SPectrum 23009 S o c i a l P r o t e c t i o n T h e W o r l d B a n k S p r i n g 2 0 0 1 Meeting Employment Challenges in the Global Economy Social Protection is a collection of measures improve to or protect human capital, ranging from labor market interventions and publicly mandated unemployment or old-age insurance to targeted income support. Social Protection assist interventions individual, households, and communities manage to better the risks that leave people vulnerable. Cover Photo: Yosef Hadar Contents Closing the Gap Too many workers in developing countries are failing to reap the potential benefits of the information technology revolution and globalization. 5 Thailand After the Crisis After the economic crisis of 1997 revealed stark shortcomings in social protection, the Thai government took action. Today, social protection has become a cornerstone in the broad set of reforms to rebuild Thai society. 11 Feeling Lucky 14 Matchmaking in the Labor Market 15 Time to Put on the Hard Hat 15 Toil, Sweat and Trade What can be done to improve working conditions in developing countries? 17 Improving Conditions of Work in the Global Economy 19 Decent Work and Poverty Reduction International Labour Organization and World Bank partner to meet the challenge of globalization. 21 Solidarity Forever? Trade Unions and the World Bank 23 Protecting Workers in the Informal Sector A closer look at the informal sector ­ a pervasive and persistent economic feature in most of the developing word that contributes significantly to employment creation, production, and income generation. 25 Appreciating the Informal Economy 27 Entrepreneurship in 10 Square Feet Unemployed workers in the Philippines are struggling to make ends meet. Transplanting policies that work elsewhere is not the best option. 29 A Realistic Approach to Active Labor Market Programs What policy-makers should know before acting on behalf of disadvantaged workers. 33 A New Vision of Policy after the Crisis EU supports World Bank and partners' research on East Asian labor markets. 36 Employment Services @ Your Fingertips 38 World Bank Labor Markets Lending 39 Cutting to the Core of the Issues Success of new World Bank Labor Market Policies Course builds on knowledge sharing. 41 Meet the World Bank's Labor Markets Team 43 SPectrum's Resource Guide 44 SPectrum Now Available On-line To download all the issues of Spectrum, please visit us on the web at: http://www.worldbank.org/spectrum Notes Viewpoint Modern Slaves News The following was excerpted from a submission by Kevin Bale. SP Slavery has been with us for thousands of years. It has been present in most cultures at one time or another, taking slightly different forms. Like other types of crime it has changed over the centuries, but for most of us slavery means what happened in the 19th century. We believe slavery ended with the campaigns that brought an end to legal slavery. Nothing could be further from the truth. Slavery means controlling someone completely using violence, paying them nothing, and exploiting them economically. By this measure there are 27 million slaves in the world. Many are kept in a new form of slavery that has emerged since 1945. This new slavery is different, slaves are cheaper today than at any time in human history. Slaves were major capital purchases in the 19th century, today they are so cheap they are disposable. Studies have documented the slave origins of several international products such as carpets, sugar, and jewelry. We may be using slave-made goods or investing in slavery without knowing it. Slave-produced cocoa, for example, goes into the chocolate we buy. Rugs made by slave children in India, Pakistan, and Nepal are mainly exported to Europe and the US. The global economic value of slavery is estimated to be $13 billion per year. But, there is no clear picture of the economy of slavery. If there is good news about modern slavery, it is the dramatic growth in media interest, public awareness, and official action. A story earlier this year of a "slave ship" off the coast of Benin was just one of a growing number of stories that stirred public interest. With growing public support, organizations like the United Nations and the World Bank are able to bring more resources to bear to build databases, develop effective interdiction, work out ways to free and rehabilitate trafficking victims, help erect laws, and conduct the research needed to address the issue. A representative of Anti-Slavery International explained, "It is very heartening, after years of neglect on this issue, to be part of a global movement against slavery. It is still in its infancy, but it is growing everyday." Kevin Bale is a Principal Lecturer at the Roehampton Institute of Surrey, England, and the world's leading expert on con- temporary slavery. He is the author of Disposable People: New Slavery in the Global Economy, University of California Press (1999). 2 Welcome Dear Reader, The ability to work is the only asset of many of the world's poor people. This is why labor markets matter so much to the World Bank mission of poverty reduction and economic development. It is through paid work that most people can generate income to meet their material needs, get a sense of self-worth, and better integrate into society. Sound labor market policies can support workers by reducing unemployment and underemployment and by helping them manage and cope with the risks associated with unemployment, low income, and poor working conditions. Well-functioning Photo: Robert Radifera labor markets contribute critically to economic and social development. In this issue of SPectrum, we not only take a closer look at the World Bank Labor Market Team's cutting-edge work, but also provide an overview of the global trends dominating today's labor mar- kets. Globalization, the revolution in information and communication technologies, shifting macroeconomic policy, the growing importance of the informal sector, changing population pat- terns, and the changing role of women are just the most visible of a host of dramatic developments that have altered employment over the past quarter-century. These enormous changes raise an array of challenges for workers, employers, governments, trade unions, and policy-makers. You will find a range of articles in this issue, covering a diversity of issues from designing effective labor market programs to considering the role of international labor standards in a globalizing world. You will find pieces that span the globe, from improving conditions for Thai workers in the wake of the Asian financial crisis to appreciating the life of informal sector workers in South Africa. I also want to mention the latest product from the Labor Market Team. In collaboration with the World Bank Institute (WBI), we have sponsored a new flagship course on Labor Market Policies held for the first time this spring in Washington, D.C. This course provided participants ­ from all the six regions of the Bank's work as well as OECD countries ­ with a solid grounding in the key issues that arise in the labor market. During the next year, we plan to offer this event again, extending its reach on a regional basis and by utilizing distance learning technologies. You can read more about the Labor Market Policy course on page 41. Let me end by offering a quote from World Bank President James D. Wolfensohn. "Work ­ safe, productive, and environmentally sound ­ is the key to economic and social progress everywhere. In the advice it gives governments and in the policies it promotes, the World Bank has long recog- nized the critical value of work. This is more than an economic issue; it is at the heart of human development." Enjoy your reading. Yours truly, Robert Holzmann 3 4 Closing the Gap Too many workers in developing countries are failing to reap the potential benefits of the information technology revolution and globalization. Investing in human resources and designing effective social protection strategies for informal-sector workers by Lotte Lund must be priorities for development and poverty reduction. Rapidly evolving information technologies and global- Economic performance is the primary determinant for ization present opportunities for employment and labor market conditions. Betcherman's study speaks in improvements in incomes and working standards in clear language about the magnitude of the gap in pro- developing as well as in developed countries. However, a ductivity and income between developing and the devel- closer look reveals that benefits have been slow to come oped countries. This is most evident in the statistics on for workers in developing countries. The gaps between Gross National Product (GNP). GNP per capita in the the developing and the developed world are large and OECD countries ranges from 60 times greater than the growing on almost all dimensions of the labor market. corresponding figure for the poorest region (South Asia) The challenges that this poses are formidable and inno- to seven times greater than the level of the best-off vative responses will need to be taken inside as well as developing region (Latin America and the Caribbean). outside the labor market policy envelope. "With the exception of East Asia, developing regions In a new study on the key global trends and major labor have not narrowed the gap over the past few decades. market policy issues, Gordon Betcherman, leader of the This does not mean the economies of these regions did World Bank's Labor Market team, spells out what is not expand during these years but whatever growth needed if policy makers are serious about closing the there was did not meet the huge population expansions gap. He emphasizes three critical challenges that must be in much of the developing world," says Betcherman. central to these efforts to generate employment and income opportunities in all countries -- how to develop The growing gap is also evident in real wage trends dur- human resources, how to offer effective social protection ing the 1990s. While most OECD economies continue to workers, and how to regulate the labor market to pro- to show moderate but consistent growth in real wages, tect the fundamental rights of workers in an economi- the situation in developing countries has been very cally efficient manner. uneven and often very disappointing. "Many East Asian The Growing Gap Today about 160 million workers worldwide are unem- ployed. This figure does not include the millions WB labor economist Gordon Betcherman points to dramatic squeaking out a subsistence living by working in infor- growth of the world's labor force as a key challenge. mal sectors. About a half billion workers around the world cannot earn enough to raise their families above itlin W y the US$1 a day poverty line. These problems are greatest Ra in developing countries where improvements in the eco- Photo: nomic and social conditions of workers have been elusive. Lund Lotte Photo: 5 countries have had substantial increases in real wages ­ declining opportunities in traditional sectors outside although gains were rolled back somewhat during the urban areas. In many developing countries, the result is regional financial crisis of 1997. Elsewhere, however, an historically unprecedented growth of mega-cities wages often have deteriorated and in the case of the two which is creating enormous pressures to accommodate poorest regions ­ Africa and South Asia ­ many countries the booming labor supply." experienced real wage declines of the order of 25 percent or even more during the 1990s," says Betcherman. His Betcherman's study documents the explosion in urban study also shows that on top of this, inequality also labor markets in developing countries. He argues that appears to be increasing in most developing countries. these "structural" changes pose huge challenges that can- not be ignored by national governments or international According to the study, all of these trends reflect four organizations. key factors that are now shaping labor markets around the world: urbanization and the changing economic Globalization and Migration structure; globalization; technological change; and Globalization is a much debated phenomenon and an the expanding informal sector. "These trends are all important part of the controversy concerns its impact on closely linked. Together they are affecting the structure workers. As countries become more interdependent and content of employment, the possibilities for through increasing flows of goods and services, capital, employment and earnings growth, and the nature of and technology, the rules governing the labor market the relationship between capital and labor," says seem to be changing as well. Betcherman. "Globalization provides opportunities for economic Key Factors growth and thus, employment and rising incomes. Urbanization However, it also raises concerns about the downside The changing economic structure involves a progressive labor market risks in the form of unemployment, down- shift from agriculture to industry and, subsequently, to ward wage pressures, and a `race to the bottom' in work- services. Urbanization is an accompanying process. "In a ing conditions and public policy. To this point, however, sense, these trends are an expected part of development," the debates on globalization are hampered by the fact says Betcherman, "but what we are seeing today is not that we simply do not have enough solid evidence on its only the `pull' of jobs in cities but also the `push' of effects on labor markets," says Betcherman. Exploding Urban Labor Markets in Developing Countries A century ago, just 10 percent of the world's 1.6 billion inhabitants lived in cities. Now 50 percent of the 6 billion people on the planet are urban residents. By the middle of this century, two-thirds of a total population of 10 billion will be in cities. This urban growth is concentrated in developing countries where huge mega-cities are becoming almost commonplace. Seven of the world's 10 largest cities are now in developing countries and by 2020, nine will be. More than half of the urban inhabitants of Asia, Africa, and Latin America live in poverty. The 10 Largest Urban Areas 1980 2000 2020 million million million Tokyo 21.9 Tokyo 26.4 Bombay 28.5 New York 15.6 Bombay 18.6 Tokyo 27.3 Mexico City 13.9 Mexico City 18.3 Lagos 26.5 Sao Paulo 12.5 Sao Paulo 18.0 Dhaka 24.0 Shanghai 11.7 New York 16.7 Karachi 21.7 Osaka 10.0 Lagos 14.1 Sao Paulo 21.3 Buenos Aires 9.9 Calcutta 13.2 Mexico City 19.6 Los Angeles 9.5 Los Angeles 13.2 Jakarta 19.4 Calcuta 9.0 Shanghai 13.0 Calcutta 18.8 Beijing 9.0 Buenos Aires 12.7 New Delhi 18.5 Source: The Population Institute; Population Reference Bureau. 