Spring Meetings of the World Bank and the IMF

The role of decent work in the post-2015 agenda for sustainable development and an end to poverty

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

Statement | Washington D.C. | 18 April 2015
Summary
  • A new framework for inclusive sustainable development through full and productive employment and decent work is central to a renewed post-2015 global drive to eradicate extreme poverty, reduce inequality and reverse damage to the environment.
  • The global labour force is currently growing by around 40 million a year mainly in the developing world and with the largest numbers in South Asia and Sub-Saharan Africa. Most of these young women and men are only able to find work in the informal economy where they are unlikely to be covered by any social benefits or labour law protections and may not have the skills needed to find the jobs that allow them to escape from the threat of poverty.
  • Increasing incomes from work can be a major source of household’s well-being and financing for the development of the productive capacity that in turn generates more decent jobs. Investing in the extension of social protection coverage is a significant factor in tackling persistent poverty, economic insecurity, growing levels of inequality and insufficient investment in human capabilities.
  • Financial inclusion and more accessible financing for micro, small and medium-sized enterprises (MSMEs) loosens constraints to growth by increasing working capital and investment, resilience to adverse economic shocks and the development of skills and capabilities.
  • The risks to economic, social and political stability as a result of inaction in the face of persistent sub-par growth are rising. Slow employment growth, stagnant wages and widening inequality are depressing consumption and deterring investment in many countries.
  • Breaking out of a slide into a global slow growth trap requires the mobilization of the full range of policies with a focus on urgent concerted action to fill the global demand deficit. The major component of demand is consumption, so jobs, wages, taxes and social benefits should be the focus.
  • Alongside a rebalancing of fiscal and monetary policies to rekindle growth, investment in infrastructure, skills development, incentives for research and innovation and availability of credit for investment in the real economy are needed to create an enabling environment for the growth of sustainable enterprises.
  • Action in 2015 by a significant number of countries, especially the largest economies, to boost global aggregate demand by improving wages and social protection would stimulate investment, reduce precautionary saving, reinforce still fragile recoveries, ease fiscal pressures and reduce risks of deflation. Increased consumption would also have positive spillover effects around the world transmitted through an increase in the current low rates of trade growth.

2015 must be the launch pad for enhanced global action for sustainable development

1. The multilateral system is devoting considerable effort to the design and launch of a post-2015 agenda for sustainable development with a horizon of 2030. Although the emerging sustainable development goals are ambitious, the consequences of not realizing them would be grave for the peoples of the United Nations and their planet. A new framework for inclusive growth through full and productive employment and decent work is central to a renewed global drive to eradicate extreme poverty and reduce inequality while at the same time reversing the damage current growth patterns cause to the environment.

2. The march to 2030 begins now. Unless the risk of persistent slow growth can be avoided by ambitious global strategies for inclusive, strong, balanced and sustainable growth, the scale of the 2030 challenges will become ever more daunting.

3. The global labour force is currently growing by around 40 million a year mainly in the developing world and with the largest numbers in South Asia and Sub-Saharan Africa. The annual rate of growth will slowly decline over the next 15 years. Most of these young women and men are only able to find work in the informal economy where they are unlikely to be covered by any social benefits or labour law protections. Although most youth now have more years at school than their parents, they may not have the skills needed to find the jobs that allow them to escape from the threat of poverty. They will thus risk joining the 780 million women and men working hard and long but unable to earn enough to lift themselves and their families out of $2 a day poverty.

4. Increased female participation in employment and an end to discrimination at work are essential foundations for achieving gender equality by 2030. Reducing the global gap in female participation in employment by 25 per cent by 2030 would require over 200 million new jobs.

5. Together with closing the global jobs gap caused by the financial crisis these trends point to the need to ensure that by 2030 some 800 million new decent jobs are created and a further 780 million existing poverty level jobs are transformed into productive employment that yields an income at least above the levels needed for family subsistence. The bulk of the decent jobs needed are in developing countries, especially Africa and South Asia.

Fostering decent work creation through the flow of finance for sustainable development

6. Increasing incomes from work can be a major source of household’s well-being and financing for the development of the productive capacity that in turn generates more decent jobs. Rising incomes allow households to invest in their skills and education, enlarge the savings that fund investment, broaden the potential tax base (to fund amongst other things poverty-reducing social protection floors) and generate the consumer demand that activates the private sector, especially micro and small enterprises.

7. Investing in the extension of social protection coverage is a significant factor in tackling persistent poverty, economic insecurity, growing levels of inequality and insufficient investment in human capabilities. It can also bolster aggregate demand. There has been significant progress in extending coverage of social protection systems and improving their level in a number of emerging economies (See World Social Protection Report 2014/15).

