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‘Deeply flawed’ employment situation, says ILO

by Chakravarthi Raghavan

Geneva, 23 Jan 2001 --   At the beginning of the 21st century, the world employment situation is “deeply flawed” - with as much as one-third of the world’s workforce of 3 billion people unemployed or under-employed and with open unemployment at about 160 million, 20 million more than at the peak of the Asian financial crisis, says the International Labour Organization in its World Employment Report 2001.

Focussing on the theme of the information economy, the report has many generalities about the information- communication technology (ICT), and its irreversibility and the positive potential of the technologies for employment growth, but underlines that whether the potential can be translated into reality for the majority of the world’s people any time soon, or whether the risks of change can be avoided, “is not beyond doubt.”

The report has opted for, what one of its authors called, “the majority opinion” that the ICT has brought in productivity gains -  a view that has been challenged in several other studies that note that even in the United States, the productivity gains have not been economy-wide, being much more confined or related to the sectors including the computer manufacturing sector itself, and much less in the service economy and other sectors.

Among the findings in the report, highlighted in an overview chapter, are:

*        As of year 2001, as much as one-third of the world’s workforce of three billion people are unemployed or under-employed; of these about 160 million are openly unemployed, 20 million more than before the onset of the Asian financial crisis in 1997, and despite the strong signs of recovery in Asia.

*        The world economy will have to maintain its current pace of expansion in order to generate 500 million new jobs needed during the next decade, just to accommodate new entrants to the labour force and reduce the current number of unemployed.

In the longer term, over 500 million new jobs need to be created by 2010 to accommodate new entrants to the world’s labour force and to reduce current unemployment levels by one-half.

But growth alone, the report argues, will not meet the goal. Much greater attention will be needed in core labour market issues - including investments in human capital, overcoming discrimination and making employment a more central goal of economic policy.

*        There has been a turn in employment fortunes, but only in the OECD countries - where overall unemployment has declined from the double-digit figures of mid-1990s and the incidence of long-term unemployment has gone down from 35% to nearly 31%.

*        The ICT has registered a phenomenal growth in the industrialized world, and there has been increasing penetration in the developing world too. But vast swathes of the world remain ‘technologically disconnected’ from the benefits of the ICT, which is revolutionalizing life, work and communication.

* While the ICT has the potential to improve women’s lives, there is a ‘digital gender gap’ within countries - with women often finding themselves occupying lower-level ICT jobs, while men rise to higher-paying, more responsible positions.

The ICT, the report claims, can have a far-reaching impact on quality of life of workers in poorer countries, provided the right policies are pursued and institutions put in place for development and growth.

With about 1.2 billion or over 20% of the world’s population living in absolute poverty (the World Bank yardstick of $1-a-day per capita in terms of purchasing power parity), there is a question mark whether the new capabilities of ICT could be harnessed to reduce poverty and generate more equitable growth.

Although the ILO suggests that developing countries could use ICT to ‘leapfrog’ traditional economic development  processes of accumulation of human and technological capital, growth may follow existing fault lines of social and economic inequality and possibly even intensify prevalent patterns of social exclusion, the report fears.

Any event, any ‘leapfrogging’ will not come by mere market forces, but only by governments of countries adopting policies and investing in human resources. But there are three requisites for this: a coherent national strategy for ICT,  the existence of an affordable telecom infrastructure, and the availability of an educated workforce.

The ability of ICT to reduce poverty and spur development will be determined by its impact on employment, as well as how the economic growth resulting from ICT translates into the creation of productive and remunerative work.

With the emergence of internet technologies, which support global information flow, and of a cyberspace domain where many of the constraints of time and distance are erased, the report warns of the need to examine such an approach with caution.

“While some developing countries have the skilled workforce and domestic capability to provide a stable manufacturing base for ICT products or components, they may also find themselves on a bumpy path of industrial and labour market realities, as they try to keep pace with advances in the ICT development."

The report identifies three areas of economic and welfare gains resulting from ICT.

There are gains associated with participating in the growing world demand for ICT products (hardware and software) and services. The world market in these is now estimated at $500 billion. The OECD estimates suggest that electronic-commerce could reach over $2 trillion by 2003, but this is a disputed figure.

Some newly industrializing economies and other east Asian economies - especially China, Malaysia, Thailand and the Philippines - were able to capture a significant share of the market in ICT products (digital computers, semi-conductors, electronic micro-circuits and automatic data processing equipment).

There are also economic efficiency and productivity gains associated with a greater use of ICT in other sectors of the economy, though some of the debates about its impact in industrial countries (productivity gains, income inequalities etc) may not apply immediately to the lower-income countries. But the pervasiveness of the ICT may eventually have a major impact, the report argues.

There is also the networking possibilities opened up by ICT that could help alleviate poverty and improve the quality of life through higher incomes and the use of marketable capacities of the poor.

However, the report appears to be drawing on anecdotal examples; farmers in Bangladesh using mobile telephones provided by the Grameen Bank to keep track of market prices, or government liberalization of policy in Senegal to increase public access to phones, faxes etc, are oft-cited examples in such literature—to suggest that farmers are able to tap into a greater store of information - on weather patterns, crop or fertilizer prices.

But anecdotal examples are not sufficient or useful to reach intelligent policy decisions by governments.

The report however warns about the danger of countries seriously risking losing out, in the short- to medium-term, in the new development paradigm shift.

In terms of gains from participating in ICT product markets and in achieving efficiency and productivity gains out of ICT, the report notes the growing consensus that for this to be achieved, countries must develop software capacity to position users as active participants in advances in shaping content and applications.