6 Many researchers, however, have documented a general To start, diffusion of the new technologies has been trend towards worsening employment outcomes for heavily weighted towards the developed countries. This unskilled workers during the period when trade and only widens existing gaps. The study uses data collected investment liberalization has taken place. " This trend ­ by the World Bank and the International Labour especially in the case of developing countries ­ runs Organization as documentation. For example, the criti- counter to what would be expected on the basis of inter- cal communications infrastructure is heavily concentrat- national trade theory," says Betcherman. According to ed in high-income countries. "Only three percent of the the textbooks, increased international trade should lead telephone infrastructure is in low-income countries and to more intensive use of ­ and thus rising prices for ­ 18 percent in middle-income countries, with the rest in the abundant factor which is unskilled labor in the case the richest nations. Tokyo and Manhattan each have of developing countries. more phone lines than all of Africa, according to World Bank statistics. Internet access is even more tilted One controversial issue where more empirical evidence towards high-income countries," says Betcherman. is required concerns the effect of globalization on the level of employment. "By stimulating improvements in While the new technology overall seems to be associated productivity and output, globalization can play an with net employment gains, ICT clearly alters the com- important role in job creation. On the other hand, to position of employment through the processes of job the extent that freer trade, for example, affects formerly creation and destruction. Industrialized countries are protected sectors, then significant job destruction can increasingly involved in high-technology industries occur as well," says Betcherman. while shedding lower-technology ones. "However, devel- oping countries ­ with their lower cost structure ­ can While discussions of globalization tend to focus on accelerate up the value chain. Two examples of this are flows of goods, services and capital, the movement of India and South Africa which both have developed pro- workers is also part of the phenomenon. International ductive IT sectors with labor cost advantages," says migration is nothing new, but globalization appears to Betcherman. Unfortunately, motivate displaced workers to look for work elsewhere. there are not enough Also, reduced transportation and communication costs examples of both increase the likelihood of relocating and returning, developing as well as making it more feasible to emigrate without countries losing contact with one's home country. building com- "There are many dimensions to the current internation- para- al migration of workers," says Betcherman. "These tive include the movement of both unskilled and highly- advan- skilled labor. In the former case, migration may con- tages tribute to poverty reduction and economic growth but through a there is also a host of policy issues including illegal traf- strong local ficking, undocumented entry, "sweatshops," and the skill base and social protection of these workers. In terms of migration infrastructure, of skilled workers, there are concerns about "brain and an appropriate drain" when developed countries tap in to developing regulatory framework. country supplies of high-tech workers. Informalization Technological Change At the same time that globa- The study also addresses the dramatic changes associated lization and the ICT revolution with information and communication technologies have been taking place, we are (ICT). In developed countries, this is seen as the key to also witnessing a somewhat spurring output and productivity growth. unexpected trend ­ the "Technological innovation also holds great promise for developing countries ­ first by offering these countries the possibility of becoming important locations for emerging technologies and services; second by providing the possibility of `leapfrogging' earlier stages of develop- ment; and third by creating opportunities to alleviate poverty through improved productivity and growth," says Betcherman. However, he warns that while ICT may have the potential to stimulate development and reduce poverty in low-income nations, here too poten- tial is not being realized. itlin W y Ra Photo: growth in informal sector employment outside the more responsive institutions, and better coordination reach of tax systems, social security plans, and govern- across agencies and programs ­ areas where he and his ment regulation. "Development economists have tradi- team can provide technical assistance. tionally assumed that informalization would diminish over time," says Betcherman. "Yet in many, if not most, Policymakers must also regulate labor markets more effi- developing and transition countries, the opposite seems ciently. There are many aspects involved and views are to be the case. This is challenging longstanding views of diverse. This issue is becoming more complex with development, but also raises a number of challenges for expanding globalization as countries are becoming policymakers." increasingly concerned about staying in line with their competitors and as many labor market issues also spill The exact size of informal labor markets is difficult to across national borders. What is critical is the link to calculate because of data problems and difficulties in economic and social outcomes. How the labor market is precisely defining the sector. In many developing coun- regulated can affect the rate of job creation and destruc- tries, available estimates suggest that the majority of the tion, productivity, wages and profit; and the degree of labor force is in informal employment. These workers social protection afforded workers. Important tradeoffs are often poor and -- lacking formal social protection must be understood and taken into account by policy- -- are often especially vulnerable. At the same time, makers. For example, strong employment protection rules there is evidence that informal sectors also include are understandably attractive to governments concerned dynamic and vibrant activities which make important about the vulnerability of workers. However, this may economic and social contributions. come at a price as employers may be reluctant to take on workers. Rigid hiring and firing rules tend to benefit The Challenges "insiders" on the job market while having the opposite Investing in Human Resources effect for the "outsiders" who are often women and young Regardless of the stage of development, investments in workers trying to get a foothold in the labor market. human capital must be a high priority. "The implica- tions of the economic and technological changes for The Way Forward public policy are clear. The importance of human The labor market challenges faced by the developing resource development must be reinforced, from basic world are formidable. Betcherman finds some success education to lifelong learning," says Betcherman. stories that can be told, but these are overshadowed by the troublesome trends. He remains hopeful, however. "If globalization and technological change are to change "The experience of the developed countries and their present opportunities for economic growth and employ- cutting-edge practices can offer a useful guideline. ment generation, human capital is a crucial factor in Collaboration `across the development divide' will be taking advantage in these opportunities as well as mini- essential as well as always keeping the unique `initial con- mizing social costs associated with adjustment. This is ditions' in developing countries in mind," he says. true at the individual level as well as the national level," he continues. Gordon Betcherman is Senior Economist and leader of the Labor Markets Team in the Social Protection Unit in the Social Protection and Regulation Human Development Network at the World Bank. His The social protection of workers has been strained by paper "An Overview of Labor Markets World-Wide: Key the growth of informal employment and the limitations Trends and Major Policy Issues," will be published soon. of traditional, informal means of social risk manage- ment. This has been exacerbated by the major crises that have affected so many developing countries in recent years. For example, the East Asian financial crisis quick- ly spread to the labor market, resulting in large-scale lay- offs, real wage cuts, a deterioration in working condi- tions, and substantial flows of workers from the formal to the informal sector. While informal employment and informal community and family support helped many workers in the region, the rising hardship was evident. Governments were not prepared to deliver labor market and social protection programs when the labor market situation called for it. One lesson learned from this experience has been the need to put in place sound and realistic social policies that will better enable countries to deal with future crises. From his work on the East Asian crisis, Betcherman has seen that policy interven- tions can be improved by better information systems, erell Pick 8 James Photo: "The importance of human resource development must be reinforced, from basic education to lifelong learning." Photo: Lotte Lund 10 Thailand After the Crisis After the economic crisis of 1997 revealed stark shortcomings in social protection, the Thai government took action. Today, social protection has become a cornerstone in the broad set of reforms to rebuild Thai society. by Lotte Lund T he financial crisis of 1997 revealed several Response to the Crisis structural inadequacies in Thailand's social pro- The crisis response package was financed by external tection system, as Thai workers had to rely on borrowing. In March 1999, the Cabinet approved the their own resources, their families, their employers, and borrowing of US$1.45 billion, the so-called Miyazawa their neighbors to survive the severe contraction of the package ­ named after Japan's Finance Minister at the economy. The government is now working with the time. The Miyazawa package consisted of loans from World Bank and other donors to put in place policies the World Bank, the Asian Development Bank, the and programs which will better protect Thai workers in Japan Export Import Bank and the Japan Bank of the future. International Cooperation (JBIC). It was by far the largest of the interventions targeted at the poor and Thai workers have been the unsung heroes since July unemployed, providing employment to 88,967 gradu- 1997, when Thailand became the first of the East Asian ates and to 3.4 million unskilled workers for an average developing economies to be hit by a global financial cri- of 18 days. sis. Thai workers adapted to the economic downturn by utilizing their informal safety nets, reducing working Another important project implemented during the cri- hours, cutting back on luxury expenditures, relying on sis was the SIP, co-financed by the Thai government, the transfers from friends and family, and other private World Bank, JBIC, UNDP, and AusAID for a total of measures that demonstrated Thai self reliance in dealing US$450 million. Launched in November 1998, SIP with adversity. However, the crisis also revealed how the scaled up government safety net programs that were poorer wage earners had been put disproportionately at constrained by budget austerity and supported a new risk due to the lack of effective labor market policies program to finance community-led safety net services. leading up to the crisis. This was made evident in a Nine different government entities received financial study, "Thai Workers and the Crisis," recently published support from SIP, but the most dramatic performance by the World Bank Office in Bangkok in cooperation was turned in by the Social Investment Fund. This new with Thailand's National Statistical Office. institution was created to focus on community and vil- lage level safety net services "While the government response to the economic crisis and mobilize a large voluntary has been significant and effective in easing impacts, response from civil society to some of it came rather late, especially the employment help implement the program programs targeted towards the poorer members of the in some of the poorest com- society. This reflected the lack of safety net preparation munities in Thailand. for a completely unexpected and unprecedented eco- nomic contraction," says Christopher Chamberlin, Lead Operations Officer in the World Bank's Bangkok office, who has worked closely with the Royal Thai Government on the reform process since the crisis. An ADB social sector loan was the first tranche of social assistance, followed by the World Bank Social Investment Project (SIP), and then the Government's stimulus package in 1999. Christopher Chamberlin leads the World Bank's effort to aid Thai workers. Photo: Lotte Lund 11 Jayasankar Shivakumar is the World Bank's Country Director for Thailand and the architect of the new CDP instrument. "Thailand is a unique client and we needed Transparency: The SIP Story a unique instrument to serve our client's needs. So, the CDP instrument responds to the Thai appetite for sus- A mid-term review found that SIP has enjoyed high bene- tained policy innovation, while providing resources on a ficiary satisfaction and high civic involvement. An impor- grant basis so that public debt levels, already increased tant factor in the success of the project so far has been due to the crisis, are not augmented. Should macro or that its transparency reached unprecedented levels for sectoral conditions change and external financing Thailand via an internet database of 12,000 SIP sub-proj- becomes an issue, the CDP could, at a later date, be used to provide rapid financing of the well identified ects. The website monitors the implementation of the sub- and analyzed priorities in any of the four reform areas." projects through up-to-date information pertaining to project activities and contracting. Daily updates are The centerpiece of the Social Protection Country entered by the different ministries and agencies imple- Development Partnership (CDP-SP) is labor market menting SIP. The database is used by the Government to policy. The program is set up as a three year rolling report on SIP progress. Ordinary citizens can call up a reform program financed through grant resources. It report on sub-projects in their own province or by sector. falls within the mandate of Thailand's Ministry of Labor The website is presented in both Thai and English and can and Social Welfare, focusing on four areas ­ occupation- be accessed at http://www.thaisip.org. al safety and health, employment services, labor market information and social assistance ­ as requested and defined by the government. In all these areas, realistic benchmarks and targets are being identified along with activities and technical assistance that will enable these Transparency has helped create a healthy competition targets to be met. Furthermore, a broad range of stake- among the SIP implementing agencies, while creating a holders ­ including workers representatives, employers, helpful awareness of potential public scrutiny. The other relevant ministries and donors ­ are being closely Ministry of Labor and Social Welfare (MOLSW) was consulted and are involved in this process. Ian the first to launch field activities in training courses for Chambers, director of the Bangkok Area Office, of the the unemployed. Soon the Ministry of Interior and International Labour Organization (ILO) welcomes the other agencies followed with their public employment CDP-SP. "It is useful for the World Bank to enter in generation programs. Mr. Sommai Phasee, Deputy this way and to work with the stakeholders in helping Permanent Secretary in the Ministry of Finance, played a the government develop a coherent program of reform leading role in the design of both SIP and the Miyazawa in the labor field." initiative. "The large number of beneficiaries of both Miyazawa and SIP helped in reducing unemployment at This program also has been well-received by the a time of sharp economic distress, while setting up good Government. "The crisis bought to the forefront models for transparency and project management." Thailand's need for a comprehensive social protection package. I am glad to say that the Thai government is A New Development Partnership moving actively in this direction and that our partners, As Thailand moves out of the crisis mode and builds on including the World Bank, are supporting us in this the lessons learned over the past few years, the World process" says Mr. Elawat Chanadraprasert, Permanent Bank and Thailand's other development partners are work- Secretary of the Ministry of Labor and Social Welfare. ing with the government to develop an approach to pover- ty reduction which mirrors Thailand's holistic develop- Safety and Health First ment framework. This cooperation, known as the Country Recent data has indicated both a sharp increase in the Development Partnership (CDP), establishes a roadmap number of reported industrial accidents and a rapid for reforms in strategic areas, while mobilizing technical increase in the number of small and medium scale assistance for capacity building in order to achieve these enterprises (SMEs) in Thailand over the past few years. reforms. The CDP process is driven by the Government The two may be linked. Although survey information and facilitates the engagement of the private sector and on accidents in SMEs is scarce in Thailand, evidence civil society in policymaking and capacity building. The from other countries highlights the inverse relationship four main reform areas of CDP are competitiveness, gov- between the number of accidents and the size of enter- ernance, environment and social protection. prises. In addition, evidence points to the limited cover- age of workers' compensation schemes in protecting workers who are victims of industrial accidents in Thai enterprises. 