8. Universal access to social protection systems, including by establishing and maintaining nationally determined social protection floors, is not only an important means of assisting those living in or vulnerable to falling into poverty but also a factor that helps to stabilize the economy and maintain and promote employability (See ILO Recommendation N°202 on national floors for social protection and ILO Convention 102 (1952) on Social Security).

9. Reform of subsidies can help enlarge fiscal space for investments in social protection, health and education. However, the distributional effects of changes in fuel prices need to be carefully assessed. If prices of essential fuel and food rise as a consequence of such reforms assuring that broad-based social protection systems insulate low income households from cuts in real purchasing power is vital. By also addressing the needs of middle income groups who may not be earning much above the poverty level such universal social protection schemes help create more cohesive societies.

10. Low income and least developed countries would greatly benefit from investment in social protection floors as part of their national sustainable development strategies, yet they face significant budgetary and external finance constraints in the initial start-up phase that may warrant public international financial support. Alongside support, for example, to building the administrative capacity to run social protection systems, it is also important to back developing countries’ efforts to broaden their tax base through progressive tax systems.

11. Increasing formalization of economic activities is an essential foundation for the development of sustainable enterprises. They need financing for their productive activities, which in turn generate jobs and the economic growth and structural transformation that raise living standards. Financial inclusion and more accessible financing conditions for micro, small and medium-sized enterprises (MSMEs) loosens constraints to growth by supporting the expansion of working capital and investment, increasing resilience to adverse economic shocks and the development of skills and capabilities. Access to finance is the biggest constraint faced by especially micro and small enterprises in both developed and developing economies (See ILO Small and medium-sized enterprises and decent and productive employment creation and IFC Jobs study assessing private sector contributions to job creation and poverty reduction). Developing a credit market that supports MSMEs is a top priority for the renewed UN framework for financing for development.

12. Formalization also enables a more equitable distribution of the tax burden, a larger tax base and supports the application of workers’ rights. Recent experience in several Latin American countries shows how a multi-pronged approach to formalization which increases incentives to move out of informality for both employers and workers can have a major impact on both growth and inequality.

13. One aspect of the challenge of formalization is that some workers have a formal job as well as one in the informal economy. For example public sector health workers and teachers in some countries receive very low pay that is frequently not received regularly, necessitating a second income source which may be to the detriment of their performance in their main job. Tackling low pay and no pay problems in the public service is essential to improve service delivery.

14. The World Bank and other multilateral development banks (MDBs) should play an important leadership role in the shaping of mechanisms of financing for development that support the transformative character of the emerging SDGs. A major increase in infrastructure investment is vital both to release the productive potential of developing countries but also to counteract the drift into a low growth trap. Alongside a renewed drive on infrastructure, the interrelationship between flows of finance and creation of more and better jobs on a large scale is critical. Lending by MDBs should generate decent work both directly and indirectly not least by promoting respect for fundamental principles and rights at work and relevant international labour standards along the chain of enterprises involved in project implementation.

15. A key step forward will be the adoption of a global framework for financing sustainable development at the UN Conference in Addis Ababa in July. Looking further ahead to the implementation of the SDGs, increased cooperation between all the engaged multilateral organizations through the coordination mechanism of the UN system is essential to effective delivery of the support that institutions like the World Bank, the IMF and the ILO can offer to countries. The financing operations of the World Bank Group and other MDBs are an essential part of the integrated and coherent policies called for by the SDGs. The strong cooperative effort put in place by the UN, the World Bank Group and other key international actors to shape support plans for economic and social recovery by the Ebola-affected countries is a major step forward in this regard. The ILO looks forward to playing its specific roles in this effort.

Weakness of global growth in 2015 must not become entrenched

16. Growth in the global economy in 2015 is likely to prove disappointing with improved performance in some major countries counteracted by weakening in others. Prospects for 2016 do not look much better. Financial instability with large swings in exchange rates continues to create major uncertainties. Despite record low interest rates and widely available liquidity, private investment in the real economy is not responding to the easy financing conditions and large cash reserves of the biggest companies. Governments in many countries appear to remain cautious about expanding public investment despite pressing infrastructure needs. Investment has been falling as a share of national income in many countries and in advanced economies is below 20 per cent of GDP, compared to over 25 per cent in the 1990’s.

