IFC Jobs Study & Moving Towards Implementation

Roland MichelitschGlobal Head, Let’s Work

More information: www.ifc.org/letswork

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Thanks to the donors supporting the jobs study:

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Current dual jobs challenge:o Quantity: Currently 200M unemployed, and

621M young people neither working nor studying. Additional 600M jobs are needed by 2020.

o Quality: ~50% of jobs are informal and 30% of workers are poor

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

institutions focused on private sector – and private companies.

Why Jobs Matter

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Key Findings: major constraints facing firmsFour findings stand out: Investment climate (IC): Informality is a key issue in middle-income countries and for

SMEs; taxation is also important Infrastructure (A2I): A reliable power supply is the most important issue for companies

in low-income countries Finance (A2F): A problem particularly for SMEs Training/skills (T&S): A key challenge for larger businesses and businesses in higher-

income countries

Removing Constraints Creates Jobs: IC: Business entry reforms can have large positive effects, particularly when combined

with other reforms. A2I: Most studies focus on immediate direct job creation, but effects through enabling

economic growth are even larger. A2F: Improvement can help create significant number of jobs. T&S: Programs show mixed results, but involving private sector and combining

education with on-the-job training works best.

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Where are the jobs? 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 of smaller

companies is twice the average of all companies.

However, small companies are

more likely to go out of business.

Source: IFC Jobs Study using Enterprise Surveys data

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Smal

l

Med

ium

Larg

e

Low

Low

mid

Upp

er m

id

Hig

h0

20

40

60

80

29.3

43.8

67.1

27.2

38.842.8 43.4

Country Income GroupFirm 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?

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Young firms that grow rapidly, Gazelles, are the engine of job creation

Gazelle firms, 2006-2008

Source: World Bank’s calculations using data from Amadeus database. Gazelle firms are those that increased employment at least 20% on average during 2006-08. In Jobs Wanted: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank

2.8

5.0

4.5

-0.3

Czech Republic Bosnia and Herzegov-ina

Croatia Serbia

Advanced reformers Intermediate reformers

14.4 17.5 12.7 17.1

72.3 70.7

51.466.7

Share of Enteprises Share of Jobs Created

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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

*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

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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Measuring job effects

* 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.

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OCL, India: Jobs creating opportunities

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 (<2,000), indirect & induced (~8,000) employment effects (construction & maintenance); and (2) effects of improved power supply (~75,000 – much larger and potentially much more transformative for an economy).

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

Estimating effects … and tradeoffs

Short-term job growth

Long-term job growth

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Transformations

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.

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Not just number of

jobs; quality matters

Quality of Jobs

Demonstrating that improved labor standards can not only increase worker satisfaction, but also worker retention, productivity, profits … and ultimately jobs.

ILO-IFC Better Work program: Currently working with…

42 global apparel brands and 600 factories employing over700,000 workers in 7 countries to improve compliance with labor standards and competitiveness

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Women face additional obstacles …

Investment climate

Access to Infrastructure

Access to Finance

Training and skills

Legal differentiation in

102 of 141 countries makes

women less likely to work, own or run a company

Women often pay the price for

poor infrastructure …

which keeps them from

getting a job

Women are less likely to get a

loan … and pay more if they do

Women get less education … but even educated

women earn less than their male

peers

Cultural norms, lacking access to childcare facilities … keep women from jobs.

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Some solutions: Support women-friendly

industries … and help women into leadership positions

Encourage female participation in non-traditional fields

Connect women to markets, support women-owned SMEs

Further develop business case for women as workers and leaders

Benefits:

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%

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

Recent research and analysis further strengthens the case, e.g. IMF study (benefits for society), WB study (Gender at Work), IFC study (Business Case for Women's Employment).

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Preparing youth for jobs

Skills play a key role in improving access to economic opportunities for youth.

Mismatch between skills of (potential) workers and skills demanded by companies.