12 In order to improve occupational safety and health The Thai Department of Public Welfare must achieve (OSH) compliance, coverage and efficiency, CDP-SP new partnerships with civil society and local govern- will evaluate the performance and effectiveness of ments in more decentralized operations. Thailand's current OSH standards, regulatory frame- work, institutional structure, and expenditure and The Way Forward financing patterns. Based on good practice lessons of Until the onset of the crisis, Thailand had relied mainly international experience, CDP-SP will assist the devel- on rapid growth and full employment to improve stan- opment of improved OSH programs. In addition, the dards of living. The economic crisis forced a review of use of innovative financial incentives aimed at develop- that approach. As post-crisis interventions started to ing and implementing cost-effective OSH programs show results in the summer of 1999, pessimism about with small and medium sized firms will be explored. the prospect of recovery began to lift. Key questions Finally, CDP-SP will work with the government in remain about whether the recovery will be sustained; addressing the limited coverage of the workers' compen- whether the income losses suffered in the crisis years will sation scheme in Thailand. The ILO is providing techni- be recouped; and whether healthy growth will resume. cal guidance for CDP-SP in this area. The answers lie in the progress of structural reform to put Thailand back on track to prosperity. Improved Employment Services Another crucial CDP-SP component will improve the "CDP-SP is a positive step in this direction. The Thai coverage and effectiveness of Thailand's employment government is keen for CDP-SP to succeed. We have services. Thailand's new constitution, passed in 1997, tried to focus CDP-SP in four core areas but there is emphasizes the Thai government's commitment to pro- demand to expand it so we are exploring the possibilities vide employment opportunities to all people of working of extending the partnership to include new areas such age. Currently, services provided by the Ministry of as unemployment insurance, minimum wages and serv- Labor and Social Welfare are inadequate to meet the ices and grievances relating to labor disputes," says Mr. needs of the large number of unemployed and underem- Kirisak Chancharaswat, the CDP-SP project director ployed. Less than one-third of the unemployed looking within MOLSW. Echoing those sentiments, for work are being served by public or private placement Christopher Chamberlin, the task manager of CDP- services. SP says, "This is a challenging new initiative. It calls on the Bank to think in new ways and pro- The Royal Thai government is now collaborating with vide services with a fresh perspective. Reforms the World Bank and other partners in developing a take precedence over loans. Collaboration reform program to improve the effectiveness and cover- replaces prescription. Grant management and age of its employment service. The reform will also mobilization skills become paramount. We improve the legal and regulatory framework for private enjoy working with the Thai counterparts, sector providers so as to expand their role in reaching who have the high capacities and clear objec- unserved workers. The objective is to provide high tives that make policy work exciting." quality job information, placement and counseling serv- ices to all segments of the labor market nationwide. The ILO, GTZ and JICA are key partners. Statistics and Social Assistance CDP-SP will also focus on building the National Statistical Office's capacity in labor market and social assistance data collection, processing and dissemination. Leading policymakers admit that they were acting in the dark when the crisis broke out, as they did not have the needed data in time to take appropriate action. This project will improve survey instruments that seek to assess the socio-economic and labor force conditions in the country and ensure that the data are appropriately utilized for policy and planning. Benchmarks have been developed for each year of the proposed partnership in order to achieve these objectives. Finally, the CDP-SP will seek to improve the effectiveness of the delivery of cash and in- kind social welfare programs. 13 Feeling Lucky A well-organized Luckytex, a textile company located in the industrial area of Bangpoo-Mai, north of Bangkok, is a labor force helped a good example of how a company can benefit from a well-organized workforce and close relations Thai textile company between workers and management. Luckytex employs 563 workers, of whom about 400 are members survive the crisis. of the union. "I am sure our good working relations here is one of the reasons why we as a company managed to stay healthy dur- ing the crisis," says Managing Director Varoon Laoitthi. "Management and workers were fighting for the same goal. We were in the same ship and we had to work together. Otherwise the ship would sink," he says. When the crisis hit in 1997, the cost of imported raw materials for the pro- duction of Luckytex jumped 100 percent, so profits went down dramatical- ly. Rather than immediately lay off workers, management and workers sat down together and drew up a plan for the company. "20 years ago, we would just have reduced the number of workers. This time we worked out a long- term policy. If we did not have this constructive communication within our company, I think the factory would have closed like many of our competitors did," Varoon says. The new plan involved sacrifices for all, including management. "The man- agers took salary cuts. The workers cut their working hours so nobody was laid off. We also made a plan for saving energy," he explains. "Many managers have the wrong impression of organized labor. Often the employees feel that they are being taken advantage of. Our company's phil- osophy is that we stand on three pillars: customers, employees, and shareholders. We must keep all three pillars strong, and that is why we manage to stay above the line," explains Varoon, who himself started out on the floor in Luckytex and has worked his way up with- in the company. Lund Lotte Photos: 14 Matchmaking in the Labor Market: The Role of Private Employment Agencies Private employment services using the efficiency of the Internet are now playing a crucial role in matching job-seek- ers with job-vacancies in Thailand. Existing regulations have been so strict that many of these commercial services are de facto illegal. In cooperation with the World Bank, the Thai government is now working on redesigning the legal and regulatory framework in order to bring the private service providers on a level playing field while ensuring that they provide high quality services. The Thai Department of Employment's Senior Expert on Labor Market Analysis, Pirune Marakatat, is very pleased with the development. "The public system is bureaucratic. People need to sign up and become members and fill out forms in order to be able to use our system. Many of the private sites are more convenient. If the private sites are doing a good job, I think we should take advantage of it and cooperate with them," she says. Time to Put on the Hardhat Economic loss from work related accidents in Thailand has been estimated at 4 percent of the country's Gross Domestic Product. At the same time, the number of inspectors is so low that it would take them 10-20 years to inspect all registered firms just once, according to Dr. Chaiyuth Chavalitnitikul, Senior Expert on Occupational Safety and Health of the Thai Ministry of Labor. He is therefore pleased that a primary objective of the Country Development Partnership (CDP) between his country and the World Bank is to improve working conditions in the Thai labor market. The number of reported industrial accidents in Thailand has increased sharply in the last decade. So far, the Government has responded with new regulations mandating companies of more than 50 employees to set up a safe- ty and health committee and to appoint professionally trained safety officers. In addition, all managers and supervi- sors of these larger companies are required to receive at least two days training on safety and health issues. However, much more needs to be done in order to ensure that all workers ­ including those working in small enter- prises ­ will be eligible to receive workers' compensation if they suffer an accident. CDP-SP will further improve safety standards and regulations as well as the level of compliance in the small and medium-sized enterprises. The new schemes encourages workers and employers to work together. 15 Shipyard Workers in Thailand. Toil, Sweat, and Trade: What Can Be Done to Improve Working Conditions in Developing Countries? by Amy Luinstra I n Bangladesh last November, 1,250 workers at Chowdhury Knitwears scrambled desperately to escape a fire started by faulty electrical wiring. Fifty- The diffusion of production across a global supply chain two of them, mostly young women and a few children, complicates government efforts to collect taxes, regulate died ­ either trampled, suffocated or burned ­ when labor practices, and carry out other public sector respon- they found the main exit locked. sibilities that were manageable when firm activities were more consolidated. Consider, for example, the jurisdic- In Indonesia last January, local researchers revealed tional and capacity issues involved in the following sce- widespread verbal abuse, physical and sexual harassment, nario cited by Auret Van Heerden of the Fair Labor and accusations of denied medical services in footwear Association: A multinational name brand clothing firm and apparel factories. Along the United States-Mexican from Country A contracts with a factory owner from border, women workers in foreign-owned "maquila" fac- Country B for production of merchandise according to tories continue to be subjected to illegal pregnancy tests certain design specifications. The factory is located in and fired if the results are positive. Most abhorrently, in Country C and staffed with migrant workers from parts of South Asia, children have been found chained Country D. Which labor law applies? Who is responsi- to looms, forced to make carpets that eventually reach ble for enforcing the law? What incentive exists for the discerning markets of North America and Europe. authorities to sort out the jurisdictional conundrum and regulate the working conditions in this factory? Few disagree that there is something terribly wrong here. Lower wages in developing countries are to be expected The answers are not clear and the incentive issue is para- for various reasons outlined in economics textbooks, but mount. Understaffed labor ministries not only lack the why does such production seem to defy basic standards capacity to inspect factories, they often lack the desire or of decency so frequently? mandate to do so. Although the evidence supporting a "race to the bottom" is not conclusive, governments are The Global Production Labyrinth worried that tightening enforcement of labor laws will Identifying the causes of sweatshop conditions in devel- chase off much needed foreign investment and jobs. In oping countries is only slightly less contentious than a country like Bangladesh where garment manufacturing prescribing solutions. Most will agree, however, that it accounts for 75 percent of export earnings, this fear is has something to do with globalization ­ a process understandable. qualitatively different than the expansion of trade and integration of national economies that occurred Filling the Governance Gap Lund throughout the last century. Globalization is driven pri- If the government authorities responsible for labor Lotte marily by a segmentation of production into many inspection and enforcement are not able to ensure stages in many countries. decent working conditions in these factories, who is? In Photo: short, no one. The vast majority of production for the The vulnerability of countries forming the links at the global economy remains unregulated. bottom of this global supply chain is underscored by the dynamic nature of such production. Unlike previous To be certain, the International Labour Organization eras of growth in international commerce in which (ILO) plays a vital role in developing labor standards and multinational firms established and operated facilities in building capacity of governments and employer and other countries, under current practice, multinationals worker organizations. While their technical expertise on contract with factories which may be producing goods labor standards is unparalleled, the ILO is not a global for many different firms. Contracts are often short labor inspectorate. Nonetheless, the ILO's established term, leaving the multinational firms the flexibility to supervisory mechanisms provide an important forum for move production quickly to take advantage of incentives airing complaints against countries who violate interna- offered by other countries, changing patterns of trade, tional labor standards. Their extensive experience in the more favorable exchange rates or other changes in the field also provides responsible businesses and policymak- institutional environment. ers a wealth of information about adopting appropriate regulation for workplaces in developing countries. 