## _031413 ## Source details **Canonical URL:** [_031413](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_031413.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_031413.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_031413.pdf.json) --- ### EXECUTIVE SUMMARY — context, urgency, and core findings - Context and urgency: - World growth is projected to be only around 3½ percent this year, about 2 percentage points below the pre-Great Recession years. - Over 200 million people across the world are unemployed, with youth and long-term unemployment at alarming levels in many countries. - The employment rate (employment to population ratio) remains at 60 percent—its lowest level in two decades—and unemployment is projected to remain elevated for several years. - The average female Labor Force Participation Rate (LFPR) remains low at around 50 percent. - Across OECD countries, the gender wage gap is estimated at 16 percent. - Although on track to meet the MDG of halving extreme poverty by 2015 relative to 1990 levels, over 900 million people are expected to remain vulnerable to being pushed back into poverty in the face of adverse shocks. - Core analytical finding: - No single "silver bullet" exists for promoting growth, jobs, and inclusion. - Macroeconomic stability—low inflation and output volatility—is the essential foundation for any growth strategy. - Linkages: - Growth is an essential prerequisite (but not always sufficient) for job creation and social cohesion. - Jobs and increased labor force participation, including among women, are important to foster inclusive growth and reduce poverty and income inequality. - Productivity growth is central: highest per capita income growth is associated with highest growth in labor productivity via investment in physical and human capital and technological adoption. - Main recommendations for the Fund’s role: - Provide more systematic diagnostic analysis of determinants of growth, job creation, and income distribution—when consistent with the Fund’s mandate—to identify the most binding constraints and tailor policy advice. - Integrate policy advice on tax and expenditure reforms to encourage labor force participation (including women), support job creation, promote equity, and protect the most vulnerable. - Strengthen labor market policy advice using empirical evidence and increase collaboration with World Bank, OECD, ILO. - Ensure Fund advice is guided by its mandate: address growth, job creation, and income distribution to the extent they bear on domestic and balance of payments stability. ### Megatrends shaping jobs, growth, and inequality (Annex 2 highlights) - Three megatrends: technological innovation, globalization (including financial globalization), and the growing global labor force. - Key outcomes and statistics: - The effective global labor force "has more than doubled since 1990" (Index 1990 = 100). - Asia contributed more than half of the increase in the export-weighted labor force. - Value Added Content of Exports compared for 1995 and 2009 (WIOD, WEO, Fund staff estimates) shows rising importance of global supply chains. - Services—especially "modern" services—account for an ever-increasing share of exports and GDP; Manufacturing Value Added as Share of GDP, 1981-2009 shows falling shares in high- and middle-income countries. - World Gini Coefficient, 1970 - 2006: world inequality "has fallen" when treating world as one country, but within-country inequality has risen in the majority of countries, particularly advanced ones. - Empirical findings on inequality drivers (sample of 51 countries, 1981-2003): - There was an annual increase in the Gini coefficient of about 0.4 percent. - Technology and globalization added about 0.8 percentage points to inequality, but 0.4 percentage points of this was offset by increases in education and changes in sectoral composition. - Trade liberalization and export growth are associated with lower income inequality, whereas increased financial openness is associated with higher inequality. - Financial globalization and FDI tend to benefit the richest 20 percent; export growth is associated with rising income shares for the bottom four quintiles and a decline for the richest quintile. ### Exchange rate undervaluation, growth diagnostics, and country constraints - Exchange rate undervaluation debate: - Over-valuation harms growth/employment (e.g., resource curse/Dutch disease contexts); undervaluation argued by some (Rodrik, McMillan) to facilitate structural change if tradable sector externalities exist. - Empirical evidence for a systematic growth benefit of undervaluation and its channels is far from established; persistent undervaluation may conflict with low and stable inflation and is unsustainable globally. - Exchange rate manipulation to gain unfair advantage would contravene Fund members’ obligations. - Growth diagnostics (Hausmann, Rodrik, Velasco 2006): - Identify the "one or two most binding constraints" rather than broad lists. - Typical binding constraints: - Developing countries: inadequate financing for private sector, weak governance, insufficient human capital and infrastructure. - Advanced countries: skill shortages, policies hampering structural transformation. ### Country-group policy implications and priorities - Advanced countries: - Most urgent: reduce massive unemployment from the global financial crisis. - Policies: boost aggregate demand (within fiscal/financial space), structural reforms to remove productivity bottlenecks, mitigate impacts on vulnerable populations, address labor market gender segregation. - Ageing populations: increase labor supply gradually; raise female participation via non-discrimination, flexible work, parental leave, and child care. - Developing countries: - Focus on structural transformation: move labor from agriculture to industry/services with higher TFP, invest in infrastructure and human capital, and raise female LFPR. - Address inequality arising from elite capture and market imperfections; redistribution and removing privileges can be prerequisites for accelerating growth. - Resource-rich countries: manage resource revenues, avoid Dutch disease, and invest in diversification and institutions. - Low-income Sub-Saharan Africa priorities: - Promote integration, densify economic activity, infrastructure development, raise school enrollment, expand financial services and property rights, improve government administration. - Small states and fragile/post-conflict states: - Regional integration, pooling services, targeted external support, and tailored institutional assistance. ### Jobs, labor market institutions, and policy frameworks - Scale and immediate actions: - Over 200 million unemployed globally; short-term actions: support aggregate demand, job placement assistance, retraining; longer-term: structural reforms to boost job growth and productivity. - Micro vs. macro flexibility (Blanchard, Jaumotte, Loungani, 2013): - Micro flexibility: continuous reallocation of workers (affected by unemployment insurance, employment protection). - Macro flexibility: economy-level adjustment to shocks (affected by minimum wages, tax wedges, collective bargaining). - Policy objective: balance micro and macro flexibility while protecting workers. - "Protect workers, not jobs": - Emphasize protecting people (education, safety nets, services) to facilitate reallocation; protect jobs only under systemic crisis with trigger rules and sunset clauses. - Labor market institutions—empirical conclusions for developing countries: - Employment Protection Legislation (EPL): mixed evidence; more stringent EPL linked to smaller labor flows and slower adjustment. - Mandated benefits: uncommon; informality and enforcement gaps yield small employment effects. - Minimum wages: small or no aggregate employment effects but negative effects for youth, women, and small firms; compresses wage distributions and reduces earnings inequality. - Unions/collective bargaining: limited role given large informal sectors; evidence on employment effects inconclusive. ### Fiscal and tax measures for employment and inclusion - Short-term (where unemployment rose sharply): lower labor taxes and enhance Active Labor Market Policies (ALMPs). - Medium- to long-term: fiscal support for labor force participation (child-care subsidies, tax policies for second earners). - Budget-constrained countries: favor budget-neutral reforms or those that save budget (link benefits to job search). - Mitigating employment–equity trade-offs: in-work tax credits and benefits to increase work incentives. - Potential fiscal measures (expenditure and tax policy options listed in source): - Expenditure: hiring/wage subsidies, employment support schemes, public work programs, expand ALMPs, tighten eligibility for social benefits, increase child-care subsidies, increase effective retirement age, strengthen disability pension rules. - Tax: reduce labor taxes (fiscal devaluation), lower business taxes, reduce labor tax wedge targeted to women/secondary earners, older workers, low-skilled workers. ### Gender aspects: participation, constraints, and policy - Key statistics and patterns: - Average female LFPR around 50 percent; global female LFPR rose slightly from 50 to 52 percent between 1980 and 2008. - By 2008 women accounted for more than 40 percent of the global labor force. - Gender gap (male minus female LFPR) narrowed from 32 to 26 percentage points between 1980 and 2008. - Regional female LFPR extremes: 26 percent in MENA; 35 percent in South Asia; >60 percent in East Asia and the Pacific and Sub-Saharan Africa. - OECD gender wage gap estimated at 16 percent; "motherhood penalty" reaches 14 percent across the OECD. - Constraints: - Legislation and social norms restricting land/property rights, mobility, and access to credit. - Income tax regimes taxing family income penalize second earners. - Policy recommendations: - Review tax codes to remove penalties on secondary earners; consider targeted tax relief for secondary earners or single parents. - Expand child care, parental leave, flexible work arrangements, gender-neutral reforms that alleviate gender-specific constraints. - Strengthen legal rights: property, inheritance, entrepreneurship, and family law equality. - Promote female access to education, health, vocational training, and financial inclusion. ### Inequality, political economy, and risks to growth - Inequality effects: - Inequality can cause under-investment in human capital and agriculture (Banerjee, 2004) and lower social mobility. - High unemployment and long unemployment spells depress growth via skill loss and reduced savings (Bean and Pissarides, 1993); youth unemployment causes scarring. - Misallocation of women's labor yields economic losses (Stotsky, 2006; Aguirre et al., 2012 estimate 865 million women could contribute more fully, 812 million in emerging/developing nations). - Distributional conflict: - High inequality can produce social and political conflict, leading to redistributions with high economic costs or elite capture (Alesina and Rodrik, 1994; Bourguignon et al., 2007). - Evidence that less-equal distributions are associated with shorter durations of high growth (Berg and Ostry, 2011). - Fiscal policy role in redistribution (Box 3 summary): - Fiscal policy reduced market-income inequality by about one-third in OECD over past two decades mainly through transfers and taxation. - Developing economies: fiscal instruments less redistributive; recommended actions include broadening tax bases, improving progressivity of spending, targeting education/health to the poor, and extending social pensions. ### IMF surveillance, programs, and institutional guidance - Mandate and scope: - Article I lists “promotion and maintenance of high levels of employment and real income” among Fund purposes; surveillance should examine domestic policies bearing on domestic stability. - The ISD requires Fund to assess whether domestic policies keep economies broadly at capacity and foster potential growth where relevant to stability. - Surveillance stocktaking (sample of 30 Article IV reports, 2011-12): - Staff reports routinely describe short-term labor market indicators; in-depth labor market analysis in about half of AM and EM reports and one third of LIC reports. - Inclusiveness discussed in most reports; stronger coverage in LICs, less in AMs. - Limited discussion of mitigation options for adverse distributional impacts of macro policies. - Program work findings (sample of 30 program requests, 2011-12): - Most program requests distinguish cyclical vs structural factors; programs include structural reforms for long-run growth. - Labor market issues described in most requests; labor policy analysis limited and more developed in GRA-supported requests than PRGT. - PRGT programs more likely to include social spending monitoring and inclusiveness analysis; social spending in LIC programs has been largely protected. - Recommendations for surveillance and programs: - Be selective: focus on issues critical to stability and consistent with Fund mandate. - Improve country-specific diagnostics, integrate fiscal policy reforms into jobs/inclusion objectives, and strengthen labor market policy advice with evidence and partnerships. - Consider appropriate pacing of fiscal consolidation to minimize burden on the vulnerable; in developing countries stress protection and increase of priority public expenditures (education, health, infrastructure). - Capital account liberalization should be well planned, timed, and sequenced. ### Tools, data, training, and collaboration - Surveillance Toolkit for Jobs and Inclusive Growth: - Three pillars: growth; employment; equality and poverty. - Includes specific indicators, data sources, analytical tools (production diversification, employment-growth linkages, poverty/inequality measures), and case studies. - Labor market template and projection tools: - Abdih et al. (2012) template produces employment-growth elasticity estimates and Excel projection tables with multiple scenarios. - Data needs and sources: - ILO LABORSTA, ILOSTAT, KILM, OECD, World Bank WDI and EdStats, IMF International Financial Statistics, IMF Financial Access Survey (FAS). - Timely LFSs disaggregated by income, gender, age, and education are essential; users cautioned about national definitional differences. - Training and technical assistance: - RES/SPR dissemination of toolkit and Jobs and Growth seminar series; ICD training courses for officials; FAD provides about 280 missions in FY2013. - Collaboration and outreach: - Strong collaboration with World Bank, OECD, ILO; pilot IMF-ILO social dialogue consultations; Advisory Group including academia, labor unions, IFIs. ### Financial sector, inclusion, and public capital - Financial inclusion and statistics: - Domestic credit to private sector as percent of GDP: around 30 percent in LICs; 83 percent in EMs. - Account ownership at formal institutions: 92 percent of adults in AMs; about 47 percent in EMs; less than 19 percent in LICs. - Physical access: high-income countries have on average 12 times more bank branches per 100,000 adults than average LIC; 30 times more ATMs. - SMEs and employment: - 45-55 percent of formal SMEs in developing countries not effectively covered by commercial banking; over 20 percent face financing constraints (IFC, 2010). - Private equity–backed firms show higher employment growth (IFC, 2013). - Public capital and fiscal directions (Annex 8 highlights): - Advanced economies: reform public-sector wages/benefits, preserve public investment, target means-tested assistance, contain age-related spending (pension spending expected to rise by 1 percentage point of GDP and health spending by 3 percentage points over next 20 years). - Developing economies: reallocate spending toward education, health, and public investment; rationalize energy subsidies and the government wage bill; improve public investment project selection and implementation. ### Case studies and lessons on growth with equity (Annex 6) - Sweden: - 1993–2010: GDP growth averaged 2½ percent per year; productivity growth 2 percent per year. - Inequality (Gini for disposable income) declined from about 25 to 22 during the last decade. - Policies: wage compression, child-care support, public provision of health and education, progressive taxation. - Brazil: - From 1990–2009: GDP per capita rose strongly while Gini declined substantially. - Bolsa Família contributed to inequality decline; regulatory changes favored microbusinesses and formalization (formal jobs now >50 percent of employment, up 10 percentage points since 1990). ### Implementation, resource needs, and next steps - Main emphasis: sharpen Fund’s country diagnostics, integrate jobs/inclusion in surveillance/programs where macro-critical, and collaborate with external partners. - Resource implications: - Most work can be done through reallocation within existing resources; modest central funding recommended for public goods (toolkit maintenance, data gaps, seminar series). - Next steps include further analytical work on labor migration, formal vs informal labor wedges, public sector employment effects on women, and labor market institution design. *Source: EXECUTIVE SUMMARY and selected annexes and sections, March 14, 2013.