Challenges of Job-Rich and Inclusive Growth
IMF News, October 8, 2014
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- Authors: Christine Lagarde
- Published: October 8, 2014
Introduction
- Speech delivered by Christine Lagarde, Managing Director, International Monetary Fund, Washington, D.C., October 8, 2014 (As prepared for delivery).
- Three core questions posed:
- What is the scale and scope of the jobs and growth challenge?
- What kind of policies can support inclusive growth?
- What is the IMF’s role, and what more should it be doing?
1. The Scale and Scope of the Jobs and Growth Challenge
- Global outlook and risks:
- Growth is recovering from the Great Recession but is described as uneven and brittle.
- Risk of prolonged subpar growth and a possible new “mediocre” level of growth.
- Key labor-market and inequality statistics:
- Global unemployment currently stands at 200 million people—and has risen by 30 million since the crisis began.
- Average jobless rate in developed economies stands at 8.5 percent, compared with 5.8 percent before the crisis.
- In the developing world, unemployment rose only slightly during the crisis, and is now back to pre-crisis levels.
- Global youth unemployment stands at 13 percent—or around 74 million young people.
- In the Middle East and North Africa, one-third of young people—and 46 percent of young women—cannot find work.
- Oxfam estimate: the world’s richest 85 individuals control as much wealth as the world’s poorest 3.5 billion people.
- According to the U.S. Federal Reserve, between 2010 and 2013, America’s richest 10 percent saw their incomes rise by 10 percent, while the incomes of the poorest 20 percent fell by 8 percent.
2. Policy Priorities for Sustainable and Inclusive Growth
- Fiscal policy:
- Within budget constraints, governments can design more growth- and jobs-friendly policies.
- Redirecting public resources toward activities that promote job-rich, inclusive growth is recommended.
- Example: reducing untargeted energy subsidies and reallocating those resources (estimated at about $2 trillion per year) to inclusion-enhancing activities such as better education and training programs and strengthening of safety nets.
- Structural reforms:
- Emphasis on reforms of product and labor markets.
- IMF estimate: if all Euro Area economies would close about half of the gap in these markets relative to best practices in the OECD, euro area GDP could be 3½ percent higher in 2019 than is currently forecast.
- Key questions: generating buy-in for reforms and ensuring intended effects.
- Public infrastructure investment:
- IMF analysis: public capital stocks, as a share of GDP, are currently 10 percent below what they were in the 1980s for advanced economies, and 20 percent below for developing economies.
- American Society of Civil Engineers estimate: additional infrastructure needs for the U.S. are more than $200 billion over the next four years.
- Example: in India, more than 300 million people still live without electricity.
- Prioritization, quality and efficiency of investment, and budget constraints (high public debt and other spending priorities) must be considered.
- Other considerations:
- Widening access to opportunities—financial services, education, healthcare.
- Long-term trends: changing demographics, climate change, technological innovation will affect inclusiveness of growth.
3. IMF’s Role and Recent Work on Jobs and Growth
- Incorporation of social considerations into IMF work:
- Independent Evaluation Office finding: social spending floors were present in 29 out of 30 programs supported under the IMF Extended Credit Facility for developing countries.
- Measures to protect the most vulnerable have featured in IMF-supported programs of higher-income members, including recent programs in the Euro Area.
- Roughly half of all Article IV consultations undertaken in 2012 and 2013 included extensive discussions on employment and income distribution.
- Research and guidance:
- IMF has conducted in-depth research on drivers of inclusive growth, including income inequality, female labor force participation, and youth unemployment.
- A staff guidance note on Jobs and Growth published last year is helping translate research into practical IMF policy advice in country cases.
- Collaboration and pilots:
- Strengthened collaboration with other institutions, including the ILO, to assess building effective and sustainable social protection floors.
- Pilot exercises conducted with four countries: Burkina Faso, El Salvador, Mozambique, and Vietnam.
- Work is underway with the ILO to expand the scope of the pilot exercise to more countries.
- Overall assessment:
- Progress has been made in bringing inclusive growth to the center of the IMF’s work, but substantial further effort is required.
Speech by Christine Lagarde, Managing Director, International Monetary Fund, Washington, D.C., October 8, 2014 (As prepared for delivery).