17 Limitations in labor standards enforcement at the The Original Purveyor of International national and international levels of public policy has cre- Labor Standards ated space for new forms of regulation, much of it emerging from the private sector. The following are examples of attempts to fill the governance gap in the The International Labour Organization (ILO), a specialized global economy: United Nations institution, has been working to improve International organizations develop guidelines for working conditions worldwide since 1919. At the ILO, multinational enterprises and make compacts with representatives of workers, employers, and governments companies to disclose information on labor practices. negotiate international labor standards that can be ratified Rich countries include mechanisms for promoting and implemented by member states. The system has pro- better labor standards in bilateral trade agreements duced an extensive body of 183 Conventions and 191 with developing countries. Recommendations on labor practices ranging from funda- Trade union organizations negotiate framework mental rights such as freedom of association to technical agreements with prominent multinational firms. guidelines on employment services. Competing companies join forces to develop mecha- nisms for assuring customers that products were not In 1998, the ILO issued the Declaration on Fundamental produced with exploited labor. Non-governmental organizations establish labeling Principles and Rights at Work. The Declaration identified schemes in an attempt to guarantee retailers and the following four principles as core labor standards, appli- consumers that products were produced under fair cable to all countries, regardless of level of development. conditions. The Declaration emphasizes the obligation of members to Students mobilize university campuses to boycott "respect, promote, and to realize," these principles, even if sweatshop goods. they have not ratified the relevant ILO conventions. Human rights advocacy organizations bring ­ and win ­ class action lawsuits against American Elimination of all forms of forced or compulsory labor retailers for violations of worker rights in production Effective abolition of child labor facilities abroad. Elimination of discrimination in employment Concerned activists inundate offending companies Freedom of association and the right to collective with email and faxes when tipped off by an ever- bargaining increasing network of watchdog organizations in developing countries. http://www.ilo.org Consumer concerns have fueled many of these initiatives by multinational corporations (MNCs). A 1999 survey of American consumers by Marymount University Ratcheting Labor Standards based on these principles. found that three-quarters would avoid shopping at a They propose ranking companies on the basis of their retailer that they knew sold garments made in sweat- social performance and the rate at which they improve. shops. An overwhelming 86 percent would pay an extra The rankings and the method used to determine them dollar on a US$20 garment if guaranteed that the gar- would be available to the public. The incentive for both ment was made under fair conditions. Multinational companies and monitors to improve would force best corporations are increasingly responsive to such concerns social practice to continually "ratchet" upwards in a race and beginning to accept responsibility for the conditions to the top. (See Social Protection Discussion Paper No. under which their goods are produced ­ even when 0011, available at http://www.worldbank.org/sp). those goods are made by factories they don't own. All this activity to promote better working conditions The reputational risk is even higher for major name has yielded a few success stories. Workers at selected brand corporations. "Marketing [by high-end merchan- factories in Bangladesh's export processing zones are disers] is no longer on a cost basis, but on an image and given safety equipment and have access to on-site med- status basis," explains Pharis Harvey of the International ical facilities, childcare, and banks. Workers in El Labor Rights Fund. News stories of sweatshops and Salvador filling orders for the Gap enjoy clean, well-ven- exploitation of workers are the fastest way to expunge tilated factories and have recourse to independent moni- the images of vitality, sophistication, and health these tors for complaints. An employers' organization in the corporations are promoting. Philippines is exploring ways to improve labor practices and become known as a location for ethical sourcing. Harvey envisions a future where source countries com- pete on the basis of good working conditions, rather than low wages. The key to creating a competitive mar- ket for labor standards is widely accessible and inde- pendently verified information about factory conditions. Sabel, O'Rourke, and Fung (May 2000) outline a pro- posal for an alternative regulatory regime they call 18 Limits of the Response market itself has proven to be a potential ally in this Despite the efforts of MNCs to adopt, monitor and endeavor as companies respond to consumer demand, enforce codes of conduct within their supply chain, the but a holistic approach is needed. The ILO and nation- scenarios described at the beginning of this article are al governments provide critical leadership in this field. still common. As the players in this field struggle to Multinational corporations, monitoring organizations, define good practice, improve their credibility, and have trade unions, NGOs and consumer groups all play more impact on the ground, other forces are pushing in important roles as well. The World Bank is recognizing the opposite direction. The fragility of economic recov- the relevance of workplace issues to its mission of pover- ery in East Asia and worrying signals from a cooling ty reduction. American economy are heightening competitive pres- sures in these industries. Companies may be looking to The Bank has been seeking ways to support the various cut costs and if there is anything corporations can agree approaches to improving working conditions ­ building on about monitoring, it's the expense. government capacity to enforce regulation; enhancing respect for international labor standards; and supporting Elliot Shrag, senior vice president for global affairs at the development of private sector initiatives. The World Gap clothing company, expressed frustration in a New Bank's Global Child Labor Program, for example, works York Times article of April 24, 2001. "We can't be the closely with the ILO's International Programme on the whole solution. The solution has to be labor laws that Elimination of Child Labour and the International are adequate, respected, and enforced." Organization of Employers to promote the eradication of the most harmful forms of child labor. The Bank's Adequate government leadership is key to reaching other International Finance Corporation (IFC) provides guid- sectors of the economy as well. Looking at the big pic- ance on good workplace practices to the investors it sup- ture, even the best efforts of the most responsible corpo- ports. Furthermore, Bank staff have begun to evaluate rations are dealing with only a small slice of production the status of core labor standards in the poorest borrow- in developing countries. It is for relatively few indus- ing countries. The Bank will continue to explore how tries ­ apparel, footwear, sporting goods, and toys ­ that to best encourage safe and fair working conditions in consumers seem to care about working conditions. developing countries. Even within those sectors, it is primarily those corpora- tions that rely on name brand loyalty ­ Nike, Gap, Jobs and income are self-evidently important for fight- Mattel, etc. ­ that are forced to take consumer concern ing poverty. But jobs that risk the health, education, seriously. and dignity of poor people are hardly the best option for poverty reduction. Security, empowerment, and oppor- What Role for the World Bank? tunity ­ the key themes of the World Bank's 2000/01 The daunting challenge of improving working condi- World Development Report on poverty ­ may be possi- tions along a complex global supply chain requires the ble in the global economy, but not without concerted cooperation and passionate efforts of many players. The effort and vigilance. Improving Conditions of Work in the Global Economy Web Resources on Private Sector Initiatives Donors to the International Development Agency (IDA), the World Bank's concessional lending program for the least Business for Social Responsibility ­ http://www.bsr.org developed countries, wanted to draw attention to labor Campaign for Labor Rights ­ issues and working conditions worldwide. To do so, they rec- http://summersault.com/~agj/clr/ ommended that the World Bank include analysis of core Clean Clothes Campaign ­ http://www.cleanclothes.org labor standards in its Country Assistance Strategies (CAS). Ethical Trading Initiative ­ http://www.ethicaltrade.org The Social Protection Unit developed a website to help staff: Fair Labor Association ­ http://www.fairlabor.org (1) learn about core labor standards; (2) find information on Global Alliance for Workers and Communities ­ compliance within particular countries; and (3) analyze the http://www.theglobalalliance.org status of Global Exchange ­ http://www.globalexchange.org core labor Global Reporting Initiative ­ http://www.globalreporting.org standards International Labor Rights Fund ­ http://www.laborrights.org and any Marymount University Center for Ethical Concerns ­ potential http://www.marymount.edu/news/garmentstudy/ World National Labor Committee ­ http://www.nlcnet.org Bank Rugmark ­ http://www.rugmark.org/ response SA8000 ­ http://www.cepaa.org in the Sweatshop Watch ­ http://www.sweatshopwatch.org CAS. UNITE Stop Sweatshops Campaign ­ http://www.uniteunion.org Workers Rights Consortium ­ http://www.workersrights.org http://www.worldbank.org/cls 20 Decent Work and Poverty Reduction by Stanley G. Taylor International Labour Organization and World Bank International Labour Organization (ILO) partner to meet the challenge of globalization The realization that globalization has meant both in understanding key questions such as the empower- increased opportunity and prosperity as well as poverty ment of the poor, overcoming social risk, the impor- and deepening inequality, has given new impetus to tance of good governance, the need for sound economic strengthening cooperation between organizations in the policies, and the centrality of productive employment in multilateral system. The 1997 Asian financial crisis reducing poverty, provide a solid base for cooperation. unequivocally demonstrated the close relationship between economic, financial and social policies. The ILO, in cooperation with its national tripartite con- Problems of human insecurity, unemployment and stituents, is committed to supporting comprehensive poverty have returned to the top of the political agenda development and the application of the Decent Work in most countries. The social dimension of globaliza- agenda to strengthen participation and maximize pover- tion and the issues it creates for the world of work have ty reduction outcomes in the context of the PRSP become major public concerns. There is a realization process. In consultation with the Bank and the national that markets do not function in isolation from their authorities, five countries (Mali, Tanzania, Cambodia, social and political contexts. Social protection and Nepal and Honduras) were selected for a special effort, social dialogue are increasingly seen as integral elements and progress is being made in an ever-broadening num- of the adjustment process and employment issues are at ber of other countries as well. There are many other the heart of poverty reduction. examples of good cooperation such as the joint work on East Asian labor markets including a recent joint publi- In this context, the ILO's Director-General, Juan cation [see pg. 36], and the on-going project to develop Somavia, has initiated a process of reform and modern- innovative ways of bringing healthcare insurance to ization to meet the widespread preoccupation of people workers in the informal sector. to find decent work in the midst of considerable change. The Decent Work agenda was created to promote oppor- The recent World Bank Labor Market Policy Course tunities for women and men to obtain decent and pro- was a particularly good example of how the Bank and ductive work in conditions of freedom, equity, security the ILO can bring their respective agendas together in a and human dignity, whether in the formal or informal mutually strengthening way to serve the interests of a sector of the economy. Decent Work is the converging broad client group [see pg. 41]. Seven ILO resource per- focus of the ILO's four strategic objectives: the promo- sons joined the faculty for this two-week program cover- tion of rights at work; employment; social protection; ing such issues as labor standards, labor regulation, voca- and social dialogue. Promoting Decent Work requires tional training, employment services, workers in the the building of effective partnerships and alliances. informal sector and child labor. Three ILO staff con- tributed to the discussions as course participants. One of World Bank President James Wolfensohn's the sessions led by the ILO provided an opportunity for Comprehensive Development Framework, the Poverty a discussion of labor standards and the ILO Declaration Reduction Strategy Papers (PRSP) process, and the on Fundamental Principles and Rights at Work. The ses- Prague commitment to make globalization work for all sion also introduced the Bank's Core Labor Standards are entirely consistent with the Decent Work approach. Toolkit [http://www.worldbank.org/cls], an excellent As Mr. Somavia explained in his address to World Bank initiative ­ itself the product of effective cooperation staff in March 2000, the traditional dichotomy between between our institutions. The debate on the social economic and social policy had often led to poor policy dimension of globalization is taking place in a special choices and underinvestment in social and human capi- working party of the ILO Governing Body where the tal. Cooperation in integrating the Bank's poverty Bank has made and is expected to continue to make an reduction and the ILO's Decent Work agenda could important contribution. lead the way to more effective integrated solutions. Both were founded on the principles of participation Stanley G. Taylor is the Coordinator for Relations with and national ownership. Both share an analysis based International Financial Institutions, on empowerment, security and opportunity. The Bureau for External Relations and Partnerships, increasing convergence between the ILO and the Bank ILO Geneva Sennett 21 omasT Photo: Solidarity Forever? Trade Unions and the World Bank E stablishing education campaigns on HIV/AIDS; reaching out to workers in the informal sector; deepening collaboration with NGOs ­ the list by Amy Luinstra could be an agenda for a typical meeting at the World Bank. Instead, these are some of the topics discussed at the World Congress of the International Confederation The trade unions have welcomed these efforts to of Free Trade Unions (ICFTU) held in Durban, South improve dialogue at the international level. All agree, Africa, in April 2000. however, that better consultation with trade unions at the country level could play a bigger role in the Bank's As the international trade union movement broadens its operational work. Too often, trade unions note, consul- agenda on development issues, so has the scope of dia- tation occurs only after important decisions have been logue with the World Bank and the International made or with too little notice for meaningful contribu- Monetary Fund (IMF). At high-level meetings in tions by trade unions. Washington, DC, with the ICFTU last fall and with the World Confederation of Labour (WCL) this spring, One effort the Bank is supporting to improve consulta- debt relief and the Poverty Reduction Strategy Paper tion with trade unions not only by Bank staff but also (PRSP) process featured prominently in the discussion. client governments, is related to the PRSP process. At the request of selected governments undergoing prepara- The diversified agenda at such meetings continues to tion of PRSPs, the Bank will be offering workshops on examine the bread and butter issues of the labor move- civic engagement and participation for government offi- ment: core labor standards, including respect for free- cials and members of civil society, including trade dom of association, restructuring of state-owned enter- unions, in various locations. prises, and other employment and social protection con- cerns. Identifying a proactive role for trade unions in "Solidarity" between the Bank and trade unions is not combating the spread of HIV/AIDS is also an issue of likely any time soon, but it is not necessarily the most emerging importance. Trade unions are also concerned important goal of the discussion. Agreement to dis- about World Bank relations and collaboration with agree, when based on frank dialogue and appreciation of other UN agencies, especially the International Labour each perspective, is a possible, even positive, outcome of Organization. ongoing dialogue. Furthermore, delineating areas of consensus and possibilities for joint work in high priori- The World Bank has increasingly welcomed policy dia- ty areas (e.g. HIV/AIDS, privatization) offers exciting logue with the international trade union movement over opportunities for constructive engagement on our the last three years. Establishing a formal mechanism shared agenda of a world free of poverty. for institutionalizing this dialogue with the World Bank and IMF was discussed in meetings with the ICFTU in For details concerning workshops on Civic Engagement October 2000. The format of such a mechanism will be and Participation in PRSP countries, contact Amy determined in a follow-up meeting this July. Luinstra in the Social Protection Unit by e-mail at aluinstra@worldbank.org. Lund Lotte Photo: Construction Workers in Thailand. 