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and urgency - Job creation and growth with inclusion are imperatives in every country type: small, large, advanced, emerging, developing, post-conflict, and resource rich. - Following very weak growth since 2009: - World growth is projected to be only around 3½ percent this year, about 2 percentage points below the pre-Great Recession years. - Over 200 million people across the world are unemployed, with youth and long-term unemployment at alarming levels in many countries. - The employment rate (employment to population ratio) remains at 60 percent—its lowest level in two decades—and unemployment is projected to remain elevated for several years. - The average female Labor Force Participation Rate (LFPR) remains low at around 50 percent. - Across OECD countries, the gender wage gap is estimated at 16 percent. - Although on track to meet the MDG of halving extreme poverty by 2015 relative to 1990 levels, over 900 million people are expected to remain vulnerable to being pushed back into poverty in the face of adverse shocks. ### Megatrends shaping jobs and growth - Three sets of forces with large impacts: technological innovation, globalization (including financial globalization), and the growing global labor force. - Outcomes noted: - Doubling of the global workforce as China, India, and transition economies opened up in the 1980s and 1990s. - Global income/welfare gains coupled with rising within-country inequality, especially in advanced countries. - Reduced demand for lower-skilled workers in advanced economies (manufacturing and increasingly services), and challenges for developing countries to manage large young labor force entrants and avoid the middle income trap. ### Core analytical finding - No single "silver bullet" or "one size fits all" strategy exists for promoting growth, jobs, and inclusion. - Macroeconomic stability—low inflation and output volatility—is the essential foundation for any growth strategy. ### Linkages among growth, jobs, and inclusion - Growth is an essential prerequisite (but not always sufficient) for job creation and social cohesion. - Jobs and increased labor force participation, including among women, are important to foster inclusive growth and reduce poverty and income inequality. - Productivity growth is central: highest per capita income growth is associated with highest growth in labor productivity through investment in physical and human capital and technological adoption. ### Main recommendations for the Fund's role - Provide more systematic diagnostic analysis of determinants of growth, job creation, and income distribution—when consistent with the Fund’s mandate—to identify the most binding constraints to inclusive growth and jobs and to tailor policy advice. - Integrate policy advice on tax and expenditure reforms to: - encourage more labor force participation, including by women; - support more robust job creation; - promote more equity in income distribution; and - provide greater protection for the most vulnerable. - Strengthen advice on labor market policies based on available empirical evidence and increase collaboration with international institutions (World Bank, OECD, ILO) on policy impacts on growth, productivity, job creation, and inclusion. - Ensure Fund advice is guided by its mandate: address growth, job creation, and income distribution to the extent they bear on domestic and balance of payments stability; consider members’ objectives in these areas and provide specific advice if requested by a member country. ### Gaps and areas for further work - The paper identifies scope to improve Fund analysis and policy advice in surveillance and program work, including: - More systematic diagnostic analysis tailored to country-specific binding constraints. - More systematic integration of fiscal policy reforms into jobs and inclusion objectives. - Enhanced labor market policy advice using empirical evidence and stronger external collaboration. - Further important issues noted for future work (not exhaustively covered here): - Role of labor migration in growth and inclusion strategies for countries on both sides of the demographic transition. - Policies to reduce the wedge between formal and informal labor markets in many developing countries to increase productive employment and reduce vulnerability. - Effects of public sector employment opportunities on women’s labor force participation and their use as countercyclical tools to protect employment. - Determinants and design of labor market institutions balancing worker protection with resource reallocation flexibility. ### Implementation and next steps - The paper provides an initial framework for the Fund’s role on jobs and growth and emphasizes the need for further work to sharpen policy analysis and recommendations. - Collaboration with the World Bank, OECD, and ILO is encouraged for joint work where appropriate and consistent with respective mandates and expertise. *Source: EXECUTIVE SUMMARY, March 14, 2013.* ### Annex 2 reviews the influence of technological change and globalization on inequality in ### _031413 - Annex 2 reviews the influence of technological change and globalization on inequality in ### Key findings on inequality, technology, and globalization - The increase in within-country inequality reflects changes in technology and, to a lesser extent, changes in financial globalization. - Improved education and changes in the sectoral composition of employment have partly offset those effects. - Trade liberalization and export growth are associated with lower income inequality, especially in developing countries. - The findings do not imply stopping technological progress or reversing globalization; rather, understanding distributional effects and channels can inform policy to mitigate adverse effects and share prosperity more broadly. - Some negative effects of financial globalization could be alleviated by ensuring that any liberalization is well-planned, timed, and sequenced to allow appropriately paced development of financial institutions and markets. - Hoeller et al., 2012 showed that most of the inequality in OECD countries was driven by inequality of labor or wage income (rather than labor income versus capital income). ### Megatrends and their impacts on labor, production, and poverty - Global labor supply and effective global labor force: - The effective global labor force "has more than doubled since 1990" (Index 1990 = 100). - Export-weighted labor force by region/ group is presented with Index 1990 = 100; Asia contributed more than half of the increase due to high population growth and rising trade openness. - Global supply chains and value added of exports: - "Global supply chains have gained in importance, reflecting among other things the growing integration of emerging markets into the global economy." - Value Added Content of Exports compared for 1995 and 2009 (In Billions of U.S. Dollars) — source: World Input-Output Database (WIOD), WEO, Fund staff estimates. - Manufacturing ranks and shifts (1980 and 2010): - Top Manufacturing Countries, 1980 and 2010 ranking shows movements such as Germany → China, Japan → Japan, UK → Germany, France → Italy, etc. (Source: IHS Global Insight, McKinsey Global Institute). - GDP per capita (PPP) and poverty: - GDP per Capita (PPP) in Constant 2005 U.S. Dollars shows sharp rises in many emerging market countries, especially in Asia (Source: World Bank). - Poverty rate defined as fraction of population living for less than $2 per day; Poverty Rates by Region, 1970-2008 show substantial declines in East Asia and South Asia enabling millions to escape poverty (Source: Sala-i-Martin (2006) and staff estimates (2008) based on World Development Indicators (2013)). - World inequality: - World Gini Coefficient, 1970 - 2006 shows that world inequality "has fallen" when the world is treated as one country (Source: Sala-i-Martin (2006)). - Within-country inequality: - "Within-country inequality has risen in the majority of countries, particularly in advanced ones." (Inequality (Gini Index) 1980s vs 2000s). - Graphical markers include values in the range 0.15 through 0.75 for Gini indices; a plotted series shows points including 0.59, 0.6, 0.61, 0.62, 0.63, 0.64, 0.65, 0.66, 0.67, 0.68, 0.69 (World Gini series points). - Services and manufacturing: - Services, particularly "modern" services (financial services, computer and information services; royalties and license fees; and other business services), account for an ever-increasing share of exports and GDP. - Manufacturing Value Added as Share of GDP, 1981-2009 shows the share of manufacturing in GDP falling in high- and middle-income countries. ### Demographics and labor force projections - Dependency and age structure: - Old Age Dependency Ratio, 1970-2011 shows the dependency ratio (old) is much higher in advanced countries and growing rapidly (Ratio of population aged 65 and above relative to working-age population, in percent). - Age Dependency Ratios for Selected Regions, 1980-2011 show significant declines in several regions, providing a tailwind for policy reform (Percent of Population Aged under 15 or above 64 relative to working age population). - "Many Asian countries combined young populations with growth-friendly policies. As a result, they benefited from 'the demographic dividend' in the form of robust growth in per-capita GDP." - Global labor force projections: - Most of the growth in the labor force will be driven by non-Asian developing countries whose export-weighted working-age population is expected to surpass that of East Asia by 2040 (Figure 4). - Exports-weighted Labor Force by Economic Group/Region: medium variant projections (Index 1990 = 100) shown for 2010–2050. Projections use the medium variant of the UN working-age population projections, assumptions of converging participation rates, and country-specific WEO projections for export to GDP growth until 2017 (and extrapolating world trends thereafter). - Low to high variant projections for Exports-weighted Labor Force, 2015-2050, use low, medium and high variants of UN working-age population projections and similar WEO assumptions. ### Macroeconomic shocks and inequality: Great Recession effects - The Great Recession of 2008/09 was "one of the deepest and most synchronized recessions in advanced countries during the past 50 years." - Output remains far below potential in many advanced economies and unemployment remains high due to simultaneous deleveraging by households, banks, and governments, depressing aggregate demand and exacerbating income inequality. - Gender employment patterns: - During the initial years of the recession, gender employment gaps shrank in most OECD countries due to more robust employment in services versus male-dominated sectors (construction and manufacturing). - Between 2009 and 2012, female employment continued to rise, while unemployment among men either declined or slowed down. - Fiscal space was reduced in advanced countries due to higher demands on expenditure to support banking systems and sharply lower revenues as activity collapsed, limiting scope for governments to boost aggregate demand. ### Policy implications and priorities by country group - Advanced countries: - Most urgent priority: reduce massive unemployment from the global financial crisis. - Policies should focus on boosting aggregate demand (within available fiscal and financial space) to rekindle growth and close the output gap. - Demand-boosting measures need support from reforms that remove structural bottlenecks to productivity growth to capture megatrend advantages, mitigate impacts on vulnerable populations, improve income distribution, and address labor market segregation by gender. - New sources of growth may be needed where previous models (financial services, construction) proved unsustainable. - Developing countries: - Many have benefited from integrating into the world economy and absorbing new technologies, but many still face the challenge of catching up to advanced countries via structural transformation (faster factor accumulation and TFP growth). - High or growing inequality in some developing countries may reflect rapid structural change (Kuznets’ theory) or lack of economic and political inclusion and market imperfections enabling elite capture of rents. - Redistribution and removal of privileges that lead to capture by a few are likely important prerequisites for accelerating growth. - Specific challenges include reaping benefits/avoiding pitfalls of large resource endowments and generating private sector-led growth in fragile, post-conflict environments. - Structural transformation and jobs: - Catch-up requires reallocation of resources from less productive to more productive sectors and activities, including labor flows from agriculture to industry and services where TFP growth is higher. - Reallocation across and within sectors requires substantial physical capital accumulation (basic infrastructure), investment in human capital, equal access to education and health services, and higher female labor force participation supported by targeted labor market policies. - Diversification is important: Imbs and Wacziarg (2003) document higher incomes per capita are associated first with diversification, then reconcentration, in production and employment; export diversification is cited as a channel for catch-up. ### Projections and longer-term considerations - Technological innovation is expected to continue, raising global welfare but likely continuing to increase relative demand for higher skills and possibly further exacerbating income inequality. - The effect of technology on inequality is likely more pronounced in advanced countries where technology use is widespread in manufacturing and services. - Outsourcing trends: - Some analysts argue outsourcing by advanced countries may be slowing, particularly in the United States; however, returning manufacturing is likely to be highly skilled and capital intensive, meaning limited proportional increases in employment and potentially limited effects on reducing inequality. *Source: _031413 - Annex 2 reviews the influence of technological change and globalization on inequality in (PDF).