17. There were more than 61 million fewer jobs worldwide in 2014 than would have been expected on pre-crisis trends. This short-fall in jobs is a reflection of both increased unemployment and lower labour force participation rates, as many people have dropped out of the labour market. Global employment grew at an average annual rate of 1.7 per cent between 1991 and 2007 but slowed to 1.2 per cent per year between 2007 and 2014. On current trends, the global jobs gap will continue to widen, to around 80 million jobs in 2019 (See World Employment and Social Outlook: Trends 2015). Income inequality remains high and the labour share of national income has declined in many countries. Households, after years of stagnant real wages, worries about job security and in some countries burdensome debts, are reluctant to spend.

18. The prospect of still more young women and men not being able to find a job that sets them on a path that utilizes their capabilities and shields them from the risk of unemployment and poverty is extremely disturbing. The risks to economic, social and political stability as a result of inaction in the face of persistent sub-par growth are rising.

Increased inequality, reduced labour share and weak and volatile growth interconnected

19. Weakness in labour markets is inhibiting overall growth, which in turn feeds back into a further slowing of employment and wage growth. On average, the crisis brought down the growth rate of average real wages to about 1 to 2 per cent. That modest growth was attributable almost entirely to emerging economies, particularly China, while wage growth in advanced economies has been fluctuating around zero since 2008 and been negative in some countries. In addition, in many countries productivity has outpaced wage growth for a prolonged period, leading to a marked shift in the balance between labour and capital shares in national income. This significant structural change in many leading economies feeds into an increasingly unequal distribution of incomes which as well as provoking social tensions leads to weaker and more volatile growth. This would set back progress towards the World Bank Group’s twin goals of ending extreme poverty by 2030 and improving the living standards of the bottom 40 per cent of the population in every country.

Urgent concerted action to fill the global demand deficit

20. Breaking out of a slide into a global slow growth trap requires the mobilization of the full range of policies with a focus on urgent concerted action to fill the global demand deficit. The major component of demand is household consumption so a focus on wages as well as taxes and social benefits should take centre stage. This will in turn create investment opportunities and reactivate the channels that should link the financial sector to the real economy. A revival of more evenly spread and faster global growth will also create fiscal space by lifting tax revenues and reducing debt to income ratios.

21. Country circumstances are of course very different and appropriate policy responses will vary. However in the absence of a stronger coordinated effort, particularly from the largest advanced and emerging and economies, some countries may turn to wage and price competition policies that would further undermine global demand and growth. Overreliance on export market share to boost domestic growth could lead into a descent into the “beggar-thy-neighbour policies” that the post-1945 architecture of international institutions was designed to avoid.

22. Thus despite the differences that characterize the major economies, it is important to align policy stances with the most urgent objective being to increase aggregate global demand. A faster pace of employment creation and a narrowing of income inequalities coupled with a renewed drive to eradicate extreme poverty are political priorities everywhere. 2015 is the year in which concerted action on the policy options that reduce inequality and boost jobs and growth could lead the global economy away from the risk of falling into a low growth trap.

Time to reinvigorate strategies for sustainable growth and development

23. Alongside a rebalancing of fiscal and monetary policies to rekindle growth, underlying structural weaknesses in labour markets that have weakened the consumption driver of demand and led to an excess of savings over investment need to be addressed with urgency. The following actions would both reduce inequality and boost jobs and growth and if taken by many countries would form an agenda for strong, inclusive, balanced and sustainable growth:
  • Increasing minimum wages (this addresses working poverty and puts money in households with high propensity to consume)
  • Tackling gender discrimination in employment, increasing female participation (reducing pay gaps, improving affordability and quality of child and elder care, improving parental leave)
  • Addressing weakened workers’ bargaining power by strengthening collective bargaining systems (this would counteract stagnation of middle range of incomes)
  • Boosting active labour market policies to support groups with low employment participation rates, such as persons with disabilities, ethnic minorities
  • Increasing investment/employment incentives in regions of high unemployment/low participation
  • Increasing the progressivity of tax systems and eliminating inequality-increasing taxes and tax loopholes and incentives
  • Extending/improving social protection systems, including health, unemployment insurance, pensions, child support, public employment programmes
  • Improving education and health services to low income groups to reduce inherited disadvantage
24. Action in 2015 by a significant number of countries, especially the largest economies, to boost global aggregate demand by improving wages and social protection would stimulate investment, reduce precautionary saving, reinforce still fragile recoveries, ease fiscal pressures and reduce risks of deflation. Increased consumer purchasing power would also have positive spillover effects around the world, transmitted through an increase in the current low rates of trade growth. We cannot afford the set back of several more years of anaemic growth if the challenge of an ambitious, comprehensive and integrated set of sustainable development goals is to be achieved.