It cites the example of the rise of the software industry in India - where it achieved an annual growth rate of 50% during the 1990s  - as one of its most spectacular achievements, creating thousands of jobs. The move from domestic to export orientation by the software industry in Brazil and China are also credited with generating massive increases in investment and new work.

But countries without relatively active up-to-date software skills might find it increasingly difficult to ‘catch up’ in terms of capital outlays, labour skills and the growing importance of technology changes, organization and management in software production.

The importance of software production, the report stresses, lies in the fact that there are few areas of production, engineering, education or general services that do not include software as an integral component.

Embedded software is at the core of machine-tool industries, vehicles and electronic products. But customized software has driven the computerization of routine operations and management of banks, government services and large operations.

But ICT is merely a tool, and cannot substitute for genuine development. ICT offers tools that can accelerate development by providing greater access to and use of information.

As has now become an increasing practice with international institutions, the lengthy 398-page flagship report of the International Labour Organization was launched and made available to the media just a few hours before publication, making any critical study or analysis difficult.

One of the chief authors of the report, Mr. Rashid Ahmad (who led the team that prepared the report) admitted that the report and its data are based on several estimations, given the fact that hard data about employment and unemployment, poverty levels and other relevant statistics are not available in some of the major populated regions of the world,  including China and India.

The report cites evidence of renewed growth in the world economy to suggest that conditions for improving the world employment situation is better now than in the more recent past. And while the potential for optimism on the basis of renewed growth extends to east Asia, the picture is more mixed in Africa, Latin America and the transition economies.

Unemployment has grown in Latin America and the Caribbean; remains high in central and eastern Europe, in the Middle East and north Africa, in urban areas of sub-Saharan Africa; and has come more into the open in China.

In South Asia, the situation is more mixed, though the sustained shift in growth rates gives ground for more optimism. In India, there is no clear evidence yet that poverty levels have been significantly reduced due to faster growth rates. And in Pakistan, despite recent improvements, open unemployment has been rising and continued recession has put almost 20 million people below the poverty line in the last 10 years. In Sri Lanka, unemployment has declined from the high levels of the second half of the 1990s, but remains high amongst the educated youth.

In east Asia, economies are recovering more slowly in the aftermath of the financial crisis, which hit the labour market hard, says the report.

In China, where restructuring is continuing, the state enterprises now account for 13% of total employment as against 16% at the beginning of the 1990s. Private sector employment has grown from 1% of the workforce in 1990 to almost 5% now. But migration from rural to urban areas is increasing, and many workers officially attached to state enterprises are not actually working. For all these reasons, the Asian Development Bank estimates that the adjusted unemployment rate is 9.5% compared to the official figure of 3.1%.

Across North Africa and the Middle East, unemployment remains a formidable challenge: the unemployment rate in late 1990s was estimated at 29% in Algeria, 9% percent in Lebanon, 22% in Morocco, and 8% in Egypt. High birth rates and decrease in government hiring are among major factors.

In Latin America, average unemployment rates of 9-10% tended to prevail in the latter part of the 1990s and real industrial wages either stagnated or fell in recent years, recovering only slightly in 2000, reflecting the depressed economic conditions and real fall in GDP in several countries. Despite some recovery in growth in 2000, on average, unemployment has not yet started to fall.

In the Caribbean, high double-digit open unemployment is the general rule. But some like Trinidad & Tobago, Barbados and the Bahamas saw declines in unemployment, “mainly due to improved economic growth and greater labour absorption in the informal sector.”

Sub-Saharan Africa continues to be marked by the highest incidence of extreme poverty -  with natural disasters, civil conflict and weak commodity prices continuing to weigh heavily on the fortunes of many of the poorest countries in the region, including Mozambique, the Democratic Republic of Congo and Sierra Leone. The spectre of HIV/AIDS looms over the fortunes of the entire continent.

In the transition economies of central and eastern Europe, the open unemployment rate is estimated at over 14% with youth unemployment an even more serious problem, affecting almost 30% of young people, double the average in western Europe. Long-term unemployment is also a serious problem - with incidence ranging from 16% of total unemployment in the Czech Republic to 68% in Georgia.

Despite progress, a new type of poverty has emerged in the transition economies   - affecting low wage earners, the unemployed, the elderly and workers whose wages are not paid.

The report also highlights changing patterns of employment (in the OECD economies) where firms have increased the use of part-time workers and short-term contracts, and the extensive use of external groups like agency temporaries, outsourcing, sub-contracting and self-employment.

Between 1990 and 1996, part-time work increased from 14% to 16% of the total OECD workforce. The relative importance of temporary employment is also growing - rising from 10% to 12% percent of the workforce in 12 EU countries for which data are available.

And casual work and working without an explicit contract is also rising worldwide and has been noticed in many countries which are ‘liberalising’ product and labour markets such as Argentina, Brazil, Pakistan and Sri Lanka.

Self-employment too is growing faster than traditional employment, though its share of total employment still remains small - accounting for only 12% of the workforce in most countries.

Migration for employment too is increasing - with generally positive results for hi-tech workers, but often in tragedy for hundreds of thousands of illegal or smuggled migrants.

Short- and medium-term prospects for employment, the report says, depend mainly on whether the current revival in the world economy can be expected to continue. There are many uncertainties including the trajectory of the US economy - hard or soft landing - the likelihood of Europe taking over as the global economy’s dynamo, and sustainability of Russia’s upturn.

The report, on balance,  takes a favourable view of prospects and believes that continued growth could provide breathing space to address many flaws in employment policy.-SUNS4820

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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