* ### 16. Some commentators have advocated exchange rate undervaluation as part of a ### _031413 - 16. Some commentators have advocated exchange rate undervaluation as part of a ### Exchange rate undervaluation: evidence, theory, and policy implications - Empirical evidence: prolonged over-valuation of the exchange rate hurts growth and employment, particularly when combined with resource curse/Dutch disease phenomena (see Johnson et al., 2007; and Rajan and Subramanian, 2008). - Mechanisms of harm from overvaluation: - Erodes a country’s external competitiveness. - Could lead to an unsustainable current account deficit and an eventual disruptive correction. - Arguments for undervaluation: - Rodrik (2008): not only is over-valuation bad, but under-valuation is good for growth, citing East Asian experience up to the 1990s. - McMillan and Rodrik (2011): competitive or undervalued exchange rates plus the ability to reallocate labor across sectors help facilitate shifts to higher-productivity activities and growth-enhancing structural change. - Theoretical justification for undervaluation: - An under-valued exchange rate (beyond macroeconomic fundamentals) is welfare-enhancing if the tradable sector generates positive externalities (learning and technology diffusion) for the rest of the economy. - Empirical and practical caveats: - Empirical evidence for the growth effect of undervaluation and its channels is far from established (see Montiel and Serven, 2008). - Persistent undervaluation may conflict with other goals, such as low and stable inflation, jeopardizing growth in the medium run. - Undervaluation creates “beggar thy neighbor” effects, is undesirable from a global welfare perspective, and is unsustainable in the long run. - Exchange rate manipulation to gain unfair competitive advantage would contravene Fund members’ obligations under the Articles of Agreement. ### Growth diagnostics and identifying binding constraints - Growth diagnostics approach (Hausmann, Rodrik, and Velasco, 2006): - Recommendation: identify the “one or two most binding constraints” on a country’s economy rather than a broad “laundry list” of reforms. - Methodology: decision tree to identify short-run binding constraints whose removal can be expected to ignite growth. - Examples of potential binding constraints: - Developing countries: inadequate financing for private sector activity; weak institutions of governance; insufficient human capital and infrastructure. - More advanced countries: shortages in requisite skills; policies hampering structural transformation to more productive activities. - Application: the approach has been applied by governments, multilateral agencies, and independent scholars, and informs donor funding in some instances. ### Specific challenges in developing countries - Characteristics that pose special challenges for generating and sustaining high growth: - Low-income countries: need to make agriculture and other primary activities more productive and facilitate transition out of agriculture. - Resource-rich countries: resource curse (rent-seeking elites misappropriate funds) and Dutch disease (exchange rate level works against diversification). - Small states: limited scope to diversify, vulnerability to shocks, high per capita cost of government and public services. - Post-conflict states: insufficient investments in human and physical capital; fragile security environment. - Middle-income trap: as wages rise, loss of comparative advantage in labor-intensive industries requires strategies based on innovation and deeper physical and human capital. - Policy implications: - Focus on higher private sector investment (quality infrastructure including in agriculture, well-functioning financial intermediation, strong institutions). - Equip workers with basic education and job-relevant skills. - Protect the working poor vulnerable to exogenous shocks and the economic cycle. - Enhance female labor force participation through equal access to health and education, legislation enabling equal participation, and removing infrastructure/transport bottlenecks. ### Advanced countries: structural challenges and policy guidance - Near-term and longer-term needs: - Support and boost aggregate demand post-Great Recession; address longer-term issues highlighted in OECD’s Going for Growth 2012 and joint ILO-IMF-OECD-World Bank G-20 report. - Key findings from reports: - Structural transformation: labor reallocating from high-productivity manufacturing to lower-productivity services; need to overcome barriers to increased productivity growth in services. - Timing of reforms: benefits of structural reforms (increasing labor productivity or employment) often take time; some reforms may have adverse short-term effects that should be countered with other policies mindful of conjunctural situation. - Europe-specific: structural reforms can have significant positive impact on growth and produce positive spillovers across countries; reforms to enhance competitiveness in Southern Euro Area needed to rebalance growth; restore financial sector health via pan-European regulatory and supervisory reforms. - Ageing populations: structural reforms to gradually increase labor supply and ensure buffers for health and pension expenditures; measures to increase female labor force participation (non-discrimination policies, flexible work arrangements, improved parental leave benefits, better access to comprehensive, affordable child care). ### Jobs: challenges, strategy, and labor market flexibility - Scale of the problem: - Over 200 million people unemployed globally; youth and long-term unemployment very high in many countries. - Immediate and medium-term actions: - Improve demand for labor via support for aggregate demand. - Short-term interventions: job placement assistance and retraining. - Longer-term structural reforms that foster job growth and productivity. - Rationale for a dedicated jobs strategy: - Growth is typically a precondition for employment growth, but there can be long lags or unstable growth–employment relationships (Okun’s Law). - Jobs can confer social benefits not reflected in measured output (e.g., defusing social tensions). - Targeted job strategies may be needed to create jobs with high development payoffs (increase female labor participation, youth employment, jobs linked to global supply chains). - Example: Germany’s Kurzarbeit—government subsidizes reductions in working hours/wages to keep workers on payrolls, benefiting both workers and employers. - Labor market flexibility framework (Blanchard, Jaumotte, and Loungani, 2013): - Micro flexibility: allows continuous reallocation of workers to sustain growth (affected by unemployment insurance, employment protection). - Macro flexibility: allows economy to adjust to macro shocks (affected by minimum wages, tax wedges, structure of collective bargaining). - Policy objective: achieve micro and macro flexibility while protecting workers—delicate tradeoffs in labor market institution design. ### Role of government in private sector job creation (WDR 2013) - Three ways government can help: - Provide fundamentals for job creation: macro stability; enabling business environment; human capital; rule of law; respect for rights. - Ensure labor policies enhance, not undermine, job creation: keep policies on the “plateau” and avoid “cliffs” of excessive regulation or extreme disregard for labor conditions. - Set priorities by identifying where “good jobs for development” lie and selecting interventions to lift barriers to private sector creation of those jobs and reduce barriers to female employment. ### Fiscal and tax measures to support employment - Taxation and spending affect labor demand and supply; elasticities of labor supply are especially high for low-skilled workers, women, and older workers. - Short-term priorities where unemployment rose sharply: support employment growth via lowering labor taxes and enhancing active labor market policies (ALMPs). - Medium- to long-term measures: fiscal policy to foster higher labor force participation (child-care subsidies, tax policies not discouraging second earners). - Budget-constrained countries: prioritize budget-neutral reforms or reforms that save budget (e.g., link receipt of social benefits to job search requirements). - Mitigating employment–equity trade-offs: greater use of in-work tax credits and benefits that increase incentives to work. ### Table: Potential Fiscal Policy Measures to Increase Employment - Expenditure policy — Policies to increase labor supply or facilitate matching: - Implement hiring and wage subsidies - Introduce employment support schemes - Implement public work programs - Expand effective ALMPs - Tighten eligibility criteria and job search requirements for social benefits - Reduce the duration and level of social benefits when too high - Increase child-care subsidies - Increase effective retirement age - Strengthen rules for disability pensions - Tax policy — Policies to increase labor demand: - Reduce labor taxes (fiscal devaluation: shifting from labor to consumption taxes) - Lower business taxes - Reduce labor tax wedge, targeted to: - Women/secondary earners (moving from family taxation to individual taxation) - Older workers (earnings tax credits) - Low-skilled workers (tax relief and in-work tax credits) Source: IMF (2012b). ### Developing-country labor market institutions: empirical conclusions - General conclusion: formal labor market institutions in developing countries have modest impacts on aggregate employment, reduce income inequality for those covered, but deepen labor market duality (Betcherman, 2013). - Micro flexibility: employment protection and mandated benefits - Employment protection legislation (EPL): - Results inconclusive; some evidence of negative effects on new hiring of disadvantaged groups (e.g., young workers). - More stringent EPL associated with smaller labor market flows, slower structural transformation, slower adjustment to shocks, and higher incidences of long-term unemployment. - Mandated benefits (e.g., unemployment benefits): - Less common in developing countries; informality and incomplete enforcement likely result in small, if any, employment effects. - Macro flexibility: minimum wages, labor unions, and collective bargaining - Minimum wages: - Evidence shows either small negative effects or no effect on aggregate employment. - Negative employment effects for specific groups: youth, women, and workers in small firms. - Non-compliance due to large informal sectors or weak enforcement may explain small aggregate effects. - Formal-sector wages rise with higher minimum wages; increases sometimes raise informal-sector wages. - Minimum wage compresses wage distributions and reduces earnings inequality. - Labor unions and collective bargaining: - Role limited by large informal labor markets. - Data on union influence scarce; some studies find union wage premiums, but no conclusive evidence of employment effects. *Source: _031413 - 16. Some commentators have advocated exchange rate undervaluation as part of a* ### 27. Overall, the literature suggests the following as a sensible set of policies for a jobs ### _031413 - 27. Overall, the literature suggests the following as a sensible set of policies for a jobs ### Developing countries — sensible policy set - Macroeconomic stability remains critical, with the understanding and acceptance that inflation is a regressive tax and disproportionately hurts the poor. - Financial inclusion (access to banking services and credit, but also to risk and insurance products), particularly for women, is critical to reducing vulnerability from being involved in activities that are subject to exogenous shocks beyond the control of the workers. - Create the environment for both public and private investment in physical infrastructure such as transportation, and energy to facilitate the creation of jobs. - Public policy and private efforts to enhance education and job related skills aimed at employability and making transition between sectors and productivity levels. - A robust social protection scheme (such as designed under the Social Protection Floor initiative), also addressing the needs of informal sector workers including women, is critical. ### Advanced countries — micro flexibility - Evidence suggests protecting workers mostly through unemployment insurance rather than high employment protection—the “flexicurity” model of Nordic countries. - Unemployment insurance can be generous, but only if ALMPs are in place and effective. - Employment protection should be limited, linked to the length of employment in the firm, and without threshold effects. - High employment protection levels are associated with high unemployment durations (Figure 5 illustrates this relation). - Dual employment protection (high protection on permanent contracts coexisting with lighter regulation for temporary contracts) should be avoided: it can lead firms to invest little in temporary workers and increase employment insecurity for young/temporary workers. ### Advanced countries — macro flexibility - Institutions that matter most for macro flexibility include the minimum wage, the tax wedge, and the collective bargaining structure. - Minimum wage: - Purpose: ensure low skill workers receive a wage high enough to live on. - Empirical evidence suggests that, within a range, the effect on employment may be small. - More substantial redistribution can be achieved through a combination of a low minimum wage and well targeted social transfers (including negative income taxes). - Tax wedge: - Tax wedges primarily affect labor force participation; they are particularly high in Europe. - Payroll taxes that come with deferred benefits should in principle have little effect on the cost of labor to firms; strengthening the link between contributions and benefits (for example, by fully adjusting pension benefits for years of contribution) could help boost employment. - Where minimum wages or unemployment insurance limit wage reductions, a higher tax wedge increases the cost of labor to firms and thus may increase unemployment. - Shifting to other taxes (such as consumption taxes) may support job creation. - Collective bargaining: - Structure can affect both the level and responsiveness of unemployment. - Centralized national bargaining may place more weight on the welfare of the unemployed (potentially lowering unemployment) but may increase bargaining power of unions (potentially raising wages and unemployment). - Centralized bargaining can facilitate coordinated wage adjustments in response to major macroeconomic shocks (e.g., loss of competitiveness under fixed exchange rate or currency area). - A combination of national and firm-level bargaining seems best: firm-level agreements adjust to firm conditions; national agreements can set floors and assist coordinated adjustment. - Trust between firms and workers matters for the success of bargaining arrangements (Figure 6 shows a strong bivariate relation between a trust measure and unemployment across countries). ### “Protect workers, not jobs” - Policy consensus favors protecting people rather than protecting specific firms or jobs: - Protecting workers (through education, social safety nets, access to basic services) facilitates reallocation and supports creative destruction. - Protecting jobs that are no longer economically viable risks freezing inefficient allocations, stifling technological progress, and undermining growth. - Protecting people has primacy when shocks are idiosyncratic; protecting jobs may be warranted in systemic crises or major economic restructuring but should be subject to trigger rules and sunset clauses. ### Inclusive growth — objectives and distinctions - Inclusive growth: focus on high and sustained growth that is broad-based, inclusive of a large part of the labor force, and characterized by equality of opportunity in access to markets and resources. - Emphasis is on productive employment for all groups including women, rather than on income redistribution alone. - Distinction: - Inequality of opportunity (ex ante): differences in circumstances beyond individual control (access to health, education, infrastructure, financial and labor markets). - Inequality of outcomes (ex post): reflects both access to opportunities and individual effort. - Inclusive growth is an effective poverty reduction strategy and can improve the efficiency of growth in lowering poverty; high initial inequality reduces the poverty-reducing impact of growth. - Inclusive growth matters for sustained growth: some inequality supports incentives, but excessive inequality can amplify crisis risk and inhibit human capital investment. *Source: IMF chapter excerpt on jobs and inclusive growth.