A new paper by the research arm of the International Labour Organization (ILO) shows that growth and equity can be achieved in parallel if the right mix of policies is put in place. More to the point, equity-enhancing measures can drive economic growth – dispelling the conventional wisdom that the cost of social equity is less economic growth.
In a new paper entitled Making recovery sustainable: Lessons from country innovations, the ILO’s International Institute for Labour Studies added that considering “economic, employment and social policies” as a package could lead to “better overall outcomes” as policy-makers seek to emerge from the worst economic crisis in six decades and reduce the risk of social unrest associated with the status quo.
The synthesis paper is mainly based on findings from a new series of “Studies on Growth with Equity” prepared by the Institute that was presented at the ILO’s Governing Body on 21 March. It is published together with reviews for three countries (Brazil, Germany and Indonesia). More country reviews (including Spain and Tunisia) are to be issued later this year.
The paper highlights the efficiency of employment-centred projects that create more and better jobs and improve long-term productivity. “Reducing the current job quality gap will not only achieve equity objectives but - with the right policy mix - can enhance productivity and future resilience to economic shocks,” the paper says. “Some of those measures include well-designed employment protection, job-friendly tax regimes and a lower administrative burden on the self-employed”.
Similarly, the paper claims that social protection measures, if well designed, “help to stimulate and maintain incomes among the most vulnerable, but can also have large multiplier effects that go beyond this group, stimulating jobs and incomes at the aggregate level”.
“Recent events in the Middle East and North Africa have highlighted the centrality of employment and balanced income developments for social cohesion which is itself a key ingredient of sustainable growth”, says Raymond Torres, Director of the ILO Institute for Labour Studies. “The issue certainly deserves urgent attention, especially since the rising trend in food prices is likely to exacerbate income inequalities in many parts of the world”.
“The experience of the current crisis shows us that, to be effective, job-centred policies need not be expensive. The fiscal stimulus packages of Brazil and Indonesia – two successful performers – were among the lowest in the G20”, the paper says.
Studies on Growth with Equity
The first three “Studies on Growth with Equity” include - in each case - an analysis of how those countries have faired during the last economic crisis, as well as noting areas for improvement.
“Brazil: An innovative income-led strategy”: Full report (126 pages), Summary, Press release
The case of Brazil demonstrates that combining economic growth and equity is possible if well-designed and sufficiently integrated policies are in place. It also says that key elements of Brazil’s success in the context of the crisis, such as the creation of a favourable environment for enterprise investment, carefully-designed increases in the minimum wage and welfare support resulted from social dialogue. Importantly, the measures not only permitted a significant reduction in poverty but also stimulated domestic sources of economic growth –exceeding the expectations of certain analysts.
Brazil is one of the few countries in the world where the incidence of informal employment decreased.
The report said the role of labour market policies in Brazil could be strengthened and the effectiveness of the Public Employment Service improved. This should be complemented by continued improvements to integrate employment and social objectives, while further improving the tax system and the management of capital flows.
“Germany: A job-centred approach”: Full report (105 pages), Summary, Press release
While Germany experienced one of the most dramatic declines in output as a result of the 2008 crisis, employment fell only marginally. This remarkable result reflects job-centred policies such as adjustments through lower working hours instead of layoffs. The policies were possible because of a tradition of social dialogue and more emphasis on stable employment arrangements (as opposed to precarious jobs) than in other countries.
Looking ahead, the immediate challenge will be to ensure that jobseekers do not leave the labour market. Further efforts to promote employment prospects of vulnerable groups are needed for social reasons and to address the challenge of a declining working-age population. Also, the report says it is critical that wages grow in line with productivity gains in order to achieve a sustainable recovery. Socially-inclusive policies were key to Germany’s success in responding to the crisis and should serve as the foundation for future action.
“Indonesia: Reinforcing domestic demand in times of crisis”: Full report (113 pages), Summary
The global crisis had a relatively limited impact on the Indonesian economy and labour markets due to Indonesia’s favourable initial conditions and because of early implementation of counter-cyclical monetary and fiscal measures. Indeed, rather than resorting to competitive devaluations, wage cuts and financial deregulation – as predicted by the conventional wisdom – Indonesia opted for a well-designed boost to domestic demand through tax exemptions for lower-income households and cuts in income taxes, as well as by boosting existing social protection programmes developed in response to the Asian crisis. These policies were complemented by efforts to strengthen the employment-intensity of infrastructure investments, including in rural areas.
Moving forward, Indonesia could take advantage of these significant achievements by addressing high employment informality and promoting the creation of quality jobs, as well as stimulating the employment prospects of youth who have not shared equally the benefits of the recovery.
Success in addressing these challenges lies in fostering coherence between decent work and macroeconomic policies.
Brazil’s growth-with-equity strategy key to beating the crisis, says ILO
Lessons from the crisis – challenges for the future: The ILO gives its first comprehensive assessment of Germany’s policy to tackle the crisis and issues policy recommendations for the future
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International Institute for Labour Studies (IILS)