Quality Employment, Employability and Decent Work: Policy objectives and required actions
Presentation by ILO Director-General to BRICS Labour and Employment Ministers, Ufa, Russian Federation, 25 January.
Colleagues,
I have a challenge this afternoon of presenting a very broad set of themes, and I will try to cover them in a manner that is coherent, showing the relationship between these different topics.
slide 2 At the time the BRICS acronym was coined back in the early 2000s, the BRICS were very much considered to be the star performers of growth and development. Since then, of course, you have come together as a political grouping. And over these years, the external economic environment has changed rather dramatically.
So where do the BRICS stand now, in terms of GDP growth and in terms of development. Here, let us understand development as standards of living that are rising for most of the population, in an economy that is dynamic and sustainable.
On this slide we see the increase in per capita GDP over a long period of time from 1980 to 2013, particularly in China and India. In recent years, India has been accelerating and China has been slowing somewhat. Brazil, Russia, and South Africa were growing more slowly over these decades and with the collapse in commodity prices we know that some countries now face slow growth or even recession.
slide 3 The point I want to make is that growth does not tell the whole story: high growth rates on their own do not guarantee decent work, inclusion and equity.
slide 4 More specifically, we can see here the dramatic declines in working poverty in Russia, China and Brazil over recent decades. The problem of working poverty has persisted in India and even increased somewhat in South Africa. In terms of the share of working poor in the total labour force, it remains highest in India, and China and South Africa still have significant remaining working poverty as well.
slide 5 There is some good news from all of the BRICS in terms of the growth of the middle class. We see continued growth from fairly high levels in Russia and Brazil and an acceleration of growth of the middle class in the other BRICS from 2000 to 2015, with projections to 2020.
slide 6 BRICS have been the drivers of the growing ‘global middle class’ in recent years and that is projected to increase from 1.8 billion in 2009 to 3.2 billion by 2020. This is partly a consequence of growth, but the middle class is also a key factor driving growth through consumption. The middle class can also be a force for political stability and democracy through its values of work, taxes, saving and investment. And it demands development of education, health care, public services and social protection, which themselves help drive development.
slide 7 It is important that we not think that growth of the middle class is irreversible and will continue forever. Many households are not far above the moderate poverty line and an adverse shock could throw them back into poverty. Rising unemployment could drive more back into the informal economy. Many of the social policies that ILO has advocated are essential to ensure continued growth of the middle class. These include reversing the decline in the labour share of GDP, which has been declining in all BRICS except Russia, ensuring access to good quality education and other public services and addressing inequality.
My point is that that with slowing growth in most of the BRICS, it is important to also focus on the need for a balance between growth and social development.
Let’s turn to growth and employment creation first, then come back to decent work, social protection and quality employment.
slide 8 Although there has been significant convergence of the BRICS with advanced economies — and perhaps a lot more talk about convergence than the reality — it remains the case that gross fixed capital formation per worker in the BRICS is still only a fraction of what it is in high-income OECD countries. The gap affects productivity, competitiveness and the structural transformation that is needed to bring more workers out of subsistence or low income work into higher productivity and higher value-added employment.
This difference partly reflects low public capital stocks and physical infrastructure deficits. Effective public investments in very much needed infrastructure would boost job creation while addressing the productivity and economic transformation issues to which I have referred. Currently low financing costs are available to most of the BRICS, and this represents very much of an opportunity. Infrastructure investments typically have large spillover effects in the short term as well as raising productivity, inclusiveness and interconnectedness in the medium term.
slide 9 This graphic refers to something sometimes rather controversial, and that is the employment implications of austerity. This slide shows our simulation of the impact of fiscal consolidation, that is, spending cuts in the face of current economic conditions. The simulation shows the impact of spending cuts expected this year by emerging economy commodity exporters in terms of millions of additional unemployed. If spending cuts would increase next year the unemployment levels increase even more dramatically. So where conditions allow it, countercyclical spending should be maintained wherever possible.