* ### 42. There are a number of reasons to believe that excessive inequality can have significant ### _031413 - 42. There are a number of reasons to believe that excessive inequality can have significant ### Inequality and underinvestment - Inequality of wealth and income can lead to wasted productive potential and a misallocation of resources, undermining long-run growth. - Those with little wealth or low income may be unable to invest in human capital, or wealth- and income-enhancing productive activities if imperfections in financial and other markets constrain their ability to borrow. - Banerjee (2004) points to microeconomic evidence showing under-investment in agriculture and human capital in unequal societies, reflecting limited ability by the poor to invest. - The interaction between inequality and market failures depends on institutions and policies. - Higher inequality is associated with a larger part of individuals’ incomes being determined by factors outside of their control (Figure 7), i.e., lower social mobility. - A lack of social mobility could act as a disincentive to individual effort, contributing to lower growth. - Acemoglu and Robinson (2012) argue that economic and political inclusion is essential for long-term development. ### Unemployment, growth, and inequality - High unemployment and/or low labor force participation rates can impose large economic and social costs: - If there is learning-by-doing among the employed, high or prolonged unemployment will have adverse effects on growth. - Long unemployment spells may cause a loss in skills, potentially making some unemployed permanently unemployable. - High unemployment reduces the pool of savings available for investment (Bean and Pissarides, 1993). - Labor utilization influences income distribution: unemployment has a regressive impact on income equality; a higher employment rate is associated with lower economic disparities. - Longer unemployment duration is associated with higher income inequality (Morsy, 2012). - Youth unemployment can produce scarring effects ranging from slow growth in labor earnings to job-related dissatisfaction (Bell and Blanchflower, 2011). - Misallocation of women’s labor due to discrimination, social norms, or lack of opportunity results in economic losses (Stotsky, 2006). - Based on ILO data, Aguirre (2012) estimates that 865 million women worldwide have the potential to contribute more fully to their national economies, out of whom 812 million live in emerging and developing nations. - In advanced economies with aging populations, raising female labor force participation can reduce the dependency ratio and enhance growth (Steinberg and Nakane, 2012). ### Distributional conflict and political economy - High unemployment and inequality can lead to latent social conflict, manifesting in political struggles for public resources, with adverse implications for macroeconomic outcomes (efficiency-equity tradeoff). - Political processes may effect redistributions in ways that have high economic costs (e.g., creating disincentives to work or to save), potentially generating unproductive government spending that is too high (Alesina and Rodrik, 2004). - Political processes might be insufficiently redistributive, with powerful groups capturing economic privileges (Bourguignon et al., 2007), leading to: - Lack of action in areas that could bring greater equity and greater efficiency (e.g., investments in public education). - Perpetuation of institutional structures that favor powerful groups at costs to aggregate performance (connected lending, high levels of protection, corruption). ### Open social conflict and macroeconomic crises - Under some conditions, inequality and joblessness can be associated with open social conflict (violent conflict and civil war), undermining social cohesion and economic performance; youth unemployment can contribute to participation in violent activities (World Bank, 2011). - Distributional conflicts can contribute to macroeconomic crises; macroeconomic instability can be both product and cause of underlying inequalities and weak institutions. - Rajan (2010) and Reich (2010) suggest increases in borrowing and household debt in the United States that foreshadowed the global crisis were a way for the poor and the middle-class to maintain or increase consumption when real earnings were stalling (see also Kumhof and Ranciere, 2010). - Acemoglu (2011) argues increased inequality and the crisis were partly a consequence of politicians’ willingness to deregulate the financial sector influenced by financial industry lobbying. - Atkinson and Morelli (2011) find financial crises are generally followed by rising inequality. - Rodrik (1999) argues negative effects of external shocks on growth were significantly larger in societies with latent distributional conflict (proxied by income inequality) and weak conflict management mechanisms. - Berg and Ostry (2011) found that the less equal a country’s income distribution, the shorter tends to be the duration of periods of high growth. ### Risk, insurance, and labor market fragility - Inequality and unemployment/underemployment affect individuals’ ability to cope with risk. - In highly unequal societies, insurance mechanisms to buffer income and smooth consumption shocks are typically unavailable or cover only a small segment of the population, imposing large welfare costs. - Fragile labor market segments—young, low-skilled, and temporary workers—are more exposed to economic cycles and vulnerable to job instability. ### Policies to promote inclusion and redistribution - Creating productive employment opportunities throughout the economy is an important way to generate inclusive growth. - Beyond employment, there are policies with direct bearing on income distribution (Box 3 and Annex 5 summarize fiscal and financial sector policy roles). - Box 3: The Redistributive Role of Fiscal Policy - Fiscal policy has played a key role in reducing income inequality in advanced economies. - Over the past two decades, fiscal policy decreased inequality in market income by about one-third in OECD countries, primarily through transfers (child benefits and public pensions) and income taxation. - The redistributive impact is higher when in-kind transfers for education and healthcare are included. - Since the mid-1990s, disposable income inequality has increased more than market-income inequality due to reduced generosity of redistributive benefits and diminished progressivity of income taxes. - Advanced economies could reinforce redistribution by greater reliance on wealth and property taxes, more progressive income taxation, removing opportunities for tax avoidance and evasion, better targeting of social benefits, and reallocating public spending to programs that strengthen the human capital of the poor (education and job training). - In developing economies, fiscal policy has had much less impact on income inequality due to lower levels of taxation and public spending and the use of less progressive instruments. - Developing economies could enhance redistribution while promoting growth and fiscal sustainability by: - Broadening tax bases through reduced tax exemptions, closing loopholes, and improving tax compliance rather than raising rates. - Improving the progressivity of public spending (eliminate general price subsidies for energy; ensure education and health expenditures target the poor rather than subsidizing upper-income households). - Putting public pension systems (which highly favor upper-income groups in developing economies) on sound financial footing while expanding coverage of minimum “social pensions” to a larger share of the population. - Source cited in Box 3: Bastagli, Coady, and Gupta (2012). ### Trade-offs between growth and equality - A long-standing question is whether there is a trade-off between economic growth and income inequality. - Kuznets (1955) argued income inequality initially increases, peaks, and then declines with economic development (inverted-U hypothesis); low- and high-income countries have less inequality than middle-income countries. - Another argument posits that a distribution favoring the relatively well off may be needed to generate higher savings and investment because marginal propensity to save can rise with income (Keynes, 1937; Kaldor, 1955). - Other authors argue greater inequality provides incentives to work harder and invest in education, boosting productivity and growth (Friedman, 1955; Becker, 1985). - Empirical evidence is vast but inconclusive; OECD (2012a, Chapter 5) highlights complementarities and trade-offs between policies that reduce inequality and those promoting growth: - Many policies entail a double dividend: they reduce income inequality while boosting long-run GDP per capita (examples: facilitating human capital accumulation, reducing dependence of educational potential on personal/social circumstances, reducing labor market dualism, promoting immigrant integration, fostering female labor market participation). - Reducing tax expenditures (e.g., for housing) can contribute to equity objectives while allowing growth-friendly cuts in marginal tax rates. - Some policies entail trade-offs: administrative extensions of collective wage agreements may reduce wage dispersion but if they set labor costs too high they may harm competition, productivity, and employment. - Shifting the tax mix away from labor and corporate income taxes toward consumption and real estate taxes would improve incentives to work, save, and invest but could undermine equity; cash transfers targeted to lower incomes can ease this trade-off. - Some growth-boosting policies have uncertain impacts on inequality (e.g., avoiding too-high/long unemployment benefits may raise employment but widen income distribution among workers). - Experiences of Sweden (maintaining high equality) and Brazil (lowering inequality from a high level) show that maintaining or reducing inequality does not have to result in low growth if appropriate policies are taken (Annex 6). ### IMF surveillance and program work on growth, jobs, and equity - Article I of the Fund’s Articles of Agreement lists “the promotion and maintenance of high levels of employment and real income” among the purposes of the institution. - Surveillance: - The Fund is required to assess whether a member’s domestic policies are directed towards the promotion of domestic stability. - With regard to growth, the Fund examines whether domestic policies are directed toward keeping the economy operating broadly at capacity and toward fostering a high growth rate of potential GDP where this influences prospects for domestic stability. - Issues related to job creation and income distribution should be examined if they have a bearing on domestic stability. - If job creation and better income distribution are important objectives for a member country, the Fund should advise on policies that promote stability while helping achieve these objectives. - These issues may be discussed in an Article IV consultation if the member requests the Fund’s advice, even absent a clear link to domestic stability. - Fund-supported programs: - Purpose: assist members in correcting maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity and achieving medium-term external viability while fostering sustainable economic growth. - Programs should help maintain and strengthen growth as much as possible while achieving primary goals. - The Fund may encourage and assist members in pursuing objectives related to inclusive growth and employment as part of programs if consistent with primary goals. - PRGT-financed programs explicitly aim to help low-income countries “achieve, maintain, or restore, a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.” - Program-related conditions such as structural benchmarks related to growth, job creation, and income distribution need to be macro-critical for achieving program goals or for monitoring implementation. *Source: _031413 - 42. There are a number of reasons to believe that excessive inequality can have significant* ### 47. The 2011 Triennial Surveillance Review (TSR) updated further guidance on the extent ### 47. The 2011 Triennial Surveillance Review (TSR) updated further guidance on the extent to which unemployment, inequality, and poverty should be taken up in surveillance. ### TSR guidance and institutional considerations - The 2011 TSR noted several considerations in analyzing unemployment, inequality, and poverty in Fund surveillance: - (i) the purpose of the Fund, as defined in Article I, to contribute “to the promotion and maintenance of high levels of employment and real income”; - (ii) the tension between the breadth and the depth of analysis—in this respect the 2004 TSR called for “more discriminating coverage of issues outside the Fund’s traditional areas of expertise” and the 2008 TSR argued that “recent gains (for example, in focus) should be preserved”; - (iii) the fact that other institutions, e.g., the World Bank, the OECD, and the ILO, may have greater expertise on social issues, in particular on labor market issues. - The 2011 TSR emphasized that Fund surveillance must be selective with overall focus on members’ macroeconomic stability and the effective operation of the international monetary system. - Recommendation: cover macro-social issues in Article IV consultations that pass the test of being critical to assessment of members’ stability, leveraging effectively other institutions’ expertise. ### Historical engagement (Box 4) — growth, jobs, and equity - The Fund’s engagement on growth dates back several decades and expanded in the 1970s to include development-oriented activities and interaction with UN agencies. - Dialogue with the ILO intensified in the 1980s; cooperation broadened with observer status invites in 1995 and pilot country-level cooperation (India, Costa Rica, Zimbabwe). - The 2010 Oslo Conference adopted a three-pillar agenda for Fund-ILO cooperation: joint work on social protection floors in low-income countries, joint social dialogue country consultations, and joint analysis/research on job creation and growth. - Equity issues gained prominence in the late 1980s due to links between inequality and sustainability of adjustment programs; guidance notes on income distribution and social expenditures were issued in 1996 and 1997. - Analytical and policy work on equity continued into the 2000s and contributed to program design elements such as the Poverty Reduction and Growth Facility (PRGT). ### Stocktaking of Article IV surveillance (sample and methodology) - Sample: 30 Article IV reports discussed by the Executive Board during 2011-12. - Reports chosen to be representative across geographical regions: six reports from each area department. - Distribution across income levels achieved within regional groups. - Sample composition: 8 advanced market countries (AMs), 12 emerging market countries (EMs), and 10 low-income countries (LICs). - Note: the stocktaking is a snapshot of recent bilateral surveillance; additional relevant Fund work exists in Board papers, WEOs, REOs, Staff Discussion Notes, and Working Papers. ### Surveillance findings — growth, labor markets, and inclusiveness - Growth: - Surveillance typically identifies and recommends combinations of macroeconomic and financial policies to bring about or maintain macroeconomic stability. - Staff reports distinguish between cyclical and structural factors affecting growth; estimates of potential output and the output gap are often provided for AMs and EMs. - Additional cyclical and structural analyses: found in most AM reports, less often in EM reports, and rarely in LIC reports (reflecting less meaningful potential output concept during structural change and data limitations). - Staff reports frequently discuss determinants of long-run growth (business environment, governance, infrastructure) and often recommend enhancing these determinants, including financial sector reforms focused on regulatory compliance and, in EMs and LICs, broadening access to the financial sector. - Labor market issues: - Staff reports routinely provide some discussion of labor market developments and policies. - Almost all reports describe short-term labor market conditions using indicators such as employment, unemployment, wages, and (except in LICs) productivity. - Analytical treatment of labor market issues provided in about half of AM and EM reports and one third of LIC reports. - Depth of analysis limited: about half of AM reports distinguish between structural and cyclical causes of unemployment; few EM and LIC reports do so (data constraints, underemployment, informality). - Where labor market institutions are discussed, enhancing flexibility is a frequent theme; concrete recommendations to this effect are made in about one quarter of