Spring Meetings of the World Bank and the IMF

'Urgent action for faster, greener and more inclusive growth'

Statement by Guy Ryder, ILO Director-General, to the World Bank-IMF Development Committee.

Statement | Washington D.C. | 16 April 2016

Summary

  • The growth of the global economy has slipped gradually but steadily to the weakest pace since the immediate aftermath of the financial crisis. Weakening growth has slowed the transformation into better work opportunities of low productivity, poorly remunerated jobs. Poverty levels remain unacceptably high and reductions in the numbers of people living and working in poverty have stalled.
  • There are over 70 million people not in work today who would have had a job if pre-crisis growth had resumed. With the latest downward revisions in growth prospects the jobs gap could rise to over 80 million by 2020. Overall, two in five economically active youth are either unemployed or working yet living in poverty. Between 1995 and 2015, the global female labour force participation rate decreased from 52.4 to 49.6 per cent.
  • It is vital that current trends of rising inequality and slowing growth are quickly reversed by concerted action to reduce inequality, generate decent jobs and sustainable enterprises, and invest in the infrastructure for faster, greener and more inclusive growth in support of the Paris Agreement on climate change adopted in December 2015. With private investment and household consumption weak in many countries and unlikely to revive with sufficient vigour and pace to reinvigorate growth in the near term, governments need to take the initiative.
  • Work is central to people’s lives and the underperformance of the global economy especially in terms of jobs and wages is a major cause of heightened political and social tensions.
  • Forced displacement of large numbers of people leads inexorably to the issue of how women and men in this situation are to provide for themselves. Access to decent work has to become part of the international approach to the refugee crisis.
  • The 2030 Agenda for Sustainable Development adopted on 25th September 2015 by world leaders at the UN Summit is a beacon of hope for the multilateral system. Achieving gender equality, in line with the 2030 Agenda, is an indispensable precondition for the realization of a sustainable development that leaves no one behind.
  • Implementing the Sustainable Development Goals (SDGs) will require the mobilization of all the institutions of the multilateral system in support of member States national strategies. A key driver of progress across the SDGs is a shift towards more inclusive growth patterns which generate decent work and decouple economic growth from environmental degradation.

Slow growth widens global jobs gap and slows progress in poverty reduction

1. The growth of the global economy has slipped gradually but steadily to the weakest pace since the immediate aftermath of the financial crisis. Weakening growth has slowed the transformation into better work opportunities of low productivity, poorly remunerated jobs. Reductions in the share of working poverty in total employment and the absolute numbers of people living and working in poverty have stalled.

2. Poverty levels remain unacceptably high and are particularly concentrated in Sub-Saharan Africa and South Asia (see World Bank - Ending Extreme Poverty and Sharing Prosperity: Progress and Policies). In 2015, an estimated 327 million employed people were living in extreme poverty and 967 million in moderate and near poverty. The share of own account and unpaid family workers in total employment, which accounts for most of those working in the informal economies of the developing world, has stuck at around 46 per cent and is over 70 per cent in sub-Saharan Africa and South Asia.

3. There are over 70 million people not in work today who would have had a job if pre-crisis growth had resumed. With the latest downward revisions in growth prospects the jobs gap could rise to over 80 million by 2020. Outright unemployment remains high in many advanced countries and is rising in some emerging economies. Participation rates are falling in many countries. Between 1995 and 2015, the global female labour force participation rate decreased from 52.4 to 49.6 per cent. The corresponding figures for men are 79.9 and 76.1 per cent, respectively. Worldwide, the chances for women to participate in the labour market remain almost 27 percentage points lower than those for men (see ILO - Women at Work: Trends 2016). Over 70 million of the 200 million unemployed worldwide are young women and men. Overall, two in five economically active youth are either unemployed or working yet living in poverty.

4. In emerging economies, the size of the middle class (defined as having daily consumption levels ranging between US$5 and US$13, in purchasing power parity (PPP) terms) rose from 36 per cent of the total population in 2011 to just under 40 per cent in 2015. However, this trend is projected to slow or even stop unless growth picks up (see ILO - World employment and social outlook: Trends 2016).

Increasing income inequality and falling labour shares damages growth

5. There is a broad trend toward rising inequality and declining labour income share, although the developments vary across countries. In many countries, the bottom 40% has fallen significantly behind in many countries, particularly since the recent crisis. Income inequality has fallen in Argentina, Brazil, Mexico and Turkey since the mid-2000s from high levels. In other emerging economies, notably China, India, Indonesia and the Russian Federation, income inequality (as measured by the disposable income Gini coefficient) increased over the same period. In most advanced economies, income inequality has risen significantly in recent years. This is largely driven by the increasing concentration of income at the very top of the distribution.

6. There is a rapidly growing body of evidence that high income inequality can have adverse consequences for the pace and sustainability of economic growth. An IMF study found that increases in income for the top 20% of the income distribution are negatively associated with overall economic growth, while increases for the bottom 20% positively correlate with growth (see IMF - Causes and consequences of income inequality: A global perspective). Globally, the gender wage gap is estimated to be 23 per cent; in other words, women earn 77 per cent of what men earn. Widening income inequality can lead to larger gaps in educational outcomes and weaker social mobility (see OECD - In it Together: Why less inequality benefits all). High and rising inequality impacts on potential growth by undermining consumer demand, reducing skills, capabilities, opportunities and mobility, as well as weakening social and political cohesion.