Let me now turn to the topic of enterprise modernization as a means to create more and better employment. The most important single driver of national productivity is enterprises becoming better at what they are already doing or moving into new, higher value added activities. There is clear evidence that enterprises that do attain higher productivity either through product or process innovations also exhibit higher employment growth.
slide 10 In most of the BRICS small and medium size enterprises (SMEs) are the main providers of employment. I’m advised by colleagues that these figures should be taken as illustrative, as this is an area where data across the BRICS are not fully consistent, something we will discuss more tomorrow. Even where SMEs make a relatively small contribution to overall GDP, as in India and Russia, they are nevertheless very important as sources of employment.
slide 11 That being the case it is also important to recall that SMEs tend to show lower levels of productivity, pay lower wages, and score lower for other aspects concerning the quality of employment than do large enterprises. Against this background the ILO has made working conditions and productivity in SMEs a priority area of work in the last two years trying to better understand the complex cause and effect relationship between working conditions and SME productivity.
slide 12 And one of the ILO’s policy priorities for the next two years is sustainable enterprises. Here I would like to point to one of our successful programmes, which is active in several BRICS countries —the ILO SCORE programme, (Sustaining Competitive and Responsible Enterprises) which aims to help SMEs raise their productivity and improve their working conditions.
The approach is to help firms improve the quality of human resources, production processes, and equipment to improve productivity. The thinking is that this will lead to better enterprise performance and better working conditions as the final impact. It focuses on lean manufacturing, new technologies, quality control, inventory management and human resource development.
slide 13 SCORE is already active in China and India in manufacturing and in South Africa in tourism, although on a relatively small scale. We would very much be interested to scale up these efforts, in light of the importance of the areas concerned.
I have been talking about job creation and the demand for labour. Let me turn to the question of labour supply, and specifically the question posed by our host Russia on improving the quality of vocational education and training programmes.
slide 14 This graphic represents an attempt to indicate some of the key factors concerned. Our key messages here include the need to build bridges and communications between training providers and enterprises in order to better match skills provision to labour needs and demand. This is often done best at the sectoral level where the direct participation of employers and workers together with government and training providers can ensure the relevance of training.
Continuous workplace training and lifelong learning enable workers and enterprises to adjust to an increasingly rapid pace of change. It is important to anticipate and build competencies for future needs. Sustained dialogue between employers and trainers, coordination across government institutions, labour market information, employment services and performance reviews are steps to an early identification of skill needs.
Finally, it shows the importance of broad access to training opportunities, for women and men, and particularly for those groups facing greater difficulties or disadvantages.
And here I would also recall that the UN’s Sustainable Development Goals (SDGs) emphasise the key role of technical and vocational skills in enhancing employment opportunities, setting a target to “substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship” under Goal 4. The point is that efforts by the BRICS to improve training will also help you achieve the SDGs.
In addition to that, in 2012 the ILO developed a G20 training strategy in response to G20 Leaders’ request, which is oriented toward helping developing countries improve the human resources in their labour markets. Russia has been a particularly strong supporter of the effort, providing both financial support for the ILO’s role in the recipient countries and also providing its own technical inputs to that work.
slide 15 In addition, let us recall that public employment services have a role to play here. They can help connect enterprises with workers but also with training institutions, using their knowledge of different players needs to “connect the dots” into a coherent and integrated whole. And they also have a very important contribution to make in matching skills to job seekers who are moving across domestic states and provinces. Here let me point to Russia and India as examples of good practices in this field.
slide 16 Finally, let me turn to the question of social protection systems, social insurance and social safety nets, which I know my colleagues will also address. First, the ILO does regard basic income security as a human need, and adequate social protection for all is one of the explicit targets of the SDGs. But let me make the point that social protection supports structural transformation of the economy by allowing workers to move to higher productivity sectors, locations and occupations.