reports. - Inclusiveness: - Most staff reports provide some description of inequality, inclusiveness, and poverty, and trends in social spending. - Coverage is stronger in LIC reports and somewhat less in AM reports. - Many reports recommend structural improvements (business environment, governance, infrastructure, financial sector reforms) that support longer-run growth and inclusion. - Impact of macroeconomic policies on labor market outcomes and inclusiveness: - Many reports discuss the impact of recommended macroeconomic policies on labor market outcomes and incomes of poorer segments. - Limited discussion of options for mitigating adverse impacts: majority discuss likely effect of fiscal consolidation on social spending, but few propose mitigation options for the poor. - Reports offer limited discussion of efficiency-equity trade-offs and little apparent tailoring of policies to country preferences on such trade-offs (though tailoring may have occurred without explicit reporting). ### Stocktaking of Fund-supported programs (guidance and findings) - Guidance: - 2011 Review of Conditionality (IMF, 2012c) recommended program work take greater account of macro-social issues where appropriate: - (i) more analysis of the social impact of policy measures in programs, in close cooperation with country authorities and institutional partners; - (ii) where feasible and appropriate, inclusion of policy measures to mitigate adverse short-term impacts on the most vulnerable, particularly in programs with high risks and large fiscal adjustment. - Emphasis on being mindful of the Fund’s core areas of responsibility and competencies. - Program sample and methodology: - Sample: 30 program requests out of overall 32 requests discussed by the Board during 2011-12 (repeat requests for Mexico and the Solomon Islands excluded). - Sample is near-comprehensive and not balanced across regions or income groups. - Analysis focused on discussions in program request documents and did not cover program conditionality. - Program findings — growth: - Program approach to growth: determine macroeconomic and financial policy changes needed to achieve external adjustment and return to external and fiscal sustainability while minimizing estimated damage to growth within available financing. - Most program requests, and almost all GRA-supported requests, distinguish between cyclical and structural factors; fewer provide comprehensive econometric analysis. - Program requests regularly include structural reforms aimed at enhancing efficiency and long-run growth. - Program findings — labor market issues: - Most program requests describe labor market conditions; about half discuss labor market policies. - GRA-supported program requests generally devote more space to labor market issues than PRGT-supported requests (likely reflecting greater data availability, higher unemployment rates, and relevance of formal labor markets). - Labor market issues receive more detailed discussion in countries with below average growth or above average unemployment, suggesting tailoring to country circumstances. - Analysis of labor market issues in many requests appears somewhat limited; enhancing flexibility is a frequent theme but concrete recommendations are less common. - Program findings — inclusiveness: - Inclusiveness often mentioned but rarely analyzed; more focus observed in PRGT program reports (including more frequent descriptive and analytical coverage). ### Complementary findings from program review and empirical work - The 2011 Review of Conditionality found Fund-supported programs increasingly emphasize social aspects: - Social spending in programs has been largely protected. - Clements, Gupta and Nozaki (2013) showed that in LICs social spending increased as a share of both total expenditure and GDP. - Establishment of indicative targets for social spending in a majority of LIC programs and emphasis on using savings from debt relief for social purposes supported this development. - Some programs included structural benchmarks (e.g., targeted transfers to the most vulnerable) to mitigate impacts of measures such as utility tariff or fuel price adjustments. - Crisis response: - Greater fiscal and external accommodation was incorporated in program design in early phases of the recent global crisis (especially in Wave 1 program countries), enabling policymakers to minimize immediate output costs. - Growth impact evidence: - Effects of programs on growth were on the whole ambiguous, consistent with lack of consensus in academic literature. - A recent staff analysis found a positive effect of long-term Fund engagement (at least five years in a decade) on growth in LICs (IMF, 2012d). *Source: _031413 - 47. The 2011 Triennial Surveillance Review (TSR) updated further guidance on the extent to which unemployment, inequality, and poverty should be taken up in surveillance.* ### references to authorities' views. ### references to authorities' views. ### Coverage of inclusiveness and labor market in program requests - Inclusiveness discussion varies by program type: - In PRGT-supported program requests, discussion of poverty and social spending is common and indicative targets to monitor priority (typically, social) spending are often included. - In GRA program requests, discussion of inclusiveness is less frequent. - Reference to the authorities’ views on inclusiveness: - Quite common in PRGT-supported programs. - Rare in GRA-supported programs. - Impact of macroeconomic policies on labor markets and inclusiveness: - An average of three out of four program requests refer to the impact of macroeconomic policies on labor markets or some aspect of inclusiveness. - Topic is covered substantially more frequently in PRGT-supported program requests than in GRA ones. - Some PRGT requests discuss tradeoffs between equity and efficiency and policy options for mitigating the impact of macroeconomic adjustment on the poor. - Tailoring of policy advice to country preferences regarding inclusiveness or labor market reforms is evident in only a small number of documents. ### Findings on labor market coverage and topics - Labor market topics and coverage: - Most reports discuss basic indicators (unemployment, employment, wages). - GRA reports also cover demographics and productivity. - PRGT reports focus more on rural vs. urban employment and gender. - Labor market analysis gaps: - Analysis of factors determining inclusiveness is infrequent. - Tailoring to country preferences is rare in program documents. - Staff should determine cyclical vs. structural drivers of unemployment as is done for output (Annex 9 guidance and a recently developed staff resource referenced). - Policy discussion and recommendations often include general references to labor market flexibility, with fewer specific recommendations on: - Labor market flexibility measures. - Unions/collective bargaining. - Unemployment benefits. - Employment protection legislation. - Minimum wage. - Emphasis in labor market policy advice: - "Protect workers, not jobs" is advocated and the Fund should advise on enabling labor reallocation while protecting workers. ### Recommendations for surveillance and program work (summary) - General guidance: - Fund advice must account for megatrends: technological progress, globalization, changing global demographics, and the impact of the global recession. - Advice should promote recovery from the recession (including aggregate demand management), help countries seize opportunities from megatrends, and mitigate adverse impacts while focusing within the Fund’s mandate and comparative advantage. - Macroeconomic policy stance: - Maintain emphasis on sound macroeconomic policies—low inflation, sustainable public finances and external positions—as the foundation for growth and jobs. - Continue support for monetary stimulus; where fiscal consolidation is warranted, advise on appropriate pacing (more back-loaded if financing allows, more front-loaded if under market pressure) while minimizing burden on the most vulnerable. - In developing countries, stress protection and increase of priority public expenditures, especially in education, health, and infrastructure. - Globalization and capital flows: - Support multilateral trade agenda. - Capital account liberalization carries benefits and risks; liberalization should be well planned, timed, and sequenced and not presumed appropriate for all countries at all times. - Countries need to manage risks associated with inflow surges and disruptive outflows. - Program design and conditionality: - Fund-supported programs adapted to global financial crisis challenges through streamlined conditionality, flexible adaptation, higher and more upfront financing where needed, and increased emphasis on macro-social aspects. ### Tailoring advice to different country growth challenges - Enhance country-specific analysis of longer-term growth challenges. - Country group considerations: - Middle-income countries: - More attention needed; recent analytical work highlights risks such as a middle-income trap and macroeconomic determinants of slowdown. - Low-income countries, particularly in Africa: - Engagement on poverty reduction and growth strategies longstanding; more could be done on sectoral transformation and reallocation. - Identified constraints include institutions; macroeconomic, social, and political stability; trade and financial openness; education; saving and private investment; and inequality—though some may not be binding today. - Resource-rich developing countries: - Studies identify four interconnected areas for intervention: (i) transform resource wealth into diverse assets including human capital and foreign financial assets; (ii) avoid boom-bust cycles from resource price volatility; (iii) adopt industrial policies for diversification and job creation; (iv) improve institutional quality and governance. - A recent Fund policy paper contains suggestions on managing revenue volatility and long-term fiscal sustainability, and developing tailored macro fiscal frameworks and policy tools. - Fragile states: - Face pervasive institutional weakness and often elevated violence; a Fund policy paper provides suggestions for assistance. - Small states: - Often have high government wage bills, high state intervention, reliance on trade tax revenues, slow growth, and high public debt; a recent Fund policy paper outlines options to help. - Countries with low labor force participation among women or other demographic groups: - The Fund can analyze the impact of low female labor force participation on growth, stability, and inclusion and advise on policies to enhance opportunities for women. - Possible policy options include reviewing tax codes to remove provisions that discourage second earners and providing child care subsidies; targeted pension reforms and incentives can help older workers join the workforce. - Fiscal policy advice should take into account impacts on under-represented groups, including women, older workers, and the young. ### Structural reforms and policy sequencing - Identify key constraints to growth and focus reforms on removing binding constraints (growth diagnostics framework and examples cited). - Be selective with structural reforms and assess potential short-term adverse effects: - Studies find structural reforms can boost medium- and long-term growth but may have small or negative short-term effects on output and employment. - Reforms alone may not sufficiently boost short-run activity where high unemployment and large output gaps exist; boosting output through supply and, where possible, demand channels is essential to reduce unemployment in the short term. ### Strengthening labor market policy advice - Integrate business cycle and labor market analysis by distinguishing cyclical and structural determinants of unemployment. - Advice on labor market policies should: - Be clearly and transparently explained. - Reflect the latest state of knowledge and be evidence-based about which combinations of labor market institutions work well. - Include how fiscal policy can support employment growth and enhance labor force participation of under-represented groups. - Support labor reallocation across sectors, promote diversification in production and exports, and advise on policies that permit movement of resources across sectors while protecting workers. *International Monetary Fund — content unit: references to authorities' views.* ### 62. Take greater account of the global labor market and spillovers. The movement of jobs ### _031413 - 62. Take greater account of the global labor market and spillovers. The movement of jobs ### Global labor market: challenges and surveillance implications - Movement of jobs and people across national boundaries, driven by technological change and globalization, confers long-term growth and job creation but creates short- and medium-run disruptions and costs that need to be managed. - Advanced economies have experienced a ‘hollowing out’ as middle-income jobs move to emerging markets. - Emerging economies face increased competition for jobs in both manufacturing and service sectors. - The Fund’s multilateral surveillance needs to: - Pay greater attention to challenges facing the global labor market as a whole. - Consider possible spillovers from one country’s jobs and growth strategies. - Ensure multilateral consistency of the Fund’s policy advice while taking into account country circumstances. ### Box 6 — Surveillance Toolkit for Jobs and Inclusive Growth - Purpose: - Facilitate country teams’ access to guidance notes, relevant literature, research results, models, and guidance on data issues. - Transfer ‘best practices’ to desk economists and improve capacity in growth, employment, and income distribution. - Act as a catalytic hub for Fund staff working on these issues. - Structure: three pillars — growth, employment, and equality and poverty. - Leverages Fund work and expertise of partner institutions (World Bank, OECD, ILO). - Each pillar lists diagnostic and policy questions and includes modules: - Specific indicators: - Growth: indicators for supply and demand contributions, growth cycles, growth potential. - Employment: indicators measuring employment and unemployment, wages and productivity, institutional labor market characteristics. - Equality and poverty: different indicators measuring poverty and inequality. - Data sources: - Links to external databases related to growth analysis; labor market and employment data; assessment of equality and poverty. - Facilitates country-specific analysis and cross-country comparisons. - Analytical tools: - Tools to analyze production diversification; calculate country-specific employment-growth linkages; project labor market variables; calculate poverty and inequality measures; generate growth incidence curves. - Case studies and analytical papers: - Examples of recent Fund work, papers by other organizations, and influential academic work. ### Strengthening dialogue and collaboration - Strengthen dialogue on inclusiveness: - Build knowledge base on inclusive growth and strengthen dialogue with country authorities and, where appropriate, civil society organizations and external stakeholders. - Advice should focus on strengthening growth, gearing fiscal policies towards job creation, and enhancing labor market institutions. - Continue advice on financial inclusion, particularly for developing countries. - Be ready to advise on how fiscal policy can promote income equality while minimizing adverse effects on growth. - Collaborate closely with other institutions: - Fund should collaborate in line with respective mandates and expertise. - Fund’s key role: macroeconomic (fiscal, monetary, exchange rate) and financial policies, including advising on fiscal policy to support employment growth and reduce income inequality where this is an objective of authorities. - Other institutions (OECD, World Bank, ILO) may be better placed to advise on structural reforms to remove growth bottlenecks or enable deep structural change. ### Training, technical assistance, and outreach - Staff training initiatives (since early 2012): - Dissemination of the Surveillance Toolkit on Growth, Employment and Inequality (developed by RES and SPR) to country teams through a road show to area