23 Protecting Durban, South Africa Workers in the Informal Sector by Dhushyanth Raju and Sudharshan Canagarajah O ur recognition and understanding of the infor- It is commonly perceived that informal sector activities mal sector has been hindered because its activ- are illegal in the sense of operating outside the institu- ities and employment, almost by definition, tional and regulatory framework. But this does not hold resist easy identification and statistics. However, what is uniformly across countries. Compliance with tax, social clear is that it is a pervasive and persistent economic security, and labor regulations varies considerably, but feature in most of the developing world, particularly in appears to be associated with the size and type of activity. low-income countries. Recent estimates indicate that However, operating outside the legal framework imposes informal-sector employment in developing countries costs in the form of reduced opportunities and increased accounts for anywhere from one-fifth to four-fifths of constraints, increasing both the exposure and vulnerabili- total (non-agricultural) employment. In terms of its ty to risks faced by informal sector participants. contribution to GDP, the informal sector accounts for a quarter to two-fifths of annual output in developing Managing Risk countries in Asia and Sub-Saharan Africa. The impor- Workers and their households in the informal sector tance of the informal sector is brought into sharp relief typically lack both income and social security. Because when juxtaposed against the stagnant formal sector char- the majority are subsistence earners, saving to insure acterizing many developing countries. against risks from ill-health, disability, death and other shocks is nearly impossible as current basic consumption What Exactly is the Informal Sector and Who needs take immediate priority. Fluctuations or disrup- Works There? tions in income flows can have severe repercussions on One problem with the informal sector is defining it. the short- and long-term welfare of these households. However, three decades of international research, much of it conducted by the International Labour At the same time, most of the social and worker welfare Organization (ILO), has helped shed some light on its schemes provided for the formal sector have been largely major characteristics. In fact, even the term "informal unavailable to the informal sector. Specific public pro- sector" is a misnomer because it encompasses economic grams targeting informal sector workers have had poor activities in a range of sectors, including retail trade, results in terms of both effectiveness and adequacy of transport, repair and maintenance, construction, and protection. manufacturing. Hence, the term "informal economy" is more fitting. By and large, informal economy activities There are numerous, often small-scale, NGO and bilat- are competitive and unregulated. They are largely one- eral donor programs that focus on assisting informal sec- person operations. tor workers. Most programs have provided valuable Bloch support but have not been able to adequately and effec- Informal sector enterprises hire very few workers and a tively address the sector's varied social protection needs. oanneJ significant share of owners rely on family for additional Furthermore, most of these programs do not contend Photo: labor. Employment relations are diverse, typically based with the structural problems in the economy which on personal or social agreements rather than formal writ- form the root cause of the challenges faced by the infor- ten contracts. Workers tend to be low-skilled and wages mal sector. are generally low in both relative and absolute terms. Capital investments and technological inputs are mini- As a result, informal sector workers usually rely on mal. Skills and credit are usually acquired through non- informal household- and community-based measures to institutional sources. manage risks. However, these measures are often makeshift ­ a less-than-desirable response to the failures on the part of the State and market in the provision of social protection. Thus, there is a growing interest in developing comprehensive and sustainable social protec- tion options for those in the informal sector. This has become an ever more compelling need in the wake of globalization and economic liberalization. 25 Towards a Comprehensive Social Protection Approach Policies and instruments can be designed to provide Any strategy to provide social protection for the exclud- effective social protection for the informal economy. ed and marginalized needs to extend beyond income The future lies in a comprehensive approach ­ encom- and social security after a risk has become a reality. Let's passing security against the many risks informal sector take the 2000/01 World Development Report frame- workers and their households face; stimulating opportu- work of "Attacking Poverty" and apply its three-pronged nities to be gained through informal sector activity, and strategy ­ opportunity, empowerment and security ­ empowering participants in the sector. The informal sec- to the social protection challenges in the informal sector. tor needs to be recognized as an integral part of the (http://www.worldbank.org/wbp/wdrpoverty/index.htm.) modern economy and social protection as a proactive way of engaging with a dynamic and vibrant sector. A comprehensive approach based on the WDR frame- work will not only protect the informal sector from the Dhushyanth Raju is a consultant with the Labor Markets consequences of risk, but can also help to prevent and Team in the Social Protection Unit and Sudharshan mitigate risk. Macro policies ­ trade reforms, price and Canagarajah is Senior Economist in the same group. exchange rate liberalization ­ are some of the important instruments governments can use to promote opportu- nities for the informal sector. Such opportunities will help the informal sector grow, potentially reducing cur- rent risks. Adopting macro policies will reduce the need for many targeted programs that place a heavy fiscal burden on the State. Through regulatory reform, policymakers not only pro- mote opportunity, but also facilitate the social and eco- nomic empowerment of those in the informal sector. Studies show that the majority of informal sector work- ers are disenfranchised and disempowered. Addressing this problem will go a long way in meeting the needs of the informal sector and forms an integral part of a com- prehensive social protection approach for the sector. Welfare Funds in India The third prong of the strategy is security. The recent Given the inappropriateness of formal social security Social Protection strategy paper, From Safety Net to provisions, alternative approaches have been sought to Springboard (http://www.worldbank.org/sp), describes a address the social protection needs of informal sector range of social risk management mechanisms. The strate- workers. Statutory "welfare funds" introduced by the gy emphasizes the need for government to rationalize government of India are considered an innovative and streamline social security programs to be administra- approach in this regard. These funds provide basic social tively and institutionally effective in dealing with the protection, primarily health care, housing, and education needs of the informal sector. Such an approach would assistance to certain groups of workers such as those also entail extending some of the existing formal sector employed in the beedi, construction, film, and mining programs to the informal sector ­ an area which has seen industries. They are financed by taxes levied on the some innovations in the recent past. Measures to develop production, sale, or export of products. This arrangement community-based risk management instruments for the informal sector must also be promoted. promotes worker participation in these schemes. A similar scheme is administered by the state and co-financed with contributions from employers, workers, and government. For more information on welfare funds: The Unorganized Sector: Work Security and Social Protection, edited by Jhabvala, Renana and R.K.A. Subrahmanya (2000). New Delhi: Sage Publications. "Basic Social Security in India" by Shashi Jain (1999). Social Security for the Excluded Majority: Case Studies of Developing Countries, edited by Wouter van Ginnekan. Geneva: International Labour Organization. 26 Appreciating the Informal Economy by Francie Lund A Case Study from Local governments worldwide are currently faced with the twin challenges of promoting orderly urban South Africa management and responding to new forms of labour market participation. More and more people are working informally ­ many in their own homes, but many occupy public spaces such as pavements and parks, typically vending or providing services. In some countries, such as South Africa, local governments complicate the situation by implementing programs to support micro-enterprises as poverty reduction measures. How can these sometimes conflicting policy purposes be reconciled? The experience of Durban, South Africa, offers a useful case study. The Durban Unicity municipality faces major chal- lenges: Durban has nearly 3 million residents, some in dense urban environments; unemployment rates are well over 20%; and there is deep poverty and steep inequality. The city wishes to improve its competitiveness and attract foreign investment. The municipal government is increasingly aware that the health of the formal economy depends on the vitality of enterprises in the informal economy, but striking the right balance in public policy has been difficult. The informal sector was completely over-regulated during the apartheid years ­ entrepreneurial activity by black South Africans was harshly suppressed. In 1990, all regulations on informal trade were lifted, and many central city areas experi- enced a rapid increase in street vending activities, with growing negative public perceptions about this form of work. In 2000, a far-sighted local Development and Planning Department working in collaboration with the Economic Development Department set in motion a year-long policy development process. A Technical Task Team comprising officials from different departments (such as Health, Informal Trade, Police, Transport, Development and Planning, Small Business Support, the Inner City Revitalization Project) was formed to undertake a research-based and con- sultative process to develop a policy for integrating the concerns and interests of informal workers into local government ­ in essence, a move towards proactive re-regulation. A starting point for this initiative was the appreciation of the informal economy as a permanent part of the economic and urban landscape. The need for an enduring policy, rather than one-time targeted interventions, was fully acknowl- edged. Research about the dynamics of the informal economy and sector specific formal-informal economic linkages underpinned policy formation. Sufficient budget was allocated for consulting with formal business and especially with organizations of informal workers as well as NGOs. Vital contributions were gleaned from lessons learned in a num- ber of innovative pilot projects that the municipality had already put in place in support of informal workers. The product of this research and consultation has been accepted by the main political parties in local government. The basic components of the proposed policy are the following: (1) reduce costs of registering for informal workers; (2) place differentiated value on pavement spaces depending on location (in the same way that formal business space is differently valued); (3) identify cost-effective and practical ways in which local government can strengthen organizations of informal workers, so that the municipality has strong partners with whom to negotiate; (4) provide appropriate support services to micro-enterprises, including security of site on the street and in built markets, noti- fication about impending changes, and referral to affordable small business advisers. Institutional changes will allow for informal business associations to participate in the same committee structures as those of formal business. A simpler system of registration and licensing will be developed and positive incentives provided for different categories of workers to engage in upgrading activities. Those vending fresh food, for example, will get recognition and reward for improving standards of hygiene following courses run by the City Health Department. Similar incentives will be offered for crime prevention programs initiated and managed by informal economy organizations. An Implementation Working Group has been set up to take the process forward and much will depend on continu- ing the development of capacity inside the local government. All involved are aware that this process of implement- ing reforms will be difficult and will depend on strong leadership, genuine commitment to institutional change from key officials, and strong negotiation skills on behalf of both officials and informal business leaders. However, it is clear to all stakeholders that this is the way to proceed to ensure that the informal sector remains vibrant and con- tributes to economic development and poverty reduction. Local government needs to integrate appreciation for the importance of the informal sector into its economic devel- opment strategy and its urban planning processes. Once clearly articulated and accepted policies are in place, the specific role of local government in assisting with building schemes of social protection can be explored. Professor Francie Lund of the School of Development Studies, University of Natal Durban, South Africa, worked as external advis- er to the municipal task team which developed a policy for the city's informal economy. She is also the part-time coordinator of the Social Protection Programme of the International Research-Advocacy Network, Women in Informal Employment, Globalizing and Organizing (WIEGO). 