It also stabilizes aggregate demand during economic downturns and acts as an automatic countercyclical policy. This has particularly important resonance at a moment when BRICS countries are facing slower growth and possibly rising unemployment.
slide 17 We can see that the BRICS all have a long way to go to achieve adequate income security. This graphic shows that in Brazil, China and India only a very small fraction of the unemployed receive unemployment benefits and the situation is only moderately better in Russia and South Africa.
slide 18 Some very impressive progress has been made in the BRICS in extending pension coverage to most older people over recent years. This is to be applauded. However pension payments are typically very low, both in absolute terms and as replacement rates for former earnings. This is an area that requires urgent attention, particularly in those BRICS where populations are aging. In all likelihood this is going to require increases in funding through employer and worker contributions and from general revenues. So while real progress has been made in recent years in reducing elder poverty, that progress will be at risk of being reversed rising again unless we take steps to ensure that does not happen.
slide 19 And looking to the future, systems need to be built and reinforced for today’s working population so that they will have income security when they inevitably grow old. Even where the strongest systems are in place – and here let me point to Russia, China and Brazil - fewer than half of workers participate in a pension scheme that will provide for them later in their lives. This too requires our attention. Contributory schemes are still an essential part of planning for income security after retirement, even where basic publicly funded schemes for the poor are in place.
slide 20 As I said already, considerable progress has been made by the BRICS on social protection. This slide shows that public social protection expenditure increased in all BRICS, especially after 2005. Growth in per capita expenditure on social protection was faster than GDP growth per capita, except in India. For Brazil and Russia, the challenge will be to maintain at least this level of effort in the face of slower economic growth or even contraction. For India, China and South Africa, continued effort is needed. Of course, this goes beyond the actual financial effort that is entailed, as work must be done on the mechanisms used to provide coverage, the adequacy of benefit level, stronger institutional capacities to deal with changing labour market patterns and coherence between benefit systems that in some of the BRICS are still very fragmented. So a whole series of issues need to be addressed.
slide 21 In that context, the ILO conventions and recommendations on social protection provide sound advice on building social protection and pensions, and that is advice that is applicable to countries at all levels of development and that has been tested over time. Our social protection floor recommendation, which was negotiated and adopted in 2012 with universal support and of course participation of employers’ and workers’ representatives, emphasizes first the need for horizontal extension of social protection to cover everyone, including the most vulnerable, and also vertical increases in the levels of benefits provided. Some BRICS have also created excellent practices in extending coverage to the informal economy, something that will be discussed more tomorrow.
slide 22 That is what I wanted to say to start this discussion. Thank you, and I look forward to listening to my fellow panellists and discussing all of these issues with the Ministers and other representatives. That will serve us well for further cooperation in the future.
I have a challenge this afternoon of presenting a very broad set of themes, and I will try to cover them in a manner that is coherent, showing the relationship between these different topics.
slide 2 At the time the BRICS acronym was coined back in the early 2000s, the BRICS were very much considered to be the star performers of growth and development. Since then, of course, you have come together as a political grouping. And over these years, the external economic environment has changed rather dramatically.
So where do the BRICS stand now, in terms of GDP growth and in terms of development. Here, let us understand development as standards of living that are rising for most of the population, in an economy that is dynamic and sustainable.
On this slide we see the increase in per capita GDP over a long period of time from 1980 to 2013, particularly in China and India. In recent years, India has been accelerating and China has been slowing somewhat. Brazil, Russia, and South Africa were growing more slowly over these decades and with the collapse in commodity prices we know that some countries now face slow growth or even recession.
slide 3 The point I want to make is that growth does not tell the whole story: high growth rates on their own do not guarantee decent work, inclusion and equity.
slide 4 More specifically, we can see here the dramatic declines in working poverty in Russia, China and Brazil over recent decades. The problem of working poverty has persisted in India and even increased somewhat in South Africa. In terms of the share of working poor in the total labour force, it remains highest in India, and China and South Africa still have significant remaining working poverty as well.
slide 5 There is some good news from all of the BRICS in terms of the growth of the middle class. We see continued growth from fairly high levels in Russia and Brazil and an acceleration of growth of the middle class in the other BRICS from 2000 to 2015, with projections to 2020.
slide 6 BRICS have been the drivers of the growing ‘global middle class’ in recent years and that is projected to increase from 1.8 billion in 2009 to 3.2 billion by 2020. This is partly a consequence of growth, but the middle class is also a key factor driving growth through consumption. The middle class can also be a force for political stability and democracy through its values of work, taxes, saving and investment. And it demands development of education, health care, public services and social protection, which themselves help drive development.
slide 7 It is important that we not think that growth of the middle class is irreversible and will continue forever. Many households are not far above the moderate poverty line and an adverse shock could throw them back into poverty. Rising unemployment could drive more back into the informal economy. Many of the social policies that ILO has advocated are essential to ensure continued growth of the middle class. These include reversing the decline in the labour share of GDP, which has been declining in all BRICS except Russia, ensuring access to good quality education and other public services and addressing inequality.