departments. - RES/SPR Jobs and Growth Seminar series: 16 events held so far; open to all staff; series to be continued and expanded in 2013 and beyond. - ICD internal economics training program: in 2012, eight training events on jobs and growth issues featuring academics; program to be broadened with multi-day courses. - Training for country officials: - ICD, in collaboration with RES, is developing a new course for government officials on how macroeconomic policy instruments (taxes, subsidies, composition of expenditure) interact with growth and equity considerations. - Course will form basis for new internal training; some internal courses and seminars could be opened to government officials. - Technical assistance: - In fiscal year 2013, Fiscal Affairs Department (FAD) is providing about 280 missions. - RTAC network: eight Regional Technical Assistance Centers covering 90 countries in the Pacific; the Caribbean; East, West, Central and Southern Africa; the Middle East; and Central America. - Technical assistance areas: tax policy, revenue administration, public financial management, expenditure policy (including pension reform and rationalizing spending, e.g., reducing energy subsidies while protecting the poor), and strengthening financial systems. - Assistance delivered via missions from headquarters and stand-alone expert assignments (long-term, short-term, peripatetic). - Outreach and stakeholder engagement: - Fund engagement through speeches, conferences, seminars at Spring and Annual Meetings, blogs, and publications. - Pilot IMF-ILO social dialogue: country-focused consultations with authorities, labor, and business—pilot social dialogue consultations in Dominican Republic, Bulgaria, and Zambia; six other countries (El Salvador, Mozambique, Vietnam, Benin, Cambodia, and Nepal) involved in pilot effort to design social protection floors. - Collaboration with ILO, World Bank, and OECD on joint studies of policy reforms’ effects on employment. - Interaction with labor unions (including ITUC) and establishment of an Advisory Group including academia, labor unions, and other international financial institutions. ### Resource needs and proposed modest central funding - Current work accomplished within existing resource envelope through reallocation. - Recommendations mainly suggest refocusing existing work rather than large additional work. - Some centralized funding recommended to provide ‘public goods’: - (i) Continuation of projects—in collaboration with the ILO, World Bank, and external experts—to fill gaps in data and analysis of labor market indicators, particularly for emerging markets and developing countries. - (ii) Maintenance and further development of the “Jobs and Growth” surveillance toolkit to keep it up-to-date. - (iii) Refinement of the template for projecting labor market indicators in response to comments from presentations at the ILO, the European Commission, and other venues. - (iv) Continuation of the “Jobs and Growth” seminar series. - Justification: costs are modest and represent a good investment given authorities’ priorities on job creation and inclusive growth and TSR findings that discussion of these issues with authorities gains traction. ### Gender aspects of jobs and growth — key findings - Overall participation and trends: - Average female labor force participation remains low at around 50 percent. - Between 1980 and 2008, global female Labor Force Participation Rate (LFPR) increased slightly from 50 to 52 percent. - By 2008 women accounted for more than 40 percent of the global labor force. - Gender gap (male minus female LFPR) narrowed from 32 to 26 percentage points between 1980 and 2008, largely owing to declines in male participation rates. - Regional and country variation: - Female LFPR ranges: - 26 percent in the MENA region. - 35 percent in South Asia. - More than 60 percent in East Asia and the Pacific and Sub-Saharan Africa. - Even higher levels in many advanced economies. - OECD gender gap ranges from 6 percentage points in Sweden to 25 percentage points in Japan, averaging 10 percentage points. - Gender gaps much higher in MENA and South Asia (40-50 percentage points) and have narrowed very little over the past two decades. - Possible explanations for low female LFPR in MENA and South Asia: limited private sector employment opportunities for women, relatively high income levels for the male workforce, gender-specific taxation, societal norms. - Relationship with income: - Empirical evidence points to a U-shaped relationship between female LFPR and level of per capita income: - Low per-capita income: high female LFPR reflects women’s agricultural work and necessity to work. - Middle-income transition: withdrawal of female labor supply as household income rises in favor of household work or childcare. - High income levels: participation rises again due to higher female education, lower fertility, removal of barriers, household technology, and market-based household services. - The U-shaped LFPR curve has moved upward over time, reflecting changes in education and family structure. - Gender-specific labor market characteristics and vulnerabilities: - Women allocate considerably more time to unpaid housework and child care. - In advanced economies, gender-specific career paths with more part-time work and career breaks for child care raise risk of old-age poverty among women due to lower pension contributions. - In many developing countries, women dominate the informal sector, characterized by vulnerability in employment status, low protection, mostly unskilled work, and low earnings stability. - In agriculture, particularly in Africa, women operate smaller plots and farm less remunerative crops than men. *Source: IMF content unit _031413 - 62. Take greater account of the global labor market and spillovers. The movement of jobs* ### 6. Legislation and social norms also determine women’s participation in market work and ### 6. Legislation and social norms also determine women’s participation in market work and entrepreneurship ### Legal and social constraints on female labor participation - Legislation in many countries constrains women’s employment, rights to land ownership and inheritance, and access to credit. - Societal norms restricting women’s independent mobility limit their ability to work outside the home (UN and ILO 2012; and Duflo 2011). ### Gender wage gaps and the “motherhood penalty” - Across OECD countries, the gender wage gap is estimated at 16 percent, being even higher in self-employment. - The wage gap is narrow for young women but increases steeply during childbearing and childrearing years, pointing to a “motherhood penalty” that reaches 14 percent across the OECD (OECD 2012). ### Taxation and secondary earners - Income tax regimes that tax family income rather than individual income impose a penalty on second earners (in most cases married women) by increasing the marginal tax rate on the second income, reducing incentives for women to join the labor force (IMF, 2012j). - For the OECD membership, Jaumotte (2003) finds that secondary earner’s tax wedge affects female labor market participation negatively. ### Effects of the 2007-09 economic crisis on gender - During 2007-09, gender employment gaps shrank in most OECD countries, largely due to more robust employment in services versus male-dominated construction and manufacturing. - Between 2009 and 2011-12 female unemployment continued to rise while male unemployment either declined or slowed down (Kochhar 2011; and OECD 2012). - In many developing countries, women and girls were particularly vulnerable to the crisis, with disproportional declines in primary school completion rates for girls and higher vulnerability to risky and unprotected informal sector employment (Stavropoulou and Jones 2013). ### Economic costs and potential gains from greater female participation - Misallocation of women’s labor due to discrimination, social norms, or lack of opportunity results in economic losses (Stotsky 2006). - Based on ILO data, Aguirre et al. (2012) estimates that worldwide, 865 million women have the potential to contribute more fully to their national economies, out of whom 812 million live in emerging and developing nations. - For Japan, raising the female LFPR to the G7 average could increase Japan’s annual potential growth rate by about ¼ percentage point for some time, resulting in a permanent rise in per capita GDP of 4 percent compared to the baseline scenario (IMF, 2012k; and Matsui 2010). - Women demonstrate a stronger preference for expenditure on child welfare than men; better opportunities for women could contribute to broader development, e.g., higher school enrollment for girls (Aguirre et al, 2012; Evangelista and Filho 2008; and Duflo 2000). - Employment of women on an equal basis could allow firms to use the full talent pool and improve performance and ability to serve consumer markets dominated by women (Barsh and Yee 2012; Dezso and Ross 2011; and OECD 2012). ### Policy measures: cyclical versus structural responses - Cyclical measures to foster female employment align with overall employment policies: fiscal stimuli; work-sharing arrangements; and ALMPs supporting job search assistance and training for jobseekers (World Bank 2011; and World Bank 2012). - Structural policies require an integrated set of measures tailored to the level of economic development; gender-neutral measures can disproportionately benefit women if they alleviate gender-specific constraints (World Bank 2011; and Duflo 2011). - In many countries, changes in social norms are needed to free up women’s time for paid employment and enable women to assume higher-level responsibility in public and private sectors (Barsh and Yee 2012; and CED 2012). ### Specific policy recommendations for all countries - Review tax codes to identify and remove provisions that discriminate against second earners. - Targeted employment measures and deregulation were recommended for Japan to increase female LFPR to alleviate aging and dependency ratio effects (IMF, 2012k). - Tsounta (2006) attributes the increase in Canadian women’s LFPR between 1995 and 2001 significantly to the decrease in the secondary earner’s tax wedge. - Special tax relief could be targeted to secondary earners or single parents. - Scrutinize medical aid plans, medical insurance plans, and pension systems for explicit or implicit gender bias (Steinberg and Nakane 2012). ### Policy priorities for developing and emerging economies - Target labor legislation and social norms to allow women to fully participate in the labor market. - Example: Removal of a ban on part-time work in Argentina triggered a shift from informal to formal sector part-time work among mothers (World Bank 2011). - Analysis of Saudi Arabia suggested measures such as more widespread work-from-distance and female employment in food-processing and retail targeting female customers (IMF, 2012l). - Promote gender parity in access to health services, school education, and vocational training to facilitate transitions from informal to formal work. - Remove poverty traps via better access to infrastructure, transport, and child care to free women’s work time and improve welfare, equality, and inclusion. - Electrification in rural South Africa increased women’s labor market participation. - Mexico’s federal daycare program for working mothers facilitated formal employment of low-income mothers (UN and ILO 2012). - Ensure equal rights for women in property ownership, entrepreneurship, family law, and inheritance legislation. ### Policy priorities for advanced economies - Access-to-work policies: non-discrimination policies, flexible work arrangements, and facilitating transitions from part-time to full-time work. - In the Netherlands, a breakdown in barriers between full-time and part-time work contracts in the early 1980s was associated with a rapid increase in female LFPRs (Steinberg and Nakane 2012). - Enhanced parental leave benefits and better access to comprehensive, affordable child care. - Sweden’s high female LFPR is largely attributed to generous and flexible parental leave, high coverage child care, job guarantee, and eligibility for reduced working hours. --- ### Annex 2 — Impact of Technological Change and Globalization on Inequality: key findings - Technological progress and globalization drive growth but have distributional effects (Jaumotte, Lall, and Papageorgiou, 2012). - Analysis links the Gini coefficient to measures of globalization and technological change, controlling for education, sectoral employment composition, and domestic financial development. - Technological change measured by the share of ICT capital in total capital stock. - Trade openness measured by average tariff rate (de jure) and ratios of trade to GDP (de facto). - Financial globalization measured by an index of capital account openness (de jure) and ratios of financial liabilities and assets to GDP (de facto). - For a sample of 51 countries over 1981-2003: - There was an annual increase in the Gini coefficient of about 0.4 percent. - Technology and globalization added about 0.8 percentage points to inequality, but 0.4 percentage points of this was offset by increases in education and changes in sectoral composition of employment. - Trade liberalization and export growth are associated with lower income inequality, while increased financial openness is associated with higher inequality. - In both advanced and developing countries, financial globalization—and FDI in particular—are associated with increases in income inequality. - Financial globalization and technological progress appear to raise premiums on higher skills and possibly returns to capital; FDI tends to occur in higher skill- and technology-intensive sectors, increasing demand for skilled workers. - Using income shares of quintiles as dependent variables: - Export growth is associated with a rise in income shares of the bottom four quintiles and a decrease in the share of the richest quintile. - Financial globalization and technological progress benefit mainly the richest 20 percent of the population. ### Annex 3 — Growth Strategies: what works and what to avoid (Commission on Growth and Development) - Common features of sustained high-growth economies: - Fully exploited the world economy: imported ideas, know-how, and technology; produced goods meeting global demand. - Maintained macroeconomic stability: controlled inflation and avoided unsustainable fiscal paths. - Achieved high investment rates, including public investment, financed by high domestic saving. - Paid due respect to market signals while allowing governments to favor industries that passed market tests; labor mobility and allowance for failing stagnant industries; protection for laid-off workers. - Committed, credible, and capable governments providing public goods (schooling, infant nutrition) and pursuing persistent, country-specific strategies while promoting equal opportunities and narrowing unequal outcomes. - “Bad ideas” to resist (illustrative list): - Subsidizing energy except limited targeted subsidies for highly vulnerable populations. - Dealing with joblessness by relying on the civil service as an “employer of last resort” (distinct from targeted public-works programs). - Reducing fiscal deficits in the short term by cutting infrastructure investment or other high social-return public spending. - Providing open-ended protection of specific sectors, industries, firms, and jobs from competition; support, if necessary, should be time-limited with exit strategies. - Imposing price controls to stem inflation instead of using other macroeconomic policies. - Banning exports for long periods to keep domestic prices low at the expense of producers. - Resisting urbanization and underinvesting in urban infrastructure. - Ignoring environmental issues in early growth stages as an “unaffordable luxury.” - Measuring educational progress only by school infrastructure or enrollments rather than learning quality. - Underpaying civil servants relative to market rates and relying on promotion by seniority rather than performance. - Poor banking regulation combined with excessive direct control and interference. - Allowing premature exchange rate appreciation before readiness for transition to