27 28 Entrepreneurship in 10 Square Feet by Lotte Lund Unemployed workers in the Philippines are struggling to make ends meet. Transplanting policies that work elsewhere is not the best option. O n a Manila street corner, Eduardo Capio* Request for a New Policy is proving his entrepreneurship in 10 square In 2000, a team led by World Bank Economist Milan feet of pavement. In late 1999, along with Vodopivec, Makoto Ogawa, secondee from the Japanese 1,800 other workers, Capio lost his job as a machinist at government, and Jude Esquerra, consultant from the the National Steel Corporation in the southern city of Philippines, conducted a study to evaluate policy options Iligan. Investors had been waiting out the economic to help Filipino workers like Capio deal with unemploy- slowdown and, because no new jobs were available in ment. The team used the opportunity to analyze a vari- Iligan's local economy, he thought he would try his luck ety of income support possibilities such as unemploy- in Manila. ment insurance, unemployment assistance, severance pay, unemployment insurance savings accounts, public works Capio and his family have tried coping with his loss of and micro-finance programs. earnings by borrowing from friends and relatives. At times, they have been forced to part with pieces of his "The question of choosing the right program for the wife's jewelry at one of Manila's numerous pawnshops. unemployed is very complex," explains Vodopivec. He He hadn't known about the small stash of semi-precious lists a series of questions that needs to be addressed in trinkets; apparently, his wife had bought some items on order to make the right choices: How does a candidate installment years ago and gradually paid for them when program interact with other labor market institutions? she worked as a part-time cook at an eatery near the Does the program respond to a country's income shocks National Steel Corporation. such as recessions and natural disasters? Does the coun- try have sufficient administrative capacity to carry out a He could not afford to stay unemployed, so every day program? Does the program fit into existing informal, you find him on the street corner selling fruit. The as well as formal, market-based mechanisms of risk money he earns is crucial to his family's survival, but management? Or, is there a risk of disrupting or dis- falls well short of supporting their previous lifestyle. placing existing mechanisms such as transfers between They have cut many expenses, at times even for food. family members? Is the program attuned to the prevail- They did not seek the help of a doctor when one of the ing norms and culture? children was sick. Capio is now considering taking his younger son out of the private school and putting him Lund into public school. He is hoping that his brother who Lotte works for a construction firm in Saudi Arabia will make good on his offer to help pay for the tuition of the older Photo: son set to enter college this June. Otherwise, the boy may have to quit school for a while. Capio's story shares many characteristics with the stories of other unemployed workers in the Philippines. Over the last decade, the unemployment rate has been around 10 percent ­ significantly higher than in other Southeast Asian countries. And, like Capio, many workers have only limited means to cope with unemployment. Workers employed in the formal sector rely on severance Milan Vodopivec pay although it is often difficult to obtain if their former examined policy employers face bankruptcy or are unwilling to pay. option for assisting Even then, such workers are better off than the informal sector workers for whom there is little or no protection. unemployed workers in the Philippines. * A composite character 29 "The question Unemployment Individual Savings Accounts (UISAs) -- An Idea Worth Considering? The World Bank team recommended that policymakers explore the possibility of establishing individual savings of choosing the accounts. Aimed primarily at formal sector workers, these accounts could be drawn on in periods of unem- ployment or could also be designed to assist workers in coping with other needs such as health care, education, right program and income for retirement as well. "Unemployment Individual Savings Accounts are very much a new idea and, frankly, this remains an innova- tion that will require a great deal of on-the-ground test- for the ing. Under UISAs, firms and employers are required to deposit a fraction of workers' earnings into a special sav- ings account," Vodopivec explains. "Upon separation and regardless of the reason for separation, workers are unemployed then entitled to draw upon their savings." On the positive side, it is expected that by internalizing the costs of unemployment benefits, the system avoids the is very complex." "moral hazard" inherent in the traditional unemployment benefit schemes ­ workers who choose to stay unem- ployed in order to collect benefits. Given the weak moni- toring capacity of the Philippines, this is a very important advantage, according to Vodopivec. He also argues that the administrative capacity for introducing such a system does not stand out as prohibitive. Pension systems, for "Developed countries use unemployment insurance (UI) example, require similar information systems. as the primary means of income protection of the unemployed. In these countries, UI has different objec- Another important consideration is the potential savings tives, but is not primarily an anti-poverty program. In in litigation costs. Because workers can access the sav- low-income countries where the poverty problem is so ings accounts even when they leave a job voluntarily, the much more pressing and where public policy must system could cut down on the court costs and long choose its priorities more selectively, unemployment delays that often accompany disputes about severance insurance programs may make less sense," explains pay which generally are only available to workers who Vodopivec. "By its very nature, UI is unlikely to benefit have involuntarily lost their job. Finally, workers would the poorest workers. Moreover, these programs are sup- monitor their own individual accounts, effectively avoid- posed to offer benefits only to those not working. In a ing the problem of employers who do not make their poor country with a large informal sector, is it impossi- contributions under traditional schemes. ble to properly monitor UI claimants and, in any case, do we want to discourage informal employment as a Vodopivec is not blind to the UISA systems' most means to cope with formal unemployment? There important shortcoming ­ the fact that it does not pool may be other approaches that offer higher welfare gains, risk among individuals the way an insurance scheme especially to the poor and that do not displace existing would. This is especially a problem for young workers social protection mechanisms." or labor force entrants who are not able to accumulate enough savings at the time of separation from work to "After an in-depth analysis of the different options avail- tide the worker and his household over during the peri- able to unemployed workers in the Philippines, it was od of unemployment. To mitigate the absence of risk clear that no program offered a single superior policy pooling, UISAs can be designed so that the government recommendation," says Vodopivec. He and the team lends money ­ within certain limits ­ to the accounts nonetheless drew policymakers' attention to the possibil- where the balance falls to zero. At retirement, positive ity of a two-pronged approach that would enhance balances can be added to individual's retirement income income protection for the unemployed as well as reduce and negative balances forgiven. It is also conceivable the risk of becoming unemployed. Their recommenda- that such savings accounts could be extended to non- tions also included interventions targeted to informal regular workers and workers engaged in the informal sector workers. sector, but that would require government incentives for those workers to join the program. Finally, precautions should be taken to prevent politically motivated invest- ment of accumulated funds, Vodopivec warns. 30 The Informal Sector One option for informal sector workers - but not limit- ed to them ­ is the enhanced use of public works pro- grams. These programs usually have multiple objectives, although the functions of income support and the con- Preventing Future Disinvestments struction of infrastructure ­ such as building or repair- Providing some means of income support to the unem- ing new schools, hospitals, and roads ­ are usually ployed is a critical step in managing risk, as outlined in emphasized. the World Bank's Social Protection Strategy Paper. Programs must provide support to unemployed individ- Whereas traditional construction firms may spend less uals facing hardship before their struggle to make ends than 10 percent of the total project budget on labor, a meet forces choices that impair their long-term earnings well-designed public works program can adopt labor- and human development potential. Well-targeted public intensive methods in order to provide more people with works projects and individual savings accounts may have jobs and save money on heavy machinery. "For example, the potential to do this for Filipino workers. for a subset of labor-based public construction programs of nearly 10 billion pesos or around US$200 million in It is just such a dilemma that Capio considers as he sits on the year 2000, the Philippines Department of Public the street corner in Manila. His own father was a poor Works and Highways estimated it would be able to hire farmer and was unable to send him to college. He now 45,000 workers, three times more than if standard tech- worries that his own sons may fall victim to the same trap. nology was used," Vodopivec says. Adopting the right mix of programs that is feasible, sus- Using more workers and less equipment is only one of tainable, and adequate to help unemployed workers the design issues confronting policymakers implement- such as Capio is a great challenge but one that is critical ing public works. Vodopivec explains, "the programs for the future of his country. need to be made self-targeting based on low wages, and to the extent possible, they should be broken into small contracts to provide entry-points for small contractors that have not sunk too many costs in machine-intensive construction technologies." It is equally important to promote demand-driven mechanisms for the allocation of public works. This can be achieved even among the poor communities by tap- ping the local routines of collective action or bayanihan. There are numerous examples of bayanihan to mobilize labor for the common good, such as maintaining collec- tive amenities like local roads and irrigation ditches, bringing in the harvest before the coming of the rains and, in the case of coastal villages, hauling in the catch from the sea. Fruit seller on a street in Manila. 31 A Realistic Approach to Active Labor Market Programs by Amit Dar What policymakers should know before acting on behalf of disadvantaged workers The Roles of the Public and Private Sectors Active Labor Market Programs (ALMPs) ­ it sounds The role of the public and private sector is a key consid- right. What policymaker does not want to be "active" eration in developing an overall strategy and in design- in her policies? But are these programs that include a ing and implementing programs. At one time among wide range of activities such as training, job creation, and OECD countries, the public sector developed and deliv- job search assistance any good? Do they actually increase ered virtually all ALMPs, but governments have increas- the employability and income of workers? ingly reconsidered the respective roles of the public and private (and non-profit) sectors. In many countries, Evaluations of the economic impact of ALMPs are, at possibilities have opened up for the other sectors to play best, mixed, with many programs assessed to have little important roles, at least in the delivery of services. This or no impact on the employability or earnings of partici- can lead to more diverse, innovative, and cost-efficient pants (see table). On the other hand, ALMPs can serve services and to programs that are more closely oriented important social objectives such as integrating marginal- to labor demand. However, even where the scope for ized groups into the labor market and promoting social private sector involvement is considerable, governments cohesion. Recent World Bank studies evaluating the should retain the central role. They must be responsible impact of active labor programs recommends consider- for the overall system, ensuring that it remains focused ing the following issues carefully before designing and on public priorities. They must also address distribu- implementing active labor market programs. tional issues (e.g. adequate services for all types of work- ers) and provide critical public goods, that is, products Priority Setting or services benefiting the community as a whole. ALMPs can have various policy objectives, including Governments must also be the catalyst for harnessing reducing unemployment in cyclical downturns, correct- private sector involvement and other aspects of active ing structural imbalances, improving labor market func- labor market policy. tion, and assisting disadvantaged groups of workers. In designing an overall strategy, it is important to identify Promoting Partnerships and Dialogue which of these are the priority objectives because the The identification of priorities for ALMPs will benefit objectives should determine the program choices and from ongoing dialogue between government, business, program design. Regardless of the specific objectives, labor, and other relevant organizations (e.g. service one immediate priority should be to develop a strong providers). When this dialogue is conducted effectively, employment service, the first link in the ALMP chain. policymakers can maintain a close connection with the needs of the labor market and can maximize support for ALMPs. The dialogue needs to be carried out both at the level where priorities are set (e.g. nationally) and where programs are delivered (e.g. locally). Governments typically lead this dialogue. "Infrastructure" for the Labor Market Critical infrastructure services include labor market information; a viable network of employment service offices; and certification and accreditation systems. Such services, inevitably the responsibility of govern- ments, provide links between the labor market, service deliverers, workers, and employers. In countries where the development of active labor market