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5.1 Employment, productivity and social dialogue: Working Out of Poverty

Guest post by: International Labour Organization

Article Overview: The ILO is mandated both by its Constitution and by the United Nations to examine the functioning of economic, social and financial policies from the perspective of employment creation as a central goal. Full, productive and freely chosen employment is the primary means of reducing and eventually eliminating extreme poverty. Moving toward this objective requires a steady and brisk pace of growth that is sustainable in environmental, social and economic terms.

5.1 Employment, productivity and social dialogue: Working Out of Poverty

The ILO is mandated both by its Constitution and by the United Nations
to examine the functioning of economic, social and financial policies
from the perspective of employment creation as a central goal. Full, productive
and freely chosen employment is the primary means of reducing and
eventually eliminating extreme poverty. Moving toward this objective requires
a steady and brisk pace of growth that is sustainable in environmental,
social and economic terms.

The global jobs deficit is a consequence of employment growth in the
1990s of 1.4 per cent per year falling behind the 1.7 per cent per year increase
in the world’s labour force. Annual job creation therefore needs to rise
above the 40 million registered over the last decade and substantially exceed
the annual inflow of new entrants of about 48 million.Furthermore, to put
the world on track for halving extreme poverty by 2015 the productivity and
earnings of working people living in poverty must also rise significantly.

Improving productivity, especially in countries with a high incidence of
poverty, creates conditions for faster sustainable growth in output and the
quality and quantity of jobs. The ILO has constructed scenarios to illustrate
the order of magnitude of productivity and output growth that could lead to a
job-creation rate that would reverse the upward trend in unemployment and
improve the incomes of working people living in poverty. These scenarios suggest
that the 1 per cent annual rate of growth in world per capita GDP recorded
during the 1990s needs to be doubled to over 2 per cent annually,
sustained over several years, in order to create a pattern of employment development
that would help halve extreme poverty by 2015. Faster progress in the
developing world is essential, with a sharp acceleration in per capita growth for
Africa, the Middle East, South Asia and Latin America and the Caribbean.

For many developing countries, achieving and sustaining a pace and
composition of growth consistent with a substantial reduction in poverty is a
major challenge. Purely national strategies for sustainable pro-poor and projobs
growth are unlikely to succeed in a world in which economies are becoming
increasingly integrated. This is why the ILO’s constituents – governments
and employers’ and workers’ organizations – have developed a Global
Employment Agenda as a key component of the Organization’s decent work
strategy, with the goal of placing employment generation at the heart of economic
and social policy-making.

A strategy that combines local action in a sound national macroeconomic
framework with an international effort to boost and sustain investment
and trade growth could yield a substantial global dividend in the form
of poverty reduction and growing markets. Financial stability is important to
the poor. They are usually least able to protect themselves when prices start
to inflate. But in many cases tight fiscal and monetary policies have retarded
expansion, often for long periods.

Furthermore, the scale and volatility of international financial flows,
particularly investment in government bonds or on emerging stock markets,
have caused major swings in exchange and interest rates, disrupting growth
and hence poverty reduction. Many economic policy-makers seem to regard
job creation as, at best, a supplementary outcome of pursuing the priorities
of financial stability and open markets for goods and services, rather than a
central objective for government policies, social dialogue and community
action.

It is increasingly recognized that full liberalization of capital flows before
strong prudential arrangements are in place to underpin domestic finance
markets invites increased financial, economic and social risks. The
international policy regime to prevent and if necessary control sudden
swings in capital inflows and outflows needs further strengthening to ensure
that developing countries and the poorest people within these countries do
not carry the costs associated with speculative financial movements.

Alongside international measures to stabilize financial markets and
open markets, governments and the social partners need to promote domestic
growth by increasing the productivity of labour. Productivity growth is
the main source of sustainable, non-inflationary improvement in living
standards and employment opportunities. It sets the scene for faster growth
and development, allowing greater scope for macroeconomic policies to be
directed toward increasing decent work opportunities and the reduction of
poverty. By broadening and deepening the forms of action described in
Chapter 3, developing countries can improve labour productivity and the incomes
of people living in poverty.