higher-productivity industry. - Strategy for middle-income countries: - Anticipate the transition from low-wage to higher-wage economy, including potential shortages of high-skilled labor. - Correctly timed policies should support a shift to knowledge- and capital-intensive economy and reduce the role of public planning in favor of market decision-making. - Structural change will require phasing out specific industrial policies, such as special export zones and heavily managed exchange rates. *International Monetary Fund — Jobs and Growth (excerpt)* ### 4. Low-income countries in Sub-Saharan Africa: Policymakers should promote integration ### 4. Low-income countries in Sub-Saharan Africa: Policymakers should promote integration ### Policy priorities for low-income countries in Sub-Saharan Africa - Promote integration with the global economy; densification of people and economic activities; and reliance on comparative advantage. - Infrastructure development, supported by regional cooperation, is needed to enhance agricultural productivity, export diversification, and trade in services. - Raise school enrollment to support the quality and output of skills. - Expand access to financial services and formalized property rights to develop entrepreneurial activity and scale up successful businesses. - Improve government administration to reduce the overall cost of doing business. - Advanced economies can support African growth strategies through: - better targeted aid; - time-bound trade preferences for manufactured exports; - support for tertiary education to compensate for the brain drain; - peacekeeping in fragile and post-conflict countries. ### Resource-rich economies: revenue management and institutions - Policymakers should pay critical attention to allocation of exploration rights and the role of taxes in determining the flow of rents. - Consider renegotiating concessions where appropriate to restore balance between private return and public revenue. - Use of resource revenues must account for growth-promoting public investment needs, particularly in education, technology, and infrastructure. - Revenues in excess of public investment needs should flow into a wealth fund: - insulated from political pressures; - managed by experienced investment professionals operating within well-defined parameters. - In the interest of equity and inclusion, wealth funds should pay out a certain percentage of total wealth each year for the benefit of the population. - Policymakers’ adherence to the principles of the Extractive Industries Transparency Initiative will support the transparency framework of resource-rich economies. ### Small states: strategies and external support - Overcome specific economic challenges by pooling markets through regional economic integration and leveraging tradable information and communication technology services. - Enhanced regional integration could facilitate sharing of key government services to reduce high per capita government costs, for example: - multi-country central banking (as in Central and West Africa); - a joint telecommunications authority (as in the Eastern Caribbean); - a joint Supreme Court (as established by six independent states and three British Overseas Territories in the Caribbean). - Developed countries can assist small states by: - providing insurance products that alleviate the high risk of weather-related economic losses; - taking into account small states’ specific needs at the World Trade Organization and other international organizations. --- ### Annex 4. World Development Report on Jobs: Main Findings ### Core messages - “Moving jobs center stage.” “Development happens through jobs.” Some jobs “do more for development” and policy should facilitate creation of jobs with the highest payoffs, given country circumstances. - The world of work is diverse, changing, and powered by the private sector. Most jobs in developing countries are not in paid employment; demographic shifts, structural transformations, technological progress, and macroeconomic crises generate diverse jobs challenges. The solution “rests with the private sector.” - Jobs can boost living standards, raise productivity, and foster social cohesion. Most exits from poverty are related to labor events and increases in labor earnings contribute most to poverty reduction. Growth arises as existing jobs become more productive and workers reallocate to more productive jobs, often in larger firms. - Some jobs do more for development than others. Jobs that generate positive spillovers have greater societal value through: - higher living standards (jobs for the poor, jobs that empower women, jobs that do not shift burden to others); - productivity (jobs that are environmentally benign, connected to world markets, and in functional cities); - social cohesion (jobs that give a sense of fairness, provide networks, and shape values and behaviors). ### Diverse job challenges and country clusters - Job challenges vary across countries, shaped by level of development, demography, natural endowments, and institutions. Eight clusters of developing countries face similar challenges. Challenges based on level of development: - Agrarian: Raising productivity in agriculture while encouraging policies that over time make cities more functional and able to reap agglomeration and global integration benefits. - Urbanizing: Deepening global integration, particularly in higher-value-added export sectors. - Formalizing: Raising formal sector employment to levels typical of industrial countries involves trade-offs between living standards, productivity, and social cohesion. Challenges based on demographic structure: - High youth unemployment: Raising competition in the private sector by removing privilege in business entry and access to jobs. - Aging societies: Containing increases in pension, health care, and long-term care costs while minimizing social strain. Challenges based on natural endowments and other conditions: - Natural resource-rich: Creating employment when exploitation of natural resources is a source of wealth but not labor intensive. - Small islands: Creating employment opportunities outside basic services and government. - Conflict-affected: Providing employment opportunities to support social cohesion. --- ### Annex 5. Role of the Financial Sector in Supporting Inclusive Growth ### How financial services support growth and inclusion - More varied and accessible financial services boost overall growth and reduce poverty and inequality by offering savings, credit, payment, and risk management products. - Without inclusive financial systems, individuals rely on limited savings to invest in education or entrepreneurship; small enterprises rely on limited earnings to grow, contributing to persistent income inequality and slower growth. - Well-developed financial systems allow investment in more productive projects, promoting diversification and dampening cyclical fluctuations. - Better and cheaper saving, payment, and insurance services help poor households avoid barter or cash transaction costs, reduce remittance costs, accumulate assets, and smooth income against shocks. ### Current inclusiveness and key statistics - Domestic credit to the private sector as a percent of GDP varies: - around 30 percent in low-income countries (LICs); - 83 percent in emerging markets (EMs). - Account ownership at formal financial institutions: - 92 percent of adults in advanced market economies (AMs) report having an account; - about 47 percent in EMs; - less than 19 percent in LICs. - Physical access metrics: - High-income countries have on average 12 times more bank branches per 100,000 adults than the average LIC; - and 30 times more automated teller machines. - Mobile banking and micro-finance are growing rapidly in many developing countries. ### Financial access and SMEs - Access to funding is critical for entrepreneurship and job creation, especially for SMEs, which tend to be more labor intensive. - The World Bank estimates that 45-55 percent of formal SMEs in developing countries are not effectively covered by any commercial banking institutions, while over 20 percent face financing constraints (IFC, 2010). - Studies show access to finance has the largest employment effects for SMEs; SMEs face relatively higher costs to enter capital markets due to higher credit risk and smaller financial needs. - Firms supported by private equity achieved higher employment than those without private equity financing (IFC, 2013). ### Policy lessons for inclusive financial systems - Heterogeneity across developing country financial systems argues for different approaches to promote inclusion. - Cross-country lessons suggest targeted and balanced initiatives to: - encourage competition; - develop information and market infrastructure; - address collateral issues; - limit excessively intrusive public sector interventions and dominance. - Promote financial education and consumer protection as priority measures given growth of consumer finance and introduction of new financial tools to new consumers. --- ### Annex 6. Growth with Equity—The Cases of Sweden and Brazil ### Sweden - Over the past two decades, Sweden had robust growth and declining trend unemployment. - GDP growth between 1993 and 2010 averaged 2½ percent per year and productivity growth 2 percent per year, compared with 2 percent and 1 percent respectively for the other European Union 15 (EU15) countries. - Sweden recovered from the global financial crisis faster than other EU15 countries. - Sweden’s inequality (proxied by the Gini coefficient for disposable income) declined from about 25 to 22 during the last decade, while it increased slightly in other EU15 countries. - Policies contributing to distributional outcomes included: - Regulations supporting market incomes of lower-paid workers, including wage compression and support of work-related expenditures, notably childcare. - Public and largely uniform provision of key services, notably health care and education, as instruments for redistribution and for promoting long-term equality and efficiency. - Direct income transfers and a progressive tax system. ### Brazil - Historically experienced long periods of low growth and very high inequality, but improvements began in the early 1990s and accelerated during the past decade with improved macroeconomic stability, the commodity boom, and targeted social policies. - From 1990-2009, GDP growth per capita followed a strong upward trend while the Gini coefficient declined substantially. - Bolsa Familia: - A direct cash transfer to poor families conditional on children’s school attendance and basic health care. - One study finds that one fifth of the decline in inequality during 1994-2005 can be credited to this program (Medeiros et al., 2006). - Regulatory changes favoring micro businesses contributed to labor market formalization; formal jobs now account for more than half of all employment, an increase of 10 percentage points since 1990. --- ### Annex 7. The Legal Framework for the Jobs and Growth Agenda in the Fund ### Article IV surveillance and the Fund’s mandate - Bilateral surveillance is part of the Fund‘s mandate under Article IV, Section 3, which requires the Fund to oversee compliance of each member with obligations under Article IV, Section 1. - Article IV, Section 1 requires each member to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates and to endeavor to direct economic and financial policies toward fostering orderly economic growth with reasonable price stability, with due regard to their circumstances. - The Integrated Surveillance Decision (ISD) specifies the legal framework in greater detail and emphasizes that stable exchange systems are most effectively achieved when each member promotes domestic and balance of payments stability. - Decision No. 15203-(12/72), adopted July 18, 2012, is referenced for the ISD. ### Scope for examining growth and jobs in surveillance - Surveillance may examine promotion of growth within the context of promoting domestic stability. Article IV, Section 1 (i) obliges members to endeavor to promote orderly economic growth, not growth per se. - The ISD requires the Fund to examine whether domestic policies are directed toward keeping the member‘s economy operating broadly at capacity and to pay due regard to members’ circumstances. - The ISD requires the Fund to examine whether domestic policies are directed toward fostering a high rate of potential growth only in cases where such high potential growth significantly influences prospects for domestic and balance of payment stability. ### Considerations for job creation and inclusive growth in surveillance - Three considerations broaden the practical scope for discussing jobs and distribution: - Promotion of domestic stability and orderly growth is generally expected to create the environment for job creation and improved living conditions. - Article IV and the ISD seek to ensure surveillance gives due attention to a member‘s domestic social policies, including job creation and income distribution; the ISD requires the Fund to identify ways members may achieve domestic and balance of payment stability while also attaining other objectives. - Even if issues fall outside surveillance, members can voluntarily agree to discuss them in an Article IV consultation; the Fund’s policy advice on these issues would be “technical assistance under Article V, Section 2 (b)” and not bilateral surveillance, but could be included in the Article IV consultation with member agreement. *Source: _031413 - 4. Low-income countries in Sub-Saharan Africa: Policymakers should promote integration* ### 6. The Fund provides financial assistance to its members so they may correct their ### 6. The Fund provides financial assistance to its members so they may correct their balance of payments (BoP) problems without resorting to measures destructive of national or international prosperity ### Legal framework and purposes of Fund financing - The Articles of Agreement and decisions of the Executive Board implementing the Articles comprise the legal framework for the provision of Fund financial assistance. - Financial assistance from the Fund’s general resources account (GRA) and the Poverty Reduction and Growth Trust (PRGT) must be used to address a member’s BoP problem. - Article I (v) requires that the Fund make GRA resources temporarily available to members “to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.” - Article V, Section 3 requires the Fund to “adopt policies ... that will assist members to solve their balance of payments problems.” - A member requesting a purchase under the GRA must represent that it has a need “because of its balance of payments or its reserve position or development in its reserves.” - The PRGT Instrument provides that PRGT financial assistance is limited to low-income developing members to address certain types of balance of payments problems. ### Guidelines on Conditionality and program objectives - The Fund’s Guidelines on Conditionality require that a member‘s program be directed primarily toward the macroeconomic goals of “solving the member’s BoP problem and achieving medium-term external viability while fostering sustainable economic growth.” - The Guidelines recognize that the Fund will “pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members.” - The Fund may encourage and assist a member to pursue objectives related to inclusive growth and employment as part of its program if these objectives are consistent with the primary goals of correcting the BoP problem and achieving external viability. - Program-related conditions are generally required to be either: - (i) of critical importance for achieving the goals, or monitoring the implementation, of the member‘s program; or - (ii) necessary for the implementation of specific provisions of the Articles or policies adopted under them. - Conditionality must reflect the member‘s circumstances. ### Conditions related to growth and job creation - The extent to which the Fund may set conditions related to growth and job creation depends on the member’s circumstances and the Fund facility under which resources are provided. - Conditions on growth and job creation may be permitted where they are necessary to achieve the