Despite increasing levels of formal education, the education system lags behind labor market needs.

o Socio-emotional skills (30-40% of firms: responsibility & reliability; motivation & commitment; communication; customer care); >25% literacy and teamwork)

Many youth face additional (and often multiple) barriers to employability.o Women, ethnic minorities, youth from vulnerable backgrounds or lagging regions

Lessons from the international experience on what can be done.o Engage the private sector (needs assessment, curriculum design, final exams,

combine formal with on-the-job training, private providers)o Start early, use a comprehensive approach, measure, learn and adapt

Some implications for IFC … and othersIFC’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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Applying a jobs-lens to Serbia: Business Environment Doing Business 2014: Serbia ranks 93 out of 189 countries (1=best). Worst: Construction

permits (182nd), Paying taxes (161st), Enforcing contracts (116th)

Top three obstacles identified by companies are political instability (20.7%), informality (19.9%) and finance (17.8%)-- Enterprise Surveys 2009.

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Source: Enterprise Surveys.

Corr

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Info

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Tax

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..0%

10%

20%

30%

40%

Companies identifying the following obstacles as major constraints (%)

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The jobs challenge is the most daunting in SEE countries

Employment Rate (population aged 15+, first quarter 2013)

Source: ILO and ECA Regional Jobs Report (2013) in World Bank JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank

Notes: *denotes data for 2012. Data is not seasonally adjusted.

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Arm

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Al

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and

Bela

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Fran

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Slov

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Slov

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Lith

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Gre

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Unemployment is not the only problem among youth

MENA SEE SAR ECA EAP LAC AFR0%

10%

20%

30%

40%

…this problem is particularly se-vere among youth in Southeast

Europe

NEET

Notes: NEET= Not in employment, education or training. *Estimates MENA= Middle East and North Africa; SEE = Southeast Europe; SAR = South Asia Region; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; EAP = East Asia and Pacific; AFR = AfricaSource: World Bank’s calculations.JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe, The World Bank

FYRM Bi

H

Mon

tene

gro

Alba

nia

Croa

tia

Serb

ia0%

10%

20%

30%

40%

50%

Many youth are not employed, not looking for jobs and

not in education or training…

Not looking for a job nor in education or trainingUnemployed

…and education and training systems are not equipping youth with the skills employers most value

JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast EuropeThe World Bank

Skills that young workers are lacking according to FYR Macedonia employers (% of firms)

Source: World Bank (2010) FYR Macedonia Labor Demand Study.

Specific challenges in South East EuropeFast population ageing makes the jobs challenge more pressing (sustainability of pensions and growth)

Bosnia and Herzegovina

Serbia Macedonia, FYR Montenegro Albania0

5

10

15

20

25

30Share of 65+ Population over Working Age Population (15+)

2010 2030

Source: World Bank’s calculations. In JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast Europe. The World Bank

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Snapshot of the Serbian Economy: Industry Employment in 2011

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0%

5%

10%

15%

20%

25%

30%

35%32%

16%14% 13%

11%7%

3% 2% 1% 1%

Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

Small firms dominate by numberSerbia: Number of Small, Medium and Large Firms

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Small Firms: < 20 Employees

Medium Firms: 20-99 Employees

Large Firms: > 100 Employees

0%

20%

40%

60%

80%

100% 99%

1% 0%

Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

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But large firms also provide lots of jobsSerbia: Employment in Small, Medium and Large Firms

Small Firms: < 20 Employees

Medium Firms: 20-99 Employees

Large Firms: > 100 Employees

0%

10%

20%

30%

40%

50%

39%

19%

42%

Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

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Small: 10,739 Firms, Net 41,760 New JobsMedium: 105 Firms, Net 3,064 New JobsLarge: 30 Firms, Net 41,570 New Jobs

Few Large Firms Create as Many Jobs as Many Small Firms (Serbia 2005 Cohort)

Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

Typical pattern: The smaller the firm, the fewer surviveSerbia: Cumulative Survival by Initial Firm Size (Cohort 2006)

Source: Zverina, Clara (2013) “Serbia Job Pilot”, Presentation, Harvard University, May.

Southeast Europe: Very high unemployment, even higher among youth

Source: World Bank based on LFS. In JOBS WANTED: The Jobs Challenge and Youth Employment in Southeast EuropeThe World Bank .

