Transcript of a Conference Call on IMF Paper
Jobs and Growth: Analytical and Operational Considerations for the Fund
Thursday, April 4, 2013
Kalpana Kochhar, Deputy Director, Strategy, Policy, and Review Department
Prakash Loungani, Advisor, Research Department
Hans Weisfeld, Deputy Division Chief, Strategy, Policy, and Review Department
Silvia Zucchini, External Relations Department
MS. ZUCCHINI: Good morning, I am Silvia Zucchini, from the IMF’s External Relations Department. Welcome to our conference call on the release of the paper “Jobs and Growth: Analytical and Operational Considerations for the Fund.”
We are here today with the lead authors of the paper, Kalpana Kochhar, the Deputy Director of the Strategy, Policy, and Review Department (SPR), Prakash Loungani, Advisor in the Research Department, and Hans Weisfeld, Deputy Chief, also in SPR.
We will have Kalpana deliver some opening remarks, and then Prakash and Hans will join the discussion when we open the floor for questions.
So, let me just now give the floor to Kalpana.
MS. KOCHHAR: Good morning, everybody, this is Kalpana Kochhar, Deputy Director in the Strategy, Policy, and Review Department. I am very happy to be here with all of you this morning. You would have all seen the paper, but let me say a few words to explain the paper's background, the goal, and the main findings. Job creation and inclusive growth are goals that really resonate in every country in the world today, and this is because of the unfortunate reality that over 200 million people are unemployed, and global growth, which is projected only at about 3 ½ percent this year, is still far below potential. A lot of these unemployed people are youth, which is an issue that concerns policy-makers everywhere.
In terms of the background to this paper, the Great Recession is one thing that's front-and-center on everybody's minds. It's had a large negative impact, particularly in advanced countries, on unemployment and on growth. But there are other, longer-standing global megatrends that have also had a profound impact on growth and job creation in recent decades. These are: technological progress, globalization—which means more and more countries opening up to trade and financial flows from each other—, and a doubling of the global labor force. In addition, demographic trends, by which you have some parts of the world aging quite rapidly, and other parts of the world, where large numbers of young people are entering the labor force and have to be employed. These are the broad megatrends that we tried to use as background for the work that we did, in addition to the more near-term issue of the recession.
These megatrends have actually been generally quite positive. They've raised overall growth and welfare across the world, and millions of people, have escaped poverty in emerging markets and developing countries. Likewise, in advanced countries, these trends have been largely positive, because they've resulted in lower prices and, therefore, real income gains. At the same time, the megatrends have also posed serious challenges for different countries. In advanced countries, they have resulted in a lower demand for the lower-skilled workers, partly because of outsourcing of manufacturing and service-sector jobs. This has led these countries to have to look for other sources of growth in employment.
In developing countries, the challenge is to find jobs for large numbers of people who are entering the labor force, who may not have the right skills. For emerging markets that have reached the middle-income status, in turn, challenge is how to escape, or not get caught in the middle-income trap. We therefore see these megatrends as implying challenges for all different types of countries.
The other point that we kept in our minds in carrying out this work is that while inequality between countries has fallen—because strong growth in a number of poor countries has caused incomes to converge—inequality within countries has actually worsened, almost across the board. What we were trying to understand here is how to maximize and benefit from the positive impacts of the megatrends, while thinking about how we could mitigate their adverse effects.
Given my preamble, our paper suggests that coping with the recession and these broad megatrends implies different policy priorities for different countries. For advanced countries, the priority is to spur growth and reduce unemployment by boosting aggregate demand, within the available fiscal space. In many advanced countries fiscal space is seriously constrained. Advanced countries also need to remove structural bottlenecks to productivity growth and, in some cases, they need to look for new sources of growth.
Many emerging markets and developing countries still have a long way to go to catch up to the income levels of advanced countries. In that respect, for them the challenge still remains undertake deep structural transformation, including moving resources from traditional, and maybe less productive sectors to more productive sectors, as well as diversification. Many of these countries are already facing growing inequality, either because of past structural change or lack of economic inclusion. We therefore consider that reducing privileges that favor a few could be a prerequisite to accelerating growth sustainably.
