers. That’s why we are looking for active participation by people and institutions around the globe. Please share your thoughts and experiences, and help enrich our understanding through this blog. We look forward to your contributions.
This blog is hosted by the Development Impact Department of IFC. It is a
platform to exchange ideas about solutions to development challenges that
involve the private sector.
IFC, a member of the World Bank Group, is the largest global development
institution focused exclusively on the private sector.