primary goal of resolving BoP difficulties or achieving medium-term external viability while fostering sustainable economic growth. - Some facilities place greater emphasis on growth and job creation; for example, the Extended Fund Facility (EFF) is intended, in part, to assist economies characterized by slow growth and an inherently weak BoP position which prevents pursuit of an active development policy. ### PRGT emphasis on poverty reduction, growth, and jobs - The PRGT was designed to provide “loans on concessional terms to low-income developing members” to support programs and policies to correct BoP issues with the aim of achieving, maintaining, or restoring “stable and sustainable positions consistent with strong and durable poverty reduction and growth.” - Growth and poverty reduction are explicit objectives of Fund financing under the PRGT, and PRGT-supported programs are required to emphasize growth, job creation, and poverty reduction. - PRGT-eligible countries frequently encounter poverty, high debt, and entrenched structural imbalances that perpetuate BoP and macroeconomic instability; PRGT programming therefore emphasizes addressing these issues alongside BoP needs. ### Annex 8 — Role of Fiscal Policy in Supporting Growth: key policy directions - Fiscal policy can boost growth by contributing to macroeconomic stability and improving supply-side capacity; discussion focuses on making fiscal consolidation supportive of growth over the longer term for advanced economies. - Expenditure reforms in advanced countries: - Reform public sector wages and social welfare benefits; reducing public sector employment and the wage bill can boost growth (Ardagna, 2004). - Link receipt of social benefits to work (in work-benefits) or participation in ALMPs to increase labor force participation. - Greater use of means-testing (which affects less than 10 percent of social benefit spending in the OECD) could contribute to fiscal consolidation while preserving benefits for those most in need (Adema and Ladaique, 2009). - Replace generalized subsidies with more targeted income assistance to allocate resources more productively while protecting the poor. - Contain increases in age-related spending: health and pension spending consumes close to half of government non-interest spending. - Over the next 20 years: - pension spending is expected to rise by 1 percentage point of GDP; and - health spending will rise by 3 percentage points. - Preserve spending on public investment that addresses infrastructure bottlenecks; empirical literature suggests fiscal adjustments focused on cuts in wages, subsidies, and transfers, rather than public investment, have been the least damaging for long-term growth. - Tax reforms in advanced countries: - Income taxes and social contributions have the most adverse effects on growth, followed by consumption taxes; property taxes have the lowest output impact (Arnold 2008). - Improve corporate tax design to reduce bias toward debt financing (Keen, Klemm, and Perry, 2010). - Targeted personal income tax relief can boost labor supply, including for low-income workers and women. - Eliminate distortive tax expenditures and reduce tax evasion to raise revenues in a more “growth-friendly” way than rate increases. - Greater use of corrective taxes (e.g., energy taxation) can internalize externalities such as greenhouse gas emissions (IMF, 2013b). - Appropriately-designed financial sector taxes may offset VAT exemption distortions or internalize externalities from excessive risk taking (Financial Activities Tax; Financial Stability Contribution; see IMF, 2010b). - Expenditure reforms in developing countries: - Reallocate spending away from unproductive activities toward human and physical capital (education, health, public investment). - Rationalize energy subsidies, the government wage bill, and social benefits that disproportionately benefit upper-income groups. - Improving efficiency: in health, at least 20-40 percent of spending is typically wasted (World Health Organization, 2010); scope exists for substantial gains in health indicators at current spending levels (Grigoli and Kapsoli, 2013). - Strengthen the link between public investment and growth by improving project selection and implementation (Gupta et al., 2011). - Tax reform in developing countries: - Essential to finance higher levels of productive and pro-poor spending while maintaining fiscal sustainability. - Efficiency objective met in principle with low and relatively uniform tax rates on broad bases: e.g., single-rate VAT with limited exemptions; broaden corporate income tax base by rationalizing tax incentives; greater emphasis on raising revenues from property taxes. - Improve tax and customs administration to raise revenue without raising rates and improve tax system efficiency. ### Annex 9 — Understanding Growth-Employment Linkages and Cyclical vs Structural Unemployment - Fund staff project on growth-employment linkages produced three papers covering: - 20 OECD countries (Ball, Leigh, and Loungani, 2013); - about 80 emerging and developing economies (Ball, Leigh, Furceri, and Loungani, 2013); and - a broad universe of 167 countries (Crivelli, Furceri, and Toujas-Bernate, 2012). - Main findings: - (i) there is a strong and stable relation between growth and unemployment (employment) in most OECD countries; - (ii) a robust relation—even though relatively weaker than in OECD economies, but increasing over time—is observed for many emerging and developing economies; - (iii) employment-growth elasticity depends on policies, institutions, and structural characteristics (e.g., informality, sectoral distribution, and labor and product market institutions). - The project helps differentiate cyclical (short-term) from structural (medium-term) labor market developments and recommends regular inclusion of unemployment and labor market projections in staff reports and program documents. - Fund staff developed a labor market template (Abdih et al. 2012) that: - Produces estimates of employment-growth elasticities using econometric methods and a Stata program; - Generates a medium-term labor market outcomes table in Excel with four adjustable scenarios; - Produces projection charts for employment growth and unemployment rate under baseline and reform assumptions. - Example projection table format (Country X) includes: - Real GDP growth (%); - Labor force (millions); - Employment (millions); - Unemployment rate (%); - Projections 1/ for years 2011–2017 (cells indicated as "..." in source). ### Annex 10 — Labor Market Statistics on Inclusive Growth: data needs and sources - Timely employment and unemployment statistics disaggregated by income level, gender, age, and educational achievement are a basic requirement. - Primary data are drawn from Labor Force Surveys (LFSs) by national statistical offices (NSOs); the ILO Library and ILO Department of Statistics’ “short term indicators of the labor market” provide monthly, quarterly, and annual data for about 90 countries disaggregated by sex, age, economic activity, geography, education, and duration (unemployment). - The ILO short-term indicators are reasonably timely (e.g., through November 2012, as of early January 2013). The latest total employment series were from May 2012 or later for nearly 70 percent of the countries, with nearly 90 percent from May 2011 or later. - Users are cautioned that statistics are based on national definitions and have not been adjusted by the ILO; documentation on scope, definitions, and consistency issues is available. - The IMF’s International Financial Statistics (IFS) database also contains data on employment, unemployment, and labor force. *Source: _031413 - 6. The Fund provides financial assistance to its members so they may correct their* ### 2. There are many pitfalls in the use of such statistics that require consultation of ### _031413 - 2. There are many pitfalls in the use of such statistics that require consultation of ### Data sources and metadata - Annual data and metadata for over 200 countries are available on LABORSTA at: http://laborsta.ilo.org/data_topic_E.html. - ILOSTAT was launched in December 2012 and provides recent data for over 100 indicators and 165 economies. This redesigned database featuring new subjects will gradually replace LABORSTA. - Other databases referenced: - ILO’s “Key Indicators of the Labour Market” (KILM) at: http://kilm.ilo.org/manuscript/default.asp# - European Labour Force Survey (EULFS) at: http://epp.eurostat.ec.europa.eu/portal/page/portal/microdata/lfs - OECD Employment and Labour Market Statistics at: http://www.oecd-ilibrary.org/employment/data/oecd-employment-and-labour-market-statistics_lfs-data-en - World Bank development indicators at: http://data.worldbank.org/indicator and education statistics at: http://data.worldbank.org/data-catalog/ed-stats - Detailed information on LFSs used and definitions for each country are available at: http://laborsta.ilo.org/applv8/data/SSM3_NEW/E/SSM3.html and http://laborsta.ilo.org/definition_E.html. - Reference to LABORSTA STI: http://laborsta.ilo.org/sti/sti_E.html. ### Labor market measurement issues and limitations - Employment and economically active population statistics typically relate to persons 15 years old and over, but some countries define economically active population to include persons 10 years old and over. - LFSs cover wage earners and salaried employees, including: - paid family workers, employers, own-account workers, members of producers’ cooperatives, contributing family workers, and workers not classifiable. - LFS data generally relate to employment during a specified brief period, either one week or one day. - Usually, no distinction is made between persons employed full time and those working less than full time. - Employment statistics from establishment surveys: - principally cover formal employment arrangements, - provide labor cost data and estimates of number of workers on establishment payrolls for a specified payroll period or working day, - may be subject to a cut-off as to establishment size or draw from a sample of all establishments. - Social insurance statistics cover only the working population protected by sickness, accident, or unemployment insurance schemes; the number of contributors or of contributions paid provides a measure of the number of insured persons in employment. - Aggregate employment figures take no account of changes in the quality of employment; job quality is determined principally by the level of compensation and the level of compensation by occupation and experience. - Employment-related data give little direct insight into employment dynamics (numbers of job-openings, hires, quits, and layoffs); such data are not widely available even in rather advanced economies. - Timely, high-frequency labor market statistics, broken down into detailed meaningful categories, are important to the accuracy and analytical of labor market projections. - Suggested improvements: draw authorities’ attention to improving the quality of labor market data, as applicable. ### Education, skills, and job quality indicators - Occupational breakdowns of jobs and compensation inform policy choices for raising living standards by encouraging growth in specific sectors. - Education and occupational experience breakdowns of the labor force inform policy choices for raising living standards by favoring education and training in specific subject areas or at specific educational levels (primary, secondary, and tertiary). - The World Bank EdStats Query holds around 2,500 internationally comparable education indicators for access, progression, completion, literacy, teachers, population, and expenditures; indicators cover pre-primary to tertiary education, include learning outcome data from international learning assessments, equity data from household surveys, and projection data to 2050. - Example of desired labor dynamics indicators: U.S. Job Openings and Labor Turnover Survey (JOLTS) at http://www.bls.gov/jlt/. ### Economic inclusion and financial access - Main sources on economic inclusion: World Bank’s World Development Indicators. - Economic inclusion facets include employment, income inequality, access to shelter, health, education, and credit; concerns remain about the adequacy of these measures. - The Fund collects the Financial Access Survey (FAS) at http://fas.imf.org, which provides annual geographic and demographic data on access to basic consumer financial services worldwide. - The FAS database currently contains annual data for 187 jurisdictions, including all G20 economies, covering an eight-year period (2004-2011). - Work is ongoing at the OECD to establish a framework linking micro and macroeconomic statistics on household income, consumption, and wealth to allow assessment of distributional features within macroeconomic aggregates. ### Summary of views of external experts (Annex 11) - Broad reception: - Most participants welcomed the paper as a step in the right direction to strengthen the Fund’s understanding of job creation and inclusive growth. - Many broadly supported its approach; others highlighted perceived tensions with current Fund practices. - Key points raised: - Reforms that raise productivity growth are the way to link job strategies with growth strategies; tapping the global labor market and focusing on education for employability were noted. - High productivity jobs are the key for growth with inclusion. - Capture by a few of rents contributes to inequality in both developing and advanced countries; factors include growth and deregulation of the financial sector and changes in taxation and labor market policies. - Inequality driven by unemployment, an increasing share of poorly paid jobs, and the decoupling of wage growth from productivity growth leading to a decline in the labor share of income. - Some participants suggested considering raising taxation of high-income earners to finance growth and jobs strategies. - Labor market institutions and policies: - Some participants argued wages should always be set at the level of living wages; minimum wages, even coupled with negative income taxes or other transfers, may do little to contain rising inequality. - Policies should aim at ensuring that wages rise commensurately with productivity. - The desirable level of minimum wages depends on country-specific factors; it is difficult to specify universally applicable rules of thumb. - Caution regarding effectiveness of active labor market policies in developing countries; more work is needed to identify interventions that work. - Strengthening aggregate demand despite limited fiscal space: - Some participants wanted clearer guidance on boosting aggregate demand despite limited fiscal space. - Some argued the ratio of interest payments to GDP (rather than debt to GDP) is a better indicator of fiscal space and that by that metric several governments had room for long-term physical investment. - Fund policy advice and Fund-supported programs: - Some participants saw a contrast between Fund policy advice/program conditions and the paper’s recommendations. - Criticisms included opposition to minimum wages and national-level bargaining, neglect of adverse short-term effects of labor market reforms, and few programs including measures to protect the vulnerable from short-term effects of structural reforms. - Historically, the Fund’s approach to supporting job creation was perceived as driving down wages. - In Europe, several Fund-supported programs were seen as calling for fiscal contraction in the short term, contrary to recommendations to boost demand. - Gender issues: - Empowerment of women was viewed as key to identifying obstacles to growth, job creation, and inclusion. - A strong public sector was noted as important to improving job and wage prospects for women; this could contradict Fund advice to shrink the public sector in many countries. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2013/_031413.pdf* ### References ### References ### Inequality, Distribution, and Growth - Acemoglu, D., 2011, "Thoughts on Inequality in Financial Crisis," presentation at the 2011 American Economic Association meetings, Colorado, United States, January. - Acemoglu, D., and F. 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