We also thought about what types of labor market policies would be most conducive to accelerating growth. In this context, the paper discusses the concepts of micro- and macro-flexibility. We are happy to answer questions on those concepts, but they basically both relate to the ability of the economy to adjust to shocks, and to be able to move resources between sectors in order to maximize growth and unemployment.
The other big principle that we have advocated in the paper, which follows the 2013 World Bank’s World Development Report on Jobs, is the focus of governments’ policies should be to protect workers, and not jobs.
And finally, as we have said many times in the paper, there is no one-size-fits-all solution for all countries, nor is there a particular “silver-bullet” strategy for any particular country that we can identify. It has to be a combination of policies that addresses the binding constraints that countries face. What we can say for sure, however is that macroeconomic stability—which is low inflation and low output volatility—is an essential foundation for any growth and job creating strategy.
Let me quickly say a word on why we have produced this study now. As I said before, given the human cost of the financial crisis and the global recession, as well as the major social and political transitions that we have witnessed during the Arab Spring, these issues have become much more important in the Fund's work. They impact our core areas of responsibility. Starting in 2011, we decided that it was time for us to start working more on these topics. A Working Group on Jobs and Growth was established within the IMF that, while also drawing on the expertise of external experts in this area, started identifying gaps in our work, and provide guidance to staff on how we can do better in these topics, both in our surveillance, as well as our program and analytical work.
We think there's scope to improve our analysis and our policy advice around growth and job issues. Specifically, I think we can do three things better and, probably, more. First is providing more tailored and relevant policy advice through a systematic diagnostic analysis of growth and employment challenges, as well as by identifying the most binding constraints to inclusive growth and jobs.
Second is better integrating policy advice to create conditions that encourage greater labor force participation, including by women, more robust job creation, more equity in income distribution, along with greater protection for the most vulnerable. A lot of our advice, for instance, focuses on fiscal policy, also in line with our institutional comparative advantage. Fiscal policy, in our view, is probably one of the most effective policy tools to achieve these objectives. The third area where we think we could do better is enhancing advice on labor market policies, based on empirical evidence and on stronger collaboration with our partner international institutions such as the Bank, the OECD, and the ILO, which have deeper experience in these areas.
Let me conclude by saying what's next after this paper. We intend to continue enhancing our toolkit for surveillance and growth, and keeping up with the latest in the literature and the analytical areas, both inside and outside the Fund. We will draft a Staff Guidance Note, which will allow colleagues to use the advice included in today’s paper in their country-specific work. This is also in line with the recommendations of the 2011 Triennial Surveillance Review, which requires the IMF to consider more of the social aspects as part of its advice, as well as the 2011 Review of Conditionality. By drafting a Staff Guidance Note we do not want to suggest that the issues of job creation and inclusive growth will need to be discussed in every interaction with our countries. But wherever it's relevant—and we believe it will be more and more relevant for the reasons I outlined before—the Guidance Note will provide staff with ideas on how they could do this work in a more systematic way. Finally, we'll continue to do our advanced analytical work to improve our understanding of these issues. Let me stop there, and invite questions, which my colleagues Hans, Prakash, and I will try to answer.
QUESTON: I've been covering this issue of the jobs for several years, and watching it, and was wondering what is new here that you are recommending? The issues of gender equality, for example, have all already been identified as important. Where is it that you think one can really start tackling this issue? If you look at, for example, in the Middle East, and in North Africa, and elsewhere, there's this whole new group of people living between $2 and $10, where jobs are some of the most important. But how does one get scale from this? If you have to ask governments now, their big thing is trying to get that scale going for job creation?
MS. KOCHHAR: Let me take a crack at that and see if some of my colleagues might also want to chip in.
So, what's new in this report? I think you're right in a lot of ways, that we're not necessarily saying a whole lot that's new, compared with the literature. What is new, though, is putting it all together. It's, in a way, raising the awareness of the work that's been done, the state of knowledge in the economics community, as well as taking a closer look at some of the policy advice, or some of the issues, for example on labor markets, where the IMF has not been asked in the past to do that much. Both in Europe, as well as in the Middle East, these issues are much more front-and-center now. And so for us it is relevant to take stock of the empirical evidence, the state of the art, and to bring it to our staff and to our membership.