My point is that that with slowing growth in most of the BRICS, it is important to also focus on the need for a balance between growth and social development.
Let’s turn to growth and employment creation first, then come back to decent work, social protection and quality employment.
slide 8 Although there has been significant convergence of the BRICS with advanced economies — and perhaps a lot more talk about convergence than the reality — it remains the case that gross fixed capital formation per worker in the BRICS is still only a fraction of what it is in high-income OECD countries. The gap affects productivity, competitiveness and the structural transformation that is needed to bring more workers out of subsistence or low income work into higher productivity and higher value-added employment.
This difference partly reflects low public capital stocks and physical infrastructure deficits. Effective public investments in very much needed infrastructure would boost job creation while addressing the productivity and economic transformation issues to which I have referred. Currently low financing costs are available to most of the BRICS, and this represents very much of an opportunity. Infrastructure investments typically have large spillover effects in the short term as well as raising productivity, inclusiveness and interconnectedness in the medium term.
slide 9 This graphic refers to something sometimes rather controversial, and that is the employment implications of austerity. This slide shows our simulation of the impact of fiscal consolidation, that is, spending cuts in the face of current economic conditions. The simulation shows the impact of spending cuts expected this year by emerging economy commodity exporters in terms of millions of additional unemployed. If spending cuts would increase next year the unemployment levels increase even more dramatically. So where conditions allow it, countercyclical spending should be maintained wherever possible.
Let me now turn to the topic of enterprise modernization as a means to create more and better employment. The most important single driver of national productivity is enterprises becoming better at what they are already doing or moving into new, higher value added activities. There is clear evidence that enterprises that do attain higher productivity either through product or process innovations also exhibit higher employment growth.
slide 10 In most of the BRICS small and medium size enterprises (SMEs) are the main providers of employment. I’m advised by colleagues that these figures should be taken as illustrative, as this is an area where data across the BRICS are not fully consistent, something we will discuss more tomorrow. Even where SMEs make a relatively small contribution to overall GDP, as in India and Russia, they are nevertheless very important as sources of employment.
slide 11 That being the case it is also important to recall that SMEs tend to show lower levels of productivity, pay lower wages, and score lower for other aspects concerning the quality of employment than do large enterprises. Against this background the ILO has made working conditions and productivity in SMEs a priority area of work in the last two years trying to better understand the complex cause and effect relationship between working conditions and SME productivity.
slide 12 And one of the ILO’s policy priorities for the next two years is sustainable enterprises. Here I would like to point to one of our successful programmes, which is active in several BRICS countries —the ILO SCORE programme, (Sustaining Competitive and Responsible Enterprises) which aims to help SMEs raise their productivity and improve their working conditions.
The approach is to help firms improve the quality of human resources, production processes, and equipment to improve productivity. The thinking is that this will lead to better enterprise performance and better working conditions as the final impact. It focuses on lean manufacturing, new technologies, quality control, inventory management and human resource development.
slide 13 SCORE is already active in China and India in manufacturing and in South Africa in tourism, although on a relatively small scale. We would very much be interested to scale up these efforts, in light of the importance of the areas concerned.
I have been talking about job creation and the demand for labour. Let me turn to the question of labour supply, and specifically the question posed by our host Russia on improving the quality of vocational education and training programmes.
slide 14 This graphic represents an attempt to indicate some of the key factors concerned. Our key messages here include the need to build bridges and communications between training providers and enterprises in order to better match skills provision to labour needs and demand. This is often done best at the sectoral level where the direct participation of employers and workers together with government and training providers can ensure the relevance of training.
Continuous workplace training and lifelong learning enable workers and enterprises to adjust to an increasingly rapid pace of change. It is important to anticipate and build competencies for future needs. Sustained dialogue between employers and trainers, coordination across government institutions, labour market information, employment services and performance reviews are steps to an early identification of skill needs.