7. Labour shares in national income are on a downward trend in most large economies in recent years. The declining labour income share in many countries at the same time limits household consumption and reduces overall aggregate demand, which is further weakened by low investment leading to low global economic growth (see ILO - Global wage report 2014/15). Private investment is well below usual levels especially in advanced economies and notably the Euro Area, despite extraordinarily low interest rates and accommodative monetary policies.

8. Cyclical weakness is thus feeding into structural constraints with weak investment inhibiting productivity growth. It is vital that current trends of rising inequality and slowing growth are quickly reversed by concerted action to reduce inequality, generate decent jobs and sustainable enterprises, and invest in the infrastructure for faster, greener and more inclusive growth. Such urgent international action can also help to diminish the social and political tensions in many parts of the world which are both a cause and a consequence of increased economic uncertainty.

Policy packages for inclusive growth

9. Different policy configurations will suit different countries. The World Bank’s recently issued manual on Balancing Regulations to Promote Jobs, which was prepared in consultation with the ILO, offers sound advice to countries on the design of labour market policies (see World Bank - Balancing regulations to promote jobs: From employment contracts to unemployment benefits). It sets out general principles that can help improve the design of labour laws and their implementation. The report also underscores the importance of dialogue between representatives of employers and workers.

10. With private investment and household consumption weak in many countries and unlikely to revive with sufficient vigour and pace to reinvigorate growth in the near term, governments need to take the initiative. The immediate challenge is weak global demand. All available policy tools including fiscal and labour market measures need to be used. Existing accommodative monetary policies should be kept in place but while preventing a further deterioration in growth seem ineffective in accelerating it. While different countries face different constraints and opportunities in taking action, a package of employment and social policies can add to fiscal action to make an important contribution to macroeconomic strategies for inclusive growth especially if pursued in concertation with other countries.

11. Low interest rates permit the financing of growth-enhancing sustainable infrastructure investments such as communications, low carbon emissions transport, renewable energy, fuel-efficient housing and public buildings, clean water and sanitation systems. The new World Bank Environmental and Social Framework, Setting Standards for Investment Project Financing now being prepared can make an important contribution to investing sustainably in growth-enhancing infrastructure and should incorporate references to fundamental principles and rights at work. The minimum baselines under these internationally-recognized standards should apply to all categories of project workers. The ILO has offered constructive proposals for the new framework.

12. Narrowing income inequalities and boosting household consumption can be realized by:
  • Strengthening labour market institutions, such as collective bargaining
  • Reducing wage inequality, through for example minimum wages
  • Improving employment outcomes for vulnerable groups in the labour market, with particular attention to youth unemployment
  • Taking decisive measures to increase women’s participation and ensure equal pay and working conditions for women and men
  • Improving job quality by fostering the transition of workers from the informal to the formal economy, and tackling labour market segmentation.
  • Ensuring equality of opportunities to participate in quality education, training and lifelong learning
  • Promoting universal social protection

Prolonged underperformance of the global economy is undermining the multilateral system

13. Work is central to people’s lives and the underperformance of the global economy especially in terms of jobs and wages is a major cause of heightened political and social tensions and political uncertainty. People are increasingly questioning the capacity of the institutions and actors of public life to provide solutions to their most pressing concerns or even the sincerity and legitimacy of their attempts to do so. Simple answers to complex questions are in demand and some of those on offer do violence to the values of democracy, human rights, tolerance and solidarity.

14. The global refugee crisis has highlighted the importance of filling the gap between the efforts of the international community to alleviate humanitarian crises and its longer term development strategies. Forced displacement of large numbers people leads inexorably to the issue of how women and men in this situation are to provide for themselves. Access to decent work has to become part of the international approach to the crisis. This in turn requires detailed work on appropriate labour market policies that enable both refugees and host communities to have access to decent work opportunities.

15. The world needs strong frameworks for collective action more than ever but political leaders in many countries seem to be turning inward making the construction of a concerted international programme to break out of the low growth trap even more difficult.

16. The 2030 Agenda for Sustainable Development adopted on 25th September 2015 by world leaders at the UN Summit is a beacon of hope for the multilateral system. It addresses the major global challenges that must be tackled by 2030 if our societies are to hold together and offer a decent future for the world’s citizens. Implementing the Sustainable Development Goals (SDGs) will require the mobilization of all the institutions of the multilateral system in support of member States national strategies.

17. A key driver of progress across the SDGs is a shift towards more inclusive growth patterns which generate decent work and decouple economic growth from environmental degradation. Achieving gender equality, in line with the 2030 Agenda, is an indispensable precondition for the realization of a sustainable development that leaves no one behind and ensures that the future of work is decent work. Investing in new infrastructure for greener growth coupled with policies to increase the spending power of lower and middle income groups and increase employment are needed both to rekindle growth and transform the dynamics of growth for sustainability and a just transition in support of the Paris Agreement on climate change adopted in December 2015.

18. The consequences of inaction in 2016 will make it harder to escape a low growth trap and put at risk the world envisioned by Leaders last September in adopting the document “Transforming our world: the 2030 Agenda for Sustainable Development”.