How does one get scale? These are major structural problems that need to be tackled, but nobody is under any illusion that scale can be achieved in the short term. There may even be an adverse impact in the short term. But, precisely because the results take so long to implement, is why we need to get started now. The issue of getting scale is really about getting started with the right policies—fiscal policies, taking a look at whether your tax system is conducive to both job creation, as well as inclusion—whichever the dimension of inclusion you want to use, gender or any other—, whether your expenditure system is most conducive to the same goals, but also to protecting the most vulnerable, whether your labor market policies are, in fact, geared towards protecting workers, and not just those who happen to be fortunate enough to have jobs. So these issues are multidimensional and tackling them is going to take a long time.
QUESTION: How will the IMF include this advice in its surveillance activities? I guess it would also come into the spillovers, considering globalization, and so on. Would surveillance address the labor issues? Would you just look at the broader issues? The World Bank does that already.
MS. KOCHHAR: Yes to both. I will mention again what I said in my opening remarks. When the 2011 Triennial Surveillance Review was completed, one thing that the IMF was charged with doing after the review was completed was, in fact, to focus more on issues related to jobs, growth, and inclusion.
So, we are following up on that recommendation. And this paper is moving the process forward in providing guidance on how to do it. Thus, our guidance on doing it comes from the 2011 Triennial Surveillance Review. It also comes from the Review of Conditionality, which we do periodically. And maybe I'll ask my colleague to say a bit about that in a minute. So considering issues of job creation and inclusive growth will become a standard element of the IMF’s surveillance.
My own sense is that, even if it will not be a requirement, many country teams will start looking at these issue because many countries are facing complex challenges around them. Before the crisis, many of these countries were enjoying high growth because the global economy was so buoyant. Now that is not the case, and the prospects for it are pretty weak going forward. Policy makers thus have to think about how to generate growth in this new context. So, while issues of jobs and inclusive growth don’t have the same status as financial and policy spillovers, which country teams need to do consider systematically in line with the Integrated Surveillance Decision, my own view is that the issues related to growth and jobs will be included because they're relevant.
QUESTION: Do you still believe that growth is important for other things beyond creating jobs? What kinds of growth levels would you suggest are important to create jobs?
MR. LOUNGANI: The issues of unemployment are important everywhere. However, in the advanced economies, is where you've seen the greatest increase since the great recession. So we've done a fair bit of work trying to understand what the source of that unemployment is. At least in many advanced countries, it's evident to us that a big reason for the increase in unemployment is the weak growth in aggregate demand. So our advice has been focused very much on trying to maintain aggregate demand through accommodative monetary policies, while fiscal consolidation should proceed at a very measured pace, so that aggregate demand is not depressed further. I don't have the precise numbers to throw out, but restoring growth at least to the pre-crisis levels of 1½-2 percent, would at least make a big dent in the unemployment problem.
Beyond the advanced countries, the connections between growth and jobs are somewhat weaker. There you probably need something more akin to a jobs strategy. In the advanced countries, getting growth going will be the best job strategy that you can devise for now, as our Managing Director and Olivier Blanchard have been saying for awhile.
MR. WEISFELD: Just to follow up on what Ms. Kochhar said on the Review of Conditionality. That is a review that the Fund prepares generally every five years of how Fund-supported programs are designed, and what their impacts are. The latest Review of Conditionality is the 2011 review, which was completed in 2012. In that review, we found that Fund-supported programs have increasingly integrated "social elements." For example, in PRGT-supported programs, we've seen that social spending, defined as health and education spending, has increased. And we also found that, in recent crisis programs, social spending has been largely protected. So, during the discussion of this Review of Conditionality, The IMF’s Executive Board of Directors concurred with the recommendation to try and strengthen the macro-social aspect of Fund-supported programs. The IMF’s paper on jobs and growth was one further attempt to think about what the room for that is, and how we can best do this.