Finally, it shows the importance of broad access to training opportunities, for women and men, and particularly for those groups facing greater difficulties or disadvantages.
And here I would also recall that the UN’s Sustainable Development Goals (SDGs) emphasise the key role of technical and vocational skills in enhancing employment opportunities, setting a target to “substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship” under Goal 4. The point is that efforts by the BRICS to improve training will also help you achieve the SDGs.
In addition to that, in 2012 the ILO developed a G20 training strategy in response to G20 Leaders’ request, which is oriented toward helping developing countries improve the human resources in their labour markets. Russia has been a particularly strong supporter of the effort, providing both financial support for the ILO’s role in the recipient countries and also providing its own technical inputs to that work.
slide 15 In addition, let us recall that public employment services have a role to play here. They can help connect enterprises with workers but also with training institutions, using their knowledge of different players needs to “connect the dots” into a coherent and integrated whole. And they also have a very important contribution to make in matching skills to job seekers who are moving across domestic states and provinces. Here let me point to Russia and India as examples of good practices in this field.
slide 16 Finally, let me turn to the question of social protection systems, social insurance and social safety nets, which I know my colleagues will also address. First, the ILO does regard basic income security as a human need, and adequate social protection for all is one of the explicit targets of the SDGs. But let me make the point that social protection supports structural transformation of the economy by allowing workers to move to higher productivity sectors, locations and occupations.
It also stabilizes aggregate demand during economic downturns and acts as an automatic countercyclical policy. This has particularly important resonance at a moment when BRICS countries are facing slower growth and possibly rising unemployment.
slide 17 We can see that the BRICS all have a long way to go to achieve adequate income security. This graphic shows that in Brazil, China and India only a very small fraction of the unemployed receive unemployment benefits and the situation is only moderately better in Russia and South Africa.
slide 18 Some very impressive progress has been made in the BRICS in extending pension coverage to most older people over recent years. This is to be applauded. However pension payments are typically very low, both in absolute terms and as replacement rates for former earnings. This is an area that requires urgent attention, particularly in those BRICS where populations are aging. In all likelihood this is going to require increases in funding through employer and worker contributions and from general revenues. So while real progress has been made in recent years in reducing elder poverty, that progress will be at risk of being reversed rising again unless we take steps to ensure that does not happen.
slide 19 And looking to the future, systems need to be built and reinforced for today’s working population so that they will have income security when they inevitably grow old. Even where the strongest systems are in place – and here let me point to Russia, China and Brazil - fewer than half of workers participate in a pension scheme that will provide for them later in their lives. This too requires our attention. Contributory schemes are still an essential part of planning for income security after retirement, even where basic publicly funded schemes for the poor are in place.
slide 20 As I said already, considerable progress has been made by the BRICS on social protection. This slide shows that public social protection expenditure increased in all BRICS, especially after 2005. Growth in per capita expenditure on social protection was faster than GDP growth per capita, except in India. For Brazil and Russia, the challenge will be to maintain at least this level of effort in the face of slower economic growth or even contraction. For India, China and South Africa, continued effort is needed. Of course, this goes beyond the actual financial effort that is entailed, as work must be done on the mechanisms used to provide coverage, the adequacy of benefit level, stronger institutional capacities to deal with changing labour market patterns and coherence between benefit systems that in some of the BRICS are still very fragmented. So a whole series of issues need to be addressed.
slide 21 In that context, the ILO conventions and recommendations on social protection provide sound advice on building social protection and pensions, and that is advice that is applicable to countries at all levels of development and that has been tested over time. Our social protection floor recommendation, which was negotiated and adopted in 2012 with universal support and of course participation of employers’ and workers’ representatives, emphasizes first the need for horizontal extension of social protection to cover everyone, including the most vulnerable, and also vertical increases in the levels of benefits provided. Some BRICS have also created excellent practices in extending coverage to the informal economy, something that will be discussed more tomorrow.
slide 22 That is what I wanted to say to start this discussion. Thank you, and I look forward to listening to my fellow panellists and discussing all of these issues with the Ministers and other representatives. That will serve us well for further cooperation in the future.