Productivity or employment

This week, I participated in press conferences in both İstanbul and Ankara to announce the publication of “World Development Report 2013: Jobs,” prepared by the World Bank.
high productivity Nowadays, most countries suffer from high unemployment but also from what the World Bank calls “bad jobs,” that is, from unproductive, unsecure employment. Many countries still face the difficult problem of transforming millions of informal, poorly productive jobs -- in agriculture, for example -- into formal wage jobs. Let me just offer one figure in order the express the extent of the employment challenge the world is facing: According to Word Bank estimates, 600 million jobs need to be created in the next 15 years just to maintain current employment rates. The most striking feature of the report, I think, is that it takes into account the diversity of conditions prevailing in each country regarding economic development and the labor market. The World Bank identified eight categories of countries according to these conditions and explained how the nature of “good jobs” -- in other words, proper growth and employment strategies -- differs in each of them. To give you an idea of this diversity, I would like to note that a growth-employment strategy in an “agrarian economy” should not be similar to that of an “aging society.” versus high employment During these two press conferences, I focused my comments on four questions that constitute passionately debated subjects in Turkey: first, how increases in productivity versus employment must be balanced in terms of growth; second, how to integrate members of the youth population who are not working, studying or looking for a job into the labor market; third, what should be done with the existing stock of poorly educated, unskilled people; and fourth, how to address the issue of an aging population. The issues of idle youth and the aging population have been discussed recently in this column. So, allow me this time to focus on the first issue I addressed at the press conferences. In the period preceding the global recession, which was characterized by high growth (roughly 6 percent per year), most economists and the press in Turkey bemoaned the “jobless growth,” asserting that although the growth was there, it was not creating enough jobs. Indeed, if one considers the increase in total employment, limited to approximately to 2 percent per year on average, the capacity of that capacity of growth to create jobs was rather limited. I had two objections to this assertion, however. First, this economic growth was in fact creating enough jobs in non-agricultural sectors as this type of employment increased approximately 3 percent between 2003 and 2008. Secondly, this outcome cannot be considered a valid point of complaint for three basic reasons: The unemployment rate was kept around 10 percent, the high growth allowed for the move of people from poorly productive agricultural jobs into productive non-agricultural jobs and the value added workers increased rapidly, pushing up wages and overall per capita income. In the aftermath of the global recession, not only did very high growth prevail -- on average around 9 percent in 2010 and 2011 -- but it started to create a lot of jobs -- maybe too many! Indeed, the yearly increase in employment reached 6 percent in this period, significantly pushing up the capacity of growth to create jobs. Even in 2012, when growth decelerated tremendously, the increase in employment continued. One should note that this strong increase in employment in recent years is partly due to a surprising increase in agricultural jobs, with much of the remaining job creation happening in the service sector. So, we are no longer hearing the complaint about “jobless growth,” but should we happy about that? I am not sure. It is true that the unemployment rate has decreased by about one percentage point over the pre-crisis period and that labor force participation has increased. However, the increase worker productivity has decelerated significantly, to the point of nearly stagnating in the past year. Admittedly, the ideal situation for growth with regards to the productivity-employment balance would be one that is based mostly on productivity gains while at the same time allowing unemployment to decrease slightly. However, this is easier said than done.