Productivity growth is founded on change in production processes to
lower unit costs and shift toward the production of goods and services that
yield higher returns. It entails changes in the way work is organized, the
growth of new businesses and the phasing out of others. Managing change in
such a way that the outcome is more and better jobs, especially for the unemployed
and the working people living in poverty, is central to government
employment policies. Involving the social partners in policy-making helps to build broad popular support for change and ensure that knowledge and experience
of the world of work inform policy design.

Prioritizing poverty reduction requires a comprehensive approach to
development that enables governments, and society as a whole, to balance
competing claims on national resources to ensure that growth is sustainable
and benefits most those living in poverty. As described in Chapter 4, the institutional
framework for the regulation of markets is of central importance
to this process. The challenge facing developing countries and their international
partners is to implement economic and social policies and governance
mechanisms for the market that ensure that communities living in poverty
have access to the resources they need to improve productivity and incomes.

Where markets operate effectively and fairly, the price mechanism contributes
to resolving competing claims for limited resources. However, markets
alone are not able to ensure equitable access to public goods essential
to sustainable pro-poor growth. The role of government is therefore critical
to a successful drive to reduce poverty. The political process, which leads to
decisions about taxation and expenditure as well as the mechanisms for market
regulation, is a determining influence on poverty reduction. However,
the voice of poor communities is often not heard in the political process. The
freedom of people living in poverty to organize themselves and voice their
concerns and aspirations is fundamental to a determined effort to shape
more equitable patterns of development.

Although many developing country governments and their foreign advisers
hoped that rigorous fiscal and monetary policies would create the stability
needed to stimulate investment, growth and poverty reduction, these
benefits are slow to materialize. Indeed, in some cases the social and political
strains associated with these policies have made it even more difficult to set
a course for sustainable growth. Building national institutions that settle conflicts,
increase social cohesion and stimulate a brisk and steady pace of productivity
growth diminishes the risk of political instability at home
interacting with volatile international capital markets to create unmanageable
economic shocks.

Moving toward a comprehensive framework for development will involve
the creation of systems for consultation and participation of a wide
range of representative social and economic forces. Governments must accept
and lead such a process. The role of democratically constituted parliaments
and local assemblies is also vital to the forging of a broad national
consensus on development priorities. The social partners have a key role to
play in promoting representative organizations of small businesses and
workers in the informal economy and seeking ways to ensure that people living
and working in poverty organize and have a say in policy-making.

In a world where the opening up of national economies to global markets
challenges the policy sovereignty of nation States, social dialogue enhances
the capacity of countries to choose their own path towards
sustainable pro-poor growth. A number of governments have found that social
dialogue with employers’ organizations and trade unions can help
achieve a convergence of expectations about economic developments. This
reduces the risks of financial or social instability or reduced trade competitiveness
undermining employment creation and sustainable pro-poor
growth.

The contrasting experiences of the Republic of Korea and Indonesia
during the Asian financial crisis shows that social dialogue can accelerate recovery
from financial shocks and help create conditions to avoid or diminish
future turbulence.
9
In the Republic of Korea, a national tripartite committee
helped develop social protection policies that resulted in a sharing of the
burden of unemployment and avoided an excessive increase in poverty.
More intangibly, social dialogue reassured domestic and foreign investors
that financial stabilization would not be at the price of social or political instability,
thus shortening the recession and accelerating the recovery. Indonesia,
without the benefit of independent and representative employers’ and
workers’ organizations at the onset of the crisis, was slower to develop the
accompanying social and employment policies needed to buttress financial
responses to the crisis, and has suffered a longer and deeper recession.

Related Articles
  1.15 Building an employment agenda: Working Out of Poverty
  1.4 Our experience: Working Out of Poverty
  1.17 Building partnerships: Working Out of Poverty
  1.5 Skills development for sustainable livelihoods: Working Out of Poverty
  5.12 Social dialogue: Working Out of Poverty

Article Tags: brisk pace, central goal, developing world, economic terms, employment creation, employment development, employment growth, extreme poverty, financial policies, growth co, high incidence of poverty, improving productivity, inflow, job creation, labour force, last decade, order of magnitude, south asia, sustainable growth, upward trend



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