Albania

Armenia

Azerbaijan

BiH

Bulgaria

Croatia

Czech Rep.

Estonia

Georgia

Hungary

Kazakhstan

Kosovo

Kyrgyz Republic

Latvia

Lithuania

FYRM

Moldova

Montenegro

PolandRomania

Russia

Serbia

Slovak Rep.

SloveniaTurkeyUkraineArgentina

Belize

BrazilChile

Colombia

Costa Rica

Cuba

Dominican Republic

EcuadorEl Salvador

Guatemala

Guyana

Honduras

Jamaica

MexicoPanamaParaguay

PeruUruguayVenezuela

Cambodia

Indonesia

KoreaMalaysia

MongoliaPhilippines

Thailand

VanuatuAustria

Belgium

Denmark

Finland

France

Germany

Greece

Iceland

IrelandItaly

Luxembourg

NetherlandsNorway

Portugal

Spain

Sweden

Switzerland

UK

Australia

CanadaIsrael

Japan

NZ US

020

40

60

80

Yo

uth

Un

em

plo

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en

t R

ate

(15-2

4)

20

11

0 10 20 30 40 50Unemployment Rate (15+) 2011

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Investment climate Combine reforms: A business entry reform combined with other interventions, such as a taxation or inspections/governance strengthening

Infrastructure PPPs: Increase in transportation PPPs has –sometimes-- involved costly cancellations renegotiations. Limited “success stories” in ECA.

A2F for MSMEs Eastern European countries, where private sector is only two decades old, microenterprises are source of 10-20% of manufacturing jobs, and 30-50% of jobs in services. Micro and small enterprises play critical role in job creation and destruction.

Comprehensive approach to address youth unemployment: “Supply” (skills) and “Demand” (jobs). Requires collaboration among relevant stakeholders such as the private sector, organizations working with youth, government, etc. Skills missing: Typically “softer skills” (reliability, motivation, communication, customer care)

Entrepreneurial skills are also lacking. E.g. combine A2F or work with larger companies’ supply chains with building these skills.

Industry clusters or large companies as growth pole: Micro-case studies showed that supply and distribution networks are at the core of job creation and poverty reduction.

How can we boost employment in ECA? Does this sound right?

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

Joint IFI Communiqué: Use expertise and act in a coordinated

manner to maximize impact.

Learn from each other and spearhead efforts in knowledge and methodologies.

Complement high-level international efforts to promote job creation and improve quality of jobs.

Work together towards addressing the creation of more & better jobs, which requires joint efforts for lasting solutions

Commitment to promoting quality jobs and the inclusion of vulnerable groups, such as women, youth, and the poor.

Since the launch of the Jobs Study, there is strong demand and momentum to implement the Study’s findings from key partners:

• Private Sector Clients: Eager to articulate and strengthen job effects of their operations

• Countries: Eager to apply jobs focus on their agenda

• Donors: Want to be able to articulate the impact of their support on job creation

• IFIs: Want to agree on methodologies, better articulate their own impact and how to prioritize activities for maximum job creation

• Others: Desire to partner with IFC and some have already started to apply methodologies developed by IFC

Where are we? We are moving urgently towards the implementation of the Jobs Study findings

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International Financial

Institutions

Private Sector Clients

Other Stakeholders

Donors

Let’s Work: A Global Partnership to Create More and Better Private Sector Jobs

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Envisaged Governance & Structure

Steering GroupTakes strategic

decisions & finalizes the work program

Program Coordination Unit

Housed at IFC & coordinates the

internal & external work program

Technical Advisory Group

Provides technical expertise & ensures

excellence & credibility

Support for Let’s Work: Many partners have already joined the partnership, while several others are expected to join soon.

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Vision 2016

Demonstrated how we can help private sector companies articulate & strengthen their impact

Exhibited business case for inclusive, high quality jobs (e.g. women, youth, quality of

jobs)

Prioritized jobs in strategies and operations (at the country, sector

and company level)

Applied methods to measure, articulate & strengthen job effects

Positioned Let’s Work as leader on private sector jobs agenda

For more information: www.ifc.org/letswork