programs is at an early stage, these services should be the first priority. Such infrastructure also is essential for future policy formation. itlin W y 33 Ra Photo: Coordination within Government Monitoring and Evaluation In many countries, ALMPs are complicated by the fact Monitoring and evaluation deserves special emphasis. that many government agencies are involved and coordi- In spite of the large public expenditures on ALMPs in nation among them is insufficient. There are two prob- OECD countries, rigorous evaluations of these pro- lems associated with this coordination issue. First, mul- grams have been relatively uncommon. In an effort to tiple departments often are responsible for various improve the targeting and efficiency of social programs, aspects of active labor market programming and mecha- sound impact evaluation techniques should be used to nisms are not in place to ensure that they are working evaluate active labor market programs. A good evalua- together in an efficient manner, often leading to a dupli- tion compares labor market outcomes for individuals cation of effort. Second, priority setting and program- who have gone through a particular program with those ming of ALMPs are often not coordinated with overall of a control group. A good evaluation also utilizes data economic planning. Both of these problems need to be on program costs to attempt to answer questions such addressed through intra-government coordination to as: What are the impact estimates of the program on the ensure the relevance and efficiency of active labor mar- individual? Are the impacts large enough to yield net ket programming. social gains? Is this the best outcome that could have been achieved for the money spent? Policy and Administrative/Operational Capacity Designing and implementing ALMPs requires consider- There are clearly many considerations involved in devel- able administrative capacity within government. In oping a strong active labor market policy. Nevertheless, many ways, this is a more complicated area than "pas- over the long run, building ALMP capacity will be sive" income support programming. Capacity require- important as formal labor markets grow and as a skilled ments differ significantly by program. For example, workforce becomes more important. Policymakers public works can be relatively straight forward to design should not be discouraged from adopting ALMPs and implement. As a consequence, they are often the despite their disappointing performance in the aggre- major active labor market interventions in many devel- gate. Well-designed programs can improve employment oping countries. On the other hand, employment serv- opportunities for some workers, particularly women and ices require a lot: a network of facilities with extensive youth. The challenge is to learn from existing experi- geographic coverage; the resources (technological and ences and innovations and to direct future programming know-how) to generate and disseminate accurate and along these lines. timely labor market information; skilled counselors; and reliable connections with the employer and educational This article draws upon the following studies: (a) Active communities. Training programs also require labor mar- Labor Market Programs: A Review of the Evidence from ket information plus training and occupational stan- Evaluations (by Amit Dar and Zafiris Tzannatos); (b) dards, monitoring and evaluation capabilities, and the Active Labor market Programs: Policy Issues for East Asia capacity to deliver good programs. Governments must (by Gordon Betcherman, Amit Dar, Amy Luinstra and recognize that capacity building is a slow, but essential Makoto Ogawa). Both these studies are part of the Social process. Protection Discussion Paper Series and are available at: http://www.worldbank.org/labormarkets. Financing ALMPs The starting question here concerns the balance of public and private financing. Clearly, the rationale for public spending is strong: market failures exist with respect to human capital investments and there is a public good element to ALMPs. However, there are also private gains afforded to employers and employees as a result of train- ing and other interventions. Governments need to think about how this can be reflected in financing of ALMPs. They should consider the applicability of innovative financing arrangements (e.g. income-contingent loans) that address market imperfections, but reflect the private- return aspect of ALMPs. In terms of public financing, the essential choice for policymakers is to draw from general revenues or to finance ALMPs through ear- marked funds based on employer and perhaps employee contributions. There are important considerations attached to each relating to fungibility, responsibility for labor programs, funding integrity, and incentives for for- mal employment creation. 34 Overview of ALMP Evaluation Results Program Appear to Help Comments Job-search assistance/ Adult unemployed generally when Relatively more cost-effective than Employment Services economic conditions are improving; other labor market interventions women may benefit more. (e.g. training) ­ mainly due to the lower cost. Youth usually do not benefit. Difficulty lies in deciding who needs help in order to minimize deadweight loss. Training of long-term unemployed Women and other disadvantaged No more effective than job search groups. assistance in increasing re-employment probabilities and post-intervention earnings. 2-4 times more costly. Retraining in the case of mass Little positive impact ­ mainly when No more effective than job-search layoffs the economy is doing better. assistance and significantly more expensive. Rate of return on these programs usually negative. Training for youth No significant impact. Employment/earnings prospects not improved as a result of going through training. Taking costs into account, the real rate of return of these programs is negative. Employment/Wage subsides Long-term unemployed in providing High deadweight and substitution an entry into the labor force. effects. Impact analysis shows treatment group does not do well as compared to control. Sometimes used by firms as a permanent subsidy program. Public works programs Severely disadvantaged groups in Long-term employment prospects not providing temporary employment helped: program participants are and a safety net. less likely to be employed in a normal job and earn less than do individuals in the control group. Not cost-effective if objective is to get people into gainful employment. Micro-enterprise Development Relatively older groups; the more Very low take-up rate among Programs educated. unemployed. Significant failure rate of small businesses. High deadweight and displacement effects. High costs ­ cost-benefit analysis rarely conducted, but sometime show cost to UI budget higher than for control group 35 A New Vision of Policy after the Crisis: EU and Japanese Government Support World Bank and ILO Research on East Asian Labor Markets G rowing unemployment, precipitous deteriora- tion of wages, burgeoning informal sectors, by Amy Luinstra and immediate strain on existing social assis- tance programs ­ there is no question that the 1997 Two major research projects materialized from this financial crisis sharpened the focus of policymakers in effort, both substantially funded by the Asia-Europe East Asia. Long relying on economic growth to provide Meeting (ASEM) trust fund of the European Union. social protection, government officials now confronted The first was a collaborative effort with the ILO, the the urgent need to assist workers directly. They did so Japanese Ministry of Health, Labour, and Welfare through various means: scaling up or developing new (JMHLW), and the Japan Institute of Labour to exam- public works programs; establishing microcredit ine the regional impacts of the crisis and their policy schemes; offering retraining opportunities; and expand- implications. This project included national assessments ing job search assistance. in each of the five "crisis" countries (Korea, Malaysia, Indonesia, Thailand, and the Philippines) and a series of These programs, often hastily implemented, met with international policy papers. This work was discussed at varying degrees of success. The need to evaluate pro- a meeting in Tokyo in October, 1999. The success of grams and examine options for effective long term labor the Tokyo event created demand in the region for fur- market policy with "new eyes" was apparent. In this ther and more applied examination of employment pro- context, the World Bank embarked on a collaboration grams. This took place at a follow-up workshop in with the International Labour Organization (ILO) to Manila hosted by the Philippines Department of Labor study the impact of the crisis on the labor markets, poli- in March 2001. cy responses of the governments, and the lessons emerg- ing from this experience. The Tokyo and Manila workshops were attended by rep- resentatives of trade unions, employers' organizations, and government labor ministries from each of the five crisis countries and Japan, as well as resource persons from academia and international organizations. Intense discussion yielded consensus on the main components of a strong labor policy framework. Such a framework should include: active labor market programs, human resource development, a social safety net for workers, and appropriate labor laws and standards. Striking the right balance among these components requires close attention to the labor market situation and unique insti- tutions in each country. The final conference papers from Tokyo have now been jointly published by the World Bank and the ILO. (Betcherman and Islam, ed., 2000, East Asian Labor Markets and the Economic Crisis: Policies, Responses, & Lessons). Papers presented at the Manila workshop are currently undergoing revision and will be published later this summer. Kunihiko Saito, President of Japan Institute of Labour. 36 "The voyage of The second project, led by the Korea Labor Institute and the World Bank, brought together a number of the region's foremost experts and international researchers to assess the labor market reforms in Korea following the discovery is crisis. As a leader in the region, the Korean experience with labor market reform has held great interest for countries in East Asia. In May 2000, a comprehensive set of background papers on this subject was discussed in Seoul at a workshop attended by a tripartite delega- tion from Korea, participants from other governments not in seeking in the region, think tanks, academic institutions, and international organizations. The book from the Seoul conference was jointly published by the Korea Labor Institute and the World Bank (Par, Park, Betcherman, new landscapes, and Dar, Labor Market Reforms in Korea: Policy Options for the Future, available at http://www.kli.re.kr.) but in having The East Asian crisis likely has changed the way policy- makers view the role of labor market policies and pro- grams in their countries. "New eyes" focus now on new possibilities for developing a skilled workforce, easing the new eyes." transition between jobs, supporting unemployed and informal sector workers, and crafting labor market regula- tion to support both job creation and worker protection. It took more than one set of eyes to envision these possi- bilities. This exciting progress in thinking about labor Marcel Proust market policy in East Asia required collaboration among many institutions and individuals. Many thanks to the EU, ILO, Korea Labor Institute, Japan Institute of Labour, JMHLW, Labor Ministries, trade unions, and employer's associations of the five crisis countries and all others involved in making these projects a success! These key players are discussing future cross-country tri- partite workshops to further labor policy formation and implementation in the region. To order the book from the Tokyo conference, East Asian Labor Markets and the Economic Crisis: Policies, Responses, & Lessons, visit a World Bank Info Shop or order online at http://www.worldbank.org/publications. 37 Employment Services @ Your Fingertips by Knut Leipold Information and Communication Technology (ICT) is playing an increasingly important role in the delivery of Public Employment Service (PES). In many countries, labor market information is being collected, stored, processed and disseminated with the help of automated systems. Such automation results in better operational performance of PES providers and improved quality of their program delivery. Many OECD countries have already explored the potential of ICT for electronic PES delivery. They have moved pub- lic employment services online providing information as well as self-service transactions, e.g. job matching services through the Internet. Some developing and middle-income countries such as the Philippines and Poland are fol- lowing suit. In Poland, for example, the Automation of Labor and Social Welfare Offices (ALSO) project included the automation of some 450 local labor offices throughout the country. As a result, the processes of job matching, voca- tional training, and unemployment insurance claim filing are now supported by ICT. ICT offers potential not only for automating administrative and operational processes, but transforming the process- es and organizational structures of PES providers. This allows PES providers to offer services on a one-stop basis. Instead of having to contact different departments for registration, job matching, career counseling, and benefit claim filing, job seekers can now be provided all the information at one place through an integrated ICT system. Besides increased operational performance and improved quality of service delivery, the customer-centered, one-stop approach results in higher level of customer satisfaction and improved reputation of the labor office. In Turkey, the Automation of Local Labor Offices Project (ALLOP) is a good example of integrated PES delivery. ALLOP includes an integrated ICT platform through which one employee is the contact partner for all requests of a job-seeker, including labor market information, career couselling services and unemployment benefits. The integrated sytem is uniform in all 117 local labor offices which are linked through a wide area network. Thus, labor mobility is sup- ported by providing the possibility to match jobs with job-seekers throughout Turkey in real time. In addition, the ICT system improves the process of collecting, processing, and distributing statistical labor market data which can be consolidated and delivered to policymakers through electronic channels. Are developing countries poised to take advantage of these technological advances? Initial indications seem to be positive. While internet penetration rates in many of these countries are low, PES providers are adopting alternative innovative delivery approaches. Mobile service centers, i.e. vans with a satellite dish and computer technology, are being used in countries like Brazil to reach out to rural areas. Radio browsing is another method where broadcast stations use the Internet to deliver information in local language through community radio channels (e.g. Sri Lanka). Policymakers in some developing countries are also thinking about using call centers or self-service kiosk systems in public places, such as shopping centers, libraries, telecenters, and schools to deliver these services. 38 World Bank Labor Markets Lending Lending for labor markets is an integral part of lending in the social protection sector. Figuring the total amount of such lending, however, is difficult. First, financing for labor market components often occurs in other sectors ­ rural (e.g. support for labor intensive public works), mining (e.g. labor redundancy support) and finance (e.g. micro-enter- prise development support). Second, only a portion of a loan may be used on labor related activities and it is often hard to identify these amounts. Nonetheless, it is possible to derive rough estimates for labor market lending. The graph below highlights the growing importance of labor markets in Bank operations ­ both in terms of financing as well as number of loans with significant labor market components. Between 1992-94, on average, the Bank lent US$118 million annually for labor market related components with nine projects on average having significant labor market components annually. By the end of the decade (1998-2000), these numbers had risen to $520 million and 17 respectively. Lending for Labor Markets (FY92-00) 600 20 500 15 400 number (millions) 300 10 $ 200 5 100 0 0 1992-1994 1995-1997 1998-2000 Fiscal Year Average Number of Loans Average Lending 39 Labor Core Course Participants "We wanted to design a course that would provide participants a solid grounding in the key issues that arise in the labor market." 40 Cutting to the Core of the Issues Success of New World Bank Labor Market Policies Course builds on knowledge sharing. Question: Skills Development for How do you ensure that a group of 60 people from 25 Competitiveness ­ market for developing and developed countries spend two weeks at training and skills, its consequences the Bank and come out feeling that they've learned for earnings and productivity, and something worthwhile? alternative policies for financing and delivering training to formal and Answer: informal labor markets. Put them through the Labor Core Course, of course!! Emerging Labor Market Topics ­ social protection for the informal The World Bank's pilot Labor Market Policies training sector and vulnerable groups, labor course (also referred to as the Labor Core Course) was market regulation and core labor held from April 23 to May 4, 2001. This course was standards, the role of labor unions, jointly organized by the Social Protection (SP) Team, child labor and discrimination. the World Bank Institute (WBI) and the Development Economics Group (DEC). "We wanted to design a The course emphasized the design and course that would provide participants a solid grounding execution of government policies to in the key issues that arise in the labor market. Our address key labor issues and the role for Hong Tan, one of the course organizers goal was to provide participants with cutting edge non-government interventions. Case and Nazoria Baharudin, participant knowledge, good practices, and analytical tools on labor studies were used to expose participants policies and programs to enable them to design appro- to policy instruments that different from the Malaysian Ministry of priate labor policies and interventions aimed at poverty countries have used as well as to put Human Resources. reduction and economic growth," says Michelle Riboud, what they had learned into practice. manager of WBI's Human Development Division. Realizing that in-depth analysis of all topics would not be possible, the organizers assembled a comprehensive binder Planning for this course started last fall. The co-coordi- of reading materials which would allow interested partici- nators of the course, Gordon Betcherman (SP) and pants to delve deeper into the topic of their choice. Hong Tan (WBI) organized a series of brainstorming meetings with labor market experts across the Bank to The resource people assembled for the course included develop an agenda that would meet the needs of a leading experts on labor market issues from the World diverse group of participants. Based on these consulta- Bank as well as academia. The International Labour tions, it emerged that the course should focus on four Organization (ILO) provided its leading experts to act as crucial areas of policy concern in the labor market ­ resource persons on various issues covered in the course. unemployment and under-employment, labor misalloca- tion, low levels of skills development, and inadequate The course attracted over 60 participants representing and exclusionary social protection. Four modules were close to 25 countries from all over the world, with a developed to focus on these issues. These included: wide spectrum of organizations and expertise ­ senior policymakers, technical staff of government agencies, Active and Passive Labor Market Policies ­ poli- academic researchers, trade unions, and staff from the cies to assist the unemployed, through retraining, World Bank and both bilateral and multilateral donor job search/matching, and direct employment cre- agencies. ation, or through income support and unemploy- ment benefit schemes. Labor Retrenchment Policies ­ policies to deal with labor adjustment issues associated with privati- zation, restructuring of state-owned enterprises and downsizing. 41 The course led off with a provocative keynote address by learned during the course in their own countries. Richard Freeman of Harvard University which set the Participants also felt that the course had provided them tone for the remainder of the course. The main theme with an invaluable opportunity to network with profes- of this talk was diversity. Professor Freeman argued that sionals from all over the world who dealt with labor the diversity of institutions and market settings is crucial market issues on a daily basis. to successful labor market policies. He cautioned that while market economies need basic economic freedoms, The organizers expressed satisfaction with the outcome there is no blueprint or template of institutional struc- of this pilot course. Furthermore, according to Tan, "a ture or policy package that will fit all countries. very valuable externality from the course was that the Freeman stated that while it is very useful to learn from interaction proved to be very beneficial ­ not only to other countries' good practices, each country will need participants but to Bank staff as well. Bank staff learned to develop labor policies and interventions based on from the participants country experiences and expertise their specific macro, social and labor market conditions. and we will attempt to apply what we have learned from This message resonated well with participants and was participants in providing advice to countries." reinforced in the discussions on the four sets of modules over the following two weeks. WBI, SP and DEC are keen to develop this collabora- tion further and offer labor market courses in the future. Right from the beginning, participants demonstrated a The organizers agreed that they had learned valuable les- keen interest in the issues. All sessions were peppered sons from this pilot course which they would take into by thoughtful and incisive questions and comments by account when offering such courses in the future. "It is the participants. "We had hoped that these two weeks clear that there is a great demand for labor markets would provide participants with ample opportunities to training provided by the World Bank, and we will strive interact professionally ­ not only with the resource per- to enhance the quality of the course to serve our clients sons ­ but also with each other and learn from other better," says Tan. Adds Betcherman, "in terms of con- countries experiences in designing labor policies and tent, issues such as those relating to the informal sector programs," says Tan. "I am delighted to say that this is will have to be given more prominence in the future. In exactly what happened. The collegial atmosphere, high terms of delivery, we need to work more closely with level of interaction and tone of debate ensured that the other partners in course design and delivery. We also sessions were lively and benefited all involved." need to create more time to tap participants skills and weave their knowledge into the learning experience. Participants were told to organize themselves into There could be more time allocated to participant-led groups, pick a topic of interest, and make a presentation sessions and these might be integrated thematically into on that topic on the last day, applying what they had the program. Adapting our material to distance learning learned during the course and based on their own and to regional courses is an obvious next step." expertise and knowledge. Participants broke up into four groups and chose the following topics ­ interven- What will these three groups be up to next? Stay tuned tions for enhancing productivity and social protection at: http://www.worldbank.org/labormarkets and for the informal sector; a case study of the informal sec- http://www.worldbank.org/wbi/labormarkets. tor using Peru as an example; effectiveness of training levies; a case study of minimum wages using South Africa as an example. "These presentations were excellent. I was delighted that participants from such diverse backgrounds came together to discuss these issues and put up such excellent material, and that too in such a short period of time. What was also very satisfying to the organizers was that these presentations demonstrated that participants had taken away something useful from the course," says Betcherman. Participants were also appreciative of the quality of the course, as evidenced from the feedback received from evaluations. Most participants felt that the course was of great interest and relevance, with high quality presen- tations and discussions and excellent logistical arrange- ments. While some felt that they would have wanted to go into some topics in more depth, most agreed that the course covered a large breadth of issues in a very stimu- lating manner and hoped to apply what they had 42 Meet the World Bank's Labor Markets Team T he Labor Markets Team consists of specialists working in the Social Protection Unit of the Human Development Network. Staff have wide-ranging experience in all regions. The Labor Markets Team identifies key issues for client countries and provides staff with up-to-date and accessible infor- mation on labor market interventions. The Team's strength is its capacity to bring together, evaluate, and disseminate empirical, cross-country experience and best practices. With its strong relationships with the International (left to right) Amit Dar, Makoto Ogawa, Sudharshan Canagarajah, Gordon Labour Organization (ILO), trade unions and employer Betcherman, Knut Leipold, Amy Luinstra, Milan Vodopivec organizations and other external partners, the Labor Markets Team can guide staff in building collaborative partnerships. The Team also works closely with labor market experts throughout the Bank and actively partici- Labor Standards ­ technical assistance in labor pates in a cross-network thematic group to share research market regulation including labor codes and and ideas on newly emerging themes in labor markets. employment standards. Other areas ­ the Labor Markets Team also address- The work of the Labor Markets Team supports World es other issues including the special concerns of vul- Bank staff and client countries through the following nerable groups such as women, children, and youth activities: and the use of information technology in program Research and Analysis delivery. Training Courses and Seminars Operational Support Quality Assurance Developing Collaborative Partnerships Areas of expertise of the Labor Markets Team Priority areas for research and operational support are determined by the needs of client countries. The Labor Markets Team has expertise in the following areas: Active Labor Market Programs ­ program design and evaluation techniques for employment services, training, and job creation/maintenance schemes. Vocational Education and Training ­ reform and program design to maximize the effectiveness and efficiency of vocational education and training systems. Income Support for the Unemployed ­ appropri- ate policy choices to meet the needs and fit the cir- cumstances of client countries. Industrial Relations ­ technical support on engag- ing trade unions and employer organizations in social dialogue in order to maximize participation http://www.worldbank.org/labormarkets and effectiveness in economic and labor market policymaking. Informal Labor Markets ­ development of sound social protection policies for the vulnerable workers of the informal market. 43 SPectrum's Resource Guide Labor Market Team Publications: East Asian Labor Markets and the Economic Crisis: Impacts, Responses & Lessons This joint publication of the World Bank and International Labour Organization is available for purchase on the web at: http://www.worldbank.org/publications. Labor Market Reforms in Korea: Policy Options for the Future This joint publication of the World Bank and Korea Labor Institute is available on the web at: http://www.kli.re.kr. 2000/2001 Social Protection Discussion Papers related to Labor Markets: Labor Markets in Transition Economies: Recent Developments and Future Challenges Social Protection Discussion Paper No. 0111; Publication Date: 04/01 Programmes Actifs Pour Le Marche Du Travail: Un Aperçu General Des Evidences Resultant Des Evaluations Social Protection Discussion Paper No. 0105; Publication Date: 01/01 Long-term Consequences of an Innovative Redundancy-retraining Project: The Austrian Steel Foundation Social Protection Discussion Paper No. 0103; Publication Date: 01/01 Worker Reallocation During Estonia's Transition to Market: How Efficient and How Equitable? Social Protection Discussion Paper No. 0018; Publication Date: 07/00 Ratcheting Labor Standards: Regulation for Continuous Improvement in the Global Workplace Social Protection Discussion Paper No. 0011; Publication Date: 05/00 Active Labor Market Programs: Policy Issues for East Asia Social Protection Discussion Paper No. 0005; Publication Date: 01/00 Please note that all Social Protection Discussion Papers are available on the web at http://www.worldbank.org/sp. For additional labor markets-related publications, please visit the World Bank Labor Markets website at http://www.worldbank.org/labormarkets. Questions and requests for free copies of publications concerning the World Bank's work in Labor Markets and other Social Protection issues may be directed to: Social Protection Advisory Service The World Bank 1818 H Street, N.W., Room G8-138 Washington D.C. 20433 U.S.A. Telephone: + 1 202 458 5267 Fax: + 1 202 614 0471 e-mail: socialprotection@worldbank.org SPectrum is published four times a year by the Social Protection Unit of the World Bank. SPectrum is intended to raise awareness, enliven debate and present the latest thinking around social protection issues, including child labor, labor markets, pensions, social funds and social safety nets. The views presented in the articles are solely those of the authors and do not reflect the views of the World Bank. Articles appearing in SPectrum may be reproduced or reprinted provided the author(s) and SPectrum are cited and a courtesy copy is provided to SPectrum. Submissions, letters and story ideas are welcome and may be sent to: Lotte Lund, Editor Social Protection Unit The World Bank 1818 H Street, NW Washington, DC 20433 USA Tel: +1 202 473 1143 Fax: +1 202 522 3252 Email: llund@worldbank.org Social Protection Human Development Network The World Bank 1818 H